Why save into a pension? The State will take care of me.
Millions of people are not saving enough for retirement, believing that The State will take care of them, and that pensions are complicated.
Whilst your State Pension provides a foundation, many people find that it is not enough to live on. The maximum new State Pension for 2020-2021 is £175.20 per week, or £9,110.40 a year, which is far below what most people say they will need or want in retirement. You might be entitled to more than this if you have built up entitlement to ‘additional state pension’ under the old pre-April 2016 system.
Don’t rely on the State Pension to keep you going in retirement.
So what are your choices if you want to retire on a higher pension? Well you can:
- Retire later
- Adjust downwards your expectations of what you’ll be able to afford in retirement
- Start saving
So what is a pension and what are the advantages?
Basically, a pension is a long term savings plan, which have a number of advantages, that can make your pension grow quicker than may otherwise be the case. The contributions that you put in, qualify for tax relief, which means that some of your money that you would pay to the government in tax on earned income, goes straight into your pension instead. Even if your earned income is too low for you to pay tax, you can still get tax relief on contributions into personal or Stakeholder Pension schemes.
Another advantage is that if you save through a scheme known as a defined contribution’ pension scheme, then your regular contributions are invested so that they grow tax free throughout your career and then provide you with an income in retirement.
Generally, you can access the money in your pension pot from the age of 55, although this is changing to age 57 from 2028
Can my Employer pay into the pension?
To help people save more for their retirement, employers are now required to enrol their workers into a workplace pension scheme. This is called ‘automatic enrolment’.
If your Employer pays into a pension scheme for you, unless you really can’t afford to contribute or your priority is dealing with debt, staying out would be like turning down the offer of a pay rise.
Of course, if your employer will contribute to your pension regardless of whether you pay into it, then you should join the scheme whatever your financial circumstances.
Where can I get advice about my pension?
You can get advice about your pension arrangements by speaking to a financial adviser who is authorised and regulated by the Financial Conduct Authority (FCA). If you do not already have a financial adviser, you can click here for guidance from the FCA on finding a suitable adviser.