Pension myths
Automatic enrolment into a
workplace pension will make it easier for people to start saving for their
retirement. All employers will be
required to enrol their eligible workers into a workplace pension scheme if
they are not already in one.
We know there is a lot of
confusion surrounding pensions and saving.
These pension myths can make people feel confused about what they need
to do to fund their retirement. We’ve explained some common pension myths
below.
It’s not worth saving into a pension.
FALSE Most people can expect to get back more in
retirement than they put in their pension. Most people saving in a workplace
pension also benefit from contributions from their employer and the government
in the form of tax relief*.
My house will be my pension pot.
BE CAREFUL Property doesn't allow you to spread your money
across a range of different investments like a pension does, and doesn't have
the same tax advantages.
My partner will be my pension pot / I’ll inherit
money from my parents.
BE CAREFUL Inheritances can be uncertain, so it is important to
make individual pension provision. Increasing numbers of people are surviving
into their 90s and longer, so your parents may still be alive when you retire. You
might also find yourself in a difficult situation in the case of divorce.
I can only pay in a small amount so it isn't worth
it.
FALSE Your contribution to your workplace pension will be
a percentage of your salary. You’re also likely to benefit from a contribution
from your employer and tax relief* from the government too. Even if you end up
with a small overall pension pot, you might be able to take your pension as a
cash lump sum as long as your pension savings are no more than a certain amount
(currently £18,000).
I’ll save when I get old / I'm too old to start
saving.
FALSE It is better to start early – usually, the younger you
start to save, the bigger your pension will be, as your money has more time to
grow. And unless your retirement is a
few months away, there’s still time for you to build up some money.
If my company shuts down I lose everything.
FALSE There was a problem with people losing their
pensions when their company shut down in the past. But this is no longer the
case. With most schemes your pension is
looked after by the pension provider, so if your employer goes bust you won’t
lose your pension pot.
If your pension scheme is
run by your employer and they go bust, your pension pot might be smaller than
it would have been. This is because, if your employer
has been paying the pension scheme administration costs, they will no longer be
doing so. These costs would now come from the scheme member’s pots.
My grandma only lived to be 70 so surely I won’t live
much longer, why bother saving?
BE CAREFUL People tend to underestimate how long they’re likely
to live and life expectancy across the generations is changing fast. On average, you’re likely to spend 20 years
in retirement, so you will need to plan for that.
The State Pension will be enough.
BE CAREFUL The State Pension is a foundation, but for many people,
relying on this alone could mean a fall in income at retirement. Saving into a workplace
pension means people will have more money to help continue enjoying the things
they like when they retire.
(*Tax relief means
some of your money that would have gone to the government as income tax, goes
into your workplace pension instead.)
To find out more
about what enrolment into a workplace pension means for you, and the benefits
of staying enrolled, visit www.gov.uk/workplacepensions

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