Believing myths about pensions can lead to making ill-informed decisions about funding your retirement. It could result in you not being able to afford the retirement you hope for. So, we’re dispelling some of these myths in this article. We aim to help you understand the world of pensions a little more by explaining the truth around some common myths.
Myth 1: The State Pension will be enough to finance my retirement
As of April 2024, the UK State Pension is £221.20 per week. That equates to £11,541.90 per year. For many this will be a reduction in income from working days. With the increased cost of living, this is likely to require an adjustment of lifestyle. It is also worth remembering that to be eligible for a full State Pension, you must have 35 years of National Insurance contributions.
Since 2012, many employees are enrolled automatically into their employer’s chosen workplace pension scheme. You can read more about this scheme in our previous blog post. Your contributions are taken from your salary before tax, meaning you pay less tax, and your employer contributes too. The introduction of workplace pension auto-enrolment means that for many, they will not have to solely rely on the State Pension to fund their retirement.
Additional savings and investments, including personal pensions and cash ISAs, will also boost your retirement fund.
Myth 2: I’ve moved jobs since 2012 and have no idea who my previous workplace pension providers were, so that money’s now lost
Research by Gretel shows that around £37bn in pensions is “lost” in the UK, with 44% of UK adults thinking they may have lost one. So, this is certainly not a unique scenario. However there are steps you can take to find lost pensions and re-claim the money.
Willday Wealth Management are proud to offer our “Find My Pension” service. Once you’ve completed our Get Started form here, we’ll contact over 100 pension providers on your behalf, to find your pensions. We don’t need much information from you to get started: just your name, date of birth, address, National Insurance number and your contact details are all we need! Once we’ve reviewed the findings, we’ll be in touch to discuss the next steps with you.
Myth 3: You can’t touch your pension until you reach State Pension age
State Pension age is currently 66, but there is a planned, phased increase in this from May 2026 to 67 and then to 68. You will be unable to access State Pension until you reach this age, but there are other options available. Many private pensions allow you to withdraw funds from age 55. It’s worth noting that there are plans to raise this age too, though, to 57 in 2028 and 58 in 2034.
You can draw down 25% of your pension pot tax-free, with the remaining 75% being subject to income tax at 20%, 40% or 45%, depending on your other income. This can be taken as a lump-sum or over several withdrawals. Before you make the decision to drawdown from your pension pot, however, you should think about the impact this will have on you in the future. In these harder financial times, pension pots can seem like an opportunity to ease life’s financial burden. However, money removed earlier will cease to earn interest, and grow. Easing your financial burden now may lead to more financial strain in retirement.
Myth 4: I’m too young to be thinking about a pension
You’re never too young to be making your financial future more secure! The longer you have to put money into your pension, the more time there is for it to be working for you, and growing in size. The more that is contributed to your pension pot, the better the standard of living you can achieve in retirement. You may even save enough to be able to retire earlier than State Pension age!
It’s worth bearing in mind, there is no guarantee of a State Pension when you reach retirement age. Whilst no government would choose to abandon this support for pensioners, the economic climate could force their hand in the future. It’s best to have your own plan in place, and not rely solely on the government.
Myth 5: I’m 50 – it’s too late to start saving for retirement now
Whilst it’s true that the longer you have to contribute to your pension, the bigger your pension pot will be on retirement, it’s never too late to start saving! A small pension pot is better than no pension pot at all.
As of April 2024, you can pay up to £60,000 into your pension pot each year without being taxed on the contributions. This is your pension annual allowance. There is there still time to make a difference to your retirement funds.
How can Willday Wealth Management help?
Still bamboozled by supposed ‘facts’ you’ve heard about pensions? We’ll help you to untangle the fact from the fiction. We’re committed to helping you make the best decisions to help you achieve your retirement goals. Contact us today to schedule a consultation with one of our financial experts. They’ll be happy to talk you through the best pension options for you, and dispel any further myths you may have heard.
