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The truth about your pension and retirement planning

The accessibility of information these days can be great for educating ourselves about topics we may otherwise not know about. Pensions and retirement planning are examples of this. However this can sometimes also lead to confusion and the belief of incorrect information. This could result in ill-informed decisions being taken, concerning your retirement planning. Not sure if what you understand is the truth about your pension? Don’t worry – we’re here to help. Along with our previous blog post where we dispelled myths about pensions, we’ve detailed below some common misconceptions, as well as the truth on the matter. If you have any further questions, or want clarification or more information, don’t hesitate to contact our team, who’ll be happy to help.

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Myth: With the rising cost of living, I can’t afford to pay into a pension

It’s certainly true that the cost of living crisis in the UK has reduced people’s disposable income. Retirement can seem a long way off, so it can be easy to justify to yourself why not to pay into a pension now. Remember though, you don’t need to be putting away significant funds each month for your retirement. Even small amounts saved each month now will add up to a larger sum by the time you reach retirement.

Many employers also offer benefits relating to paying into workplace pensions. If you’re eligible for a workplace pension, your employer may offer benefits including contribution matching – where they will pay in the same amount you do each month, rather than the requisite 3%. Employee contributions benefit from tax relief too, as it is deducted before tax is calculated. This means you’re being taxed less while also providing for your future. Where possible, you should take advantage of this benefit.

Myth: Consolidating your pensions is not a good idea

Consolidating your pension means transferring multiple pension pots into one portfolio. These multiple pension pots may be the result of you working for a number of businesses since the introduction of auto-enrolment into workplace pensions in 2012. Whilst it is usually best practice, there are some instances where consolidating pensions may not be the right choice. This can include if you hold a Defined Benefit pension with a specific annual income guaranteed throughout your retirement. Additionally if your existing pensions have high exit fees it may be more costly than beneficial to move away from this pension scheme.

On the other hand, there are many reasons why consolidating can be a great benefit. Firstly, keeping track of multiple pensions can be confusing and a lot of potentially unnecessary admin. Secondly, with all your retirement funds being held in one place, you’ll be better able to effectively plan for your retirement. You can also track progress towards your retirement goals more easily. Different pension schemes may have different rules regarding access to your pension funds, and others may have better investment options available. By consolidating your funds into a single portfolio you’re better able to utilise the most advantageous conditions.

Speak to our advisors at Willday Wealth Management to discuss if pension consolidation is the right option for you. If you decide to go ahead with consolidation, we’ll help you towards achieving your retirement goals, ensuring your money is working the best it can for you.

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Myth: With workplace pensions, if your employer goes into administration, you’ll lose all the money in your pension

Most modern workplace pension schemes will be Defined Contribution schemes. Whilst your employer will have facilitated the pension set-up, the pension pot itself will be held by a separate pension provider. This means that even if your employer goes into administration, your existing pension pot is protected. You will, however, lose out on any future contributions, by the employer or yourself, into the pension pot. So you should take mitigating action to reduce the impact of this on your retirement planning. This might mean starting to pay into a private pension, or increasing your contributions value if you have an existing private pension.

If your pension provider goes into administration, so long as they were authorised by the Financial Conduct Authority, compensation is available from the Financial Services Compensation Scheme. More information about protection for your workplace pensions can be found on the government website.

Myth: Pension schemes and pension providers are all the same

This is a big, but common, misconception. The truth is, each will have its own benefits along with associated fees. This is one of the reasons finding the right pension scheme for you can be so confusing. Finding the right combination of benefits and fees to meet your individual financial and retirement goals can be bewildering. The team at Willday Wealth Management are here to help. We’ll work with you to find the right portfolio of pension investments to meet your goals.

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How can Willday Wealth Management help?

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 clarify any further misconceptions you may have about pensions or other retirement-funding investments.

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