18th February 2016 at 3:04pm
When it comes to saving for your post-work life, keeping your fingers crossed and hoping for the best in the future risks leaving everything to chance. When it comes to pensions, planning is everything.
They’re a tax-efficient way of building savings for the kind of comfortable retirement we all want. But, as our graphic shows in detail, there are a number of pitfalls – we’ve highlighted 11 – many people overlook when it comes to their pension.
We don’t save enough
The biggest one is that many of us just don’t save enough, leading to the average Briton retiring with a yearly income of 24% less than the minimum wage. It’s a surprising figure, but it doesn’t have to be this way, especially if we take advantage of joining workplace schemes where employers may match what we pay in.
Missing out on ‘magic dust’
On top of this, we start saving too late and miss out on what some call the ‘magic dust’ of compound interest which adds interest onto money that’s already grown. It all adds up, and keeps on adding up, year after year.
Then there’s the fact that too many of us don’t keep track of, manage and review our pensions regularly. We might not even be sure how many pensions we have from various jobs we’ve done over the years. Those details are somewhere in a kitchen drawer at home but we’ve lost track of things and promise ourselves to get round to sorting it… sometime.
Betting on inheritance and property?
More than one in ten of us are counting on inheriting enough money to give us a comfortable retirement – but the stark reality is life doesn’t always turn out as we expect.
With many people living longer than ever and needing to make their pensions last through their retirement, and property prices fluctuating, relying on fate means we’re not fully in control.
The same is true when it comes to the State Pension. It’s an important part of retirement planning but the age at when we get it is rising and many people are not confident of what they might get, when. And who knows what the State Pension will provide years or decades down the line?
If this all sounds a bit downbeat, it’s not meant to. Quite the reverse in fact. Pensions are a tax-efficient way to help us save enough to give many of us the kind of retirement we want, and give us the freedom to make choices for ourselves and our families.
Like anything in life, a little bit of effort in keeping on top of things can go a long way.
The information in this blog or any response to comments should not be regarded as financial advice. A personal pension is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in February 2016. Your personal circumstances also have an impact on tax treatment.