Five pension myths: debunked

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MoneyPlus Features Team

February 21, 2023

4 mins read

In a world of changing rules and information overload, we’re busting some of the biggest myths that might otherwise derail your retirement plans…

1. It's too early

It’s never too early to start saving into a pension plan. In fact, the earlier the better. Your money is invested for you, so the sooner you start the more time it has with potential to grow. A larger pension pot can then earn even more, encouraging possibly snowball-like growth, which can make a big difference over the long term. 

Here’s an example*. Which? thinks a couple would need £144,950 in their pension pot, as well as the full State Pension, to have a ‘comfortable’ retirement on £28,000 income per year. Say your investment was to grow by 3% each year after charges, and you’re aiming to retire at the age you’d receive your State Pension (currently 66). If you both started saving at 20, you’d need to put away a combined amount of £182 before tax per month. But if you start at 50 it’s £554 per month. That sounds like a big difference but don’t worry, your pension plan is designed to help make it easier for you to save more. Find out how in myth number two. 

Of course, this example is based on a number of assumptions. We’ve listed the things Which? needs you to take into account at the bottom of this article.

The value of investments can go down as well as up and could be worth less than was paid in.

2. It’s too late

Yes, earlier could be better in terms of investment growth, but it could still be worthwhile doing a last-minute pension payment push later in your working life. 

Money you put in a workplace or private pension scheme gets tax benefits from the government. For example, if you pay UK basic rate income tax, it only costs you £80 to put £100 in your pension pot. And it could be less if you’re a higher rate or additional rate taxpayer. Definitely worthwhile. (There are different tax rates for Scotland.) You’ll still have to pay income tax on the money when you take it out of your pension pot, but by then you may be on a lower tax rate.

The tax benefits on pension payments may be delivered to you in different ways, depending on what type of pension plan you have. For example, if you’re part of a salary sacrifice scheme. 

You can pay in up to £40,000 in each tax year (up to your total salary level) and still receive those tax benefits. And if you haven’t put anything in during the last three years, you can possibly carry it forward. This tax saving could give a potential big boost to your pension pot, even if you’re planning to retire next week.

Laws and tax rules may change in the future and your own personal circumstances, including where you live in the UK, will have an impact on tax.

3. The State Pension will pay for my retirement

If you plan to rely on the State Pension, you may be in for a sparse retirement. For the 2023/24 tax year, the full State Pension is £203.85 per week, provided you’ve paid the necessary 35 years National Insurance. At just over £10,600 per year per person, it’s still well under the £28,000 yearly income Which? suggested would be needed for a couple to enjoy a comfortable retirement.

With the rising cost of living, not surprisingly, recent research from Age UK recently revealed that three quarters of over 65s are worried. One 75-year-old said: ‘Surviving on the State Pension with guaranteed pension credit just about keeps your head above water. With the expected rise in utility bills I, like many more, will be slowly sinking.”

4. I've got a workplace pension, so all is in hand

In 2012 the government introduced rules to make employers enrol their employees in a pension scheme automatically. By April 2020 there were 10 million people in workplace pension schemes – 78% of UK employees, compared with less than 50% in 2012.

If you have a workplace pension at least 8% of your earnings will go into it, some of which is paid in by your employer. But is that enough? The Pensions Policy Institute thinks that 8% is not enough to provide similar working-life living standards in retirement. The Institute also highlights it’s less than half the rate that was paid into typical schemes in the past that paid out a percentage of your final salary.

5. I don't need a pension – I have property

Property prices have increased at an impressive rate in the UK over the past few years, attracting many people to invest in property and rely on it as the main source of their retirement income. But property isn’t all good news when it comes to retirement financial planning.

Aside from the huge amount of work required to rent out property for regular income, lack of flexibility is the key issue. If you want to take out money, you’ll have to sell, which could take a long time. Property forces you to invest a large chunk of your savings in a way that may not be flexible enough to suit your income needs later.

Speaking of large chunks – property also doesn’t allow you to spread your money across a range of different investments like a pension plan does. You might find it beneficial to put your nest eggs in some different baskets – known as ‘diversification’.

Pension plans also come with generous tax advantages. If you invest in property, you may have to pay income tax, capital gains tax and inheritance tax on your earnings, and you won’t get a 25% tax-free lump sum as you normally do with your pension savings.

* In this example, Which? assumes that you get 20% tax relief on your pension contributions and this is added to your payments shown above to achieve the income targets. If you are in a workplace pension, your employer will also pay into your pension, which will also help achieve the monthly contribution figures. The sum saved is assumed to grow by 3% a year after charges. Figures shown are in today's money; to save the future equivalent, your contributions need to keep pace with inflation and your pension savings will need to grow by more than inflation (after charges) as well.

The information here is based on our understanding in August 2022 and shouldn’t be taken as financial advice. If you are unsure, you should speak to a financial adviser and there is likely to be a charge for advice.

The value of investments can go down as well as up and could be worth less than what was paid in.

Standard Life accepts no responsibility for information on external websites. These are required for general information.

Laws and tax rules may change in the future and your own personal circumstances, including where you live in the UK, will have an impact on tax.


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