When it comes to pensions, there’s bound to be at least one option from a wide range best suited to an individual.
However, recent research from Unbiased.co.uk has found that one fifth of UK adults have no pension savings at all.
There’s many reasons why people don’t pay into pensions. But the validity of these excuses is questionable.
Here’s a few of the most common ones… and our approach to each!
“I want to live in the moment and enjoy each day as it comes- I could be dead tomorrow”
Life expectancy is rising, so although there is always a chance that the worst might happen before you are of pension age, you’ll more than likely live many years into retirement.
You may have a lot of fun living in the moment, but when you’re no longer able to work and have gone into retirement unprepared, you may be disappointed when you suddenly have to live off the State Pension, which may be significantly less than the working income you received.
Plus, with many pensions, you can pass pension money onto your beneficiaries if something were to happen to you. In fact, if you die before 75, many pensions can be passed on tax-free.
“I’m too late- there’s no point me starting now”
Is there an unofficial age limit for when it is ‘too late’ to start saving into a pension?
People definitely seem to think this is the case, with 17% of Brits aged 55+ admitting to having no pension savings (other than state pension)
Even if you manage to put a small amount away into your pension, then at least you have another form of retirement income you can rely on.
“I’m too young- I don’t need to worry yet!”
Now to the other end of the spectrum.
24% of Under 35s have no pension savings, despite being the age where they can benefit from auto-enrolment in workplace pension schemes.
The earlier you start saving for retirement, the longer your funds have to grow and you should save more money. In certain funds, some values can double in growth over a ten year period.
Starting early also means you won’t have to make huge contributions to have the desired amount for retirement.
It must also be remembered that State Pension age keeps rising, so it’s likely that today’s younger people (in their 20s and 30s) will need alternative pension savings they can access in early retirement, to avoid having to rely on the State Pension to support their retirement plans.
Irrespective of the state pension age increases – who knows if the State Pension will even be around by then? It’s often safer to plan for the worst-case scenario.
“I’m a Non-Taxpayer”
There’s a misconception that if you’re a non-taxpayer, you cannot benefit from tax relief on pension contributions.
This is false.
If you have a personal pension or stakeholder pension where you make your own contributions, the Government will contribute an extra 20%.
The annual limit is currently £3,600 gross, meaning you can put in a maximum net amount of £2,880 a year. This is then topped up with £720 of tax relief from the Government taking you to the £3,600 limit.
“I don’t have enough spare money to put into a pension”
What is your definition of ‘enough’? Any amount you contribute will be beneficial to you in the future, especially when taking into account tax relief and investment growth.
A small pension pot can double over a ten year period, so any contributions made in younger years may hold more value than you think. If you invested £5,000 at age 20, you could have £80,000 by age 70.
That’s nothing to turn your nose up at!
“I’m self-employed- how would it work?” …. ‘I’m self-employed, so it’s harder for me’
It’s still equally, if not more, important to save into a pension if you’re self-employed.
Although you may not benefit from employer contributions, you can still get tax relief when you save into a personal pension.
Additionally, if your business is set up as a Limited Company, you can still make employer contributions and benefit from tax advantages.
“I haven’t had time”/”I haven’t got round to it just yet”
This is a cop out excuse, mainly made by those who don’t know enough about pensions, or simply just don’t care.
The only person affected by this is the person themselves. It’s unlikely that they’ll be able to live the life they want in retirement!
Remember, the longer a person waits without contributing to a pension, the higher the contributions they’ll have to make to get their desired amount.
“I don’t need to save up myself, because of the State Pension”
According to the research, 45% hoped for a retirement income of £20,000+ per year, and 61% hoped for at least £10,000.
The main issue here- the maximum State pension is a meagre £9,110 a year.
There’s also a lot of pressure on the State Pension, so who’s to say it will still be around in a decade or so? Maybe even less!
Unless your ideal retirement includes low cost activities and limited holidays, the State Pension will NOT be enough.
So what are the real dangers here?
The research found that many have inadequately prepared (if at all) for retirement.
When they reach retirement, these people may be in for a nasty surprise when they realise what they may get may not match their expectations.
Do the right thing for future you, and start contributing to a pension if you haven’t done so already.
Setting up and organising pensions really isn’t that difficult, especially if you seek advice from a professional.