Worst Reasons Not to Have a Pension

10 of the worst excuses for not starting a pension (that you should ignore)

Pension planning can seem daunting, but you can only benefit from getting your fund up and running.

There are endless excuses for putting off saving for your pension, ranging from feeling overwhelmed and frustrated by the various pension options to a carefree approach to finances. But these excuses will catch up with you once you reach retirement age, leaving you wishing you had ignored them now.

Here are the 10 most common excuses for neglecting pension planning, and how you can avoid falling into these traps:

I’m Living for The Now

While you might be tempted to focus on living in the present, you’re taking a massive risk by not planning for the future. Sure, you might die tomorrow, but you may also live to be 100 years old.

If you’re in your 30s now, your life expectancy is over 80.

What Does This Mean for You?

You’re likely to spend several years living off your retirement funds. Relying on the ever-decreasing state pension could leave your worrying about finances in the twilight of your life – and chances are you’d rather be enjoying these years than worrying about cash. That’s a good reason to make sure you have some private pension savings.

And should you pass away before retirement age, the funds can be passed on to your loved ones, with fewer tax implications than other forms of savings.

I’m Not Old Enough to Worry About a Pension

It’s never too early to think about a pension fund. The earlier you start setting money aside for your pension, the more funds you’ll have once you retire.

Why should you start now?

With time on your side, you’ll be able to save more money with lower contributions. Your fund will also grow more because of the compound interest it’s earning over time. This means you could even retire earlier.

If you start your fund at 30 with a contribution of 15% of your £30,000 salary, you’re likely to have a retirement fund worth £196,100. But if you don’t start saving until you’re 45, the same contributions will leave you with £109,500 at retirement.

State pensions are under more pressure than ever, and this means the younger workforce is more likely to need an additional form of income for their retirement.

Pension Savings Don’t Interest Me

Financial planning isn’t always particularly exciting, which can make it less of a priority. However, it’s critical for your comfort later in life. And pension savings seems much less boring when you think about the additional funds you could get from the government and your employer.

If you contribute to a workplace pension, your employer will usually add a contribution. On top of this, the HRMC2 offers tax relief of £2 for every £8 you save towards your pension.

I Don’t Have Any Money to Spare

It can be challenging to find money to put towards pension savings when you’re struggling to make ends meet. But keep in mind that every little payment helps, and you may not need to put as much cash into your savings as you initially thought, once you’ve factored in tax relief and your employer’s contributions.

Pension Providers are Untrustworthy

While there have been high-profile pension scandals that have created mistrust in the minds of the public, most pension funds are safe and secure and are not likely to disappear overnight.

Here’s the Good News:

Most pension plans in the market today are defined contribution pension schemes. These types of plans work like a tax-efficient savings account and are not at risk if your employer runs into financial difficulties.

There are also defined benefit pension plans, which are a commitment from your workplace to pay you an agreed amount when you retire. These types of plans can be affected if your employer goes bankrupt, but the Pension Protection Fund1 still protects you.

I Want My Money Free in Case I Need It

While you should always keep some savings aside for unforeseen expenses, this shouldn’t stop you from saving for a pension as well. Pensions offer their own benefits, such as employer contributions and tax relief, and many plans have some level of flexibility.

For example

If you experience poor health, you may be able to access your pension funds early. Recent regulations have also given you more options for what you can do with your funds once you reach 55 – these include withdrawing up to 25% as a lump sum without paying tax on it.

I Move Jobs Often

If you frequently change employment, you might feel it’s not worthwhile to build up a string of small pension funds with each new employer. However, consolidating your pensions into one plan can allow you to manage your fund efficiently and avoid having fees swallow up your smaller funds.

Keep in Mind

Even if you only contribute to a pension plan for a short period of time, you can still reap the benefits of tax relief and employer contributions.

I Work for Myself

Saving for your retirement is still essential for the self-employed. You might miss out on employer contributions, but you can still benefit from government tax relief on your pension savings. If you run a limited company, you also have the option of making employer contributions to your fund, and these bring additional tax advantages.

I’ll Invest in Property Instead of a Pension Plan

Property investment could provide funds for you to use after you retire, but it has some disadvantages. Property is not a very liquid asset, meaning it is not easily exchanged for cash. Added to this, how much money you can take home is dependent on the ups and downs of the property market.

However, a good pension fund will offer diversified investments so that your cash is invested in various assets, reducing your risks. And there are tax benefits that are unique to pensions.

In short

Go ahead and invest in property, but make sure you’re saving into a pension fund as well.

I Haven’t Had the Time to Do It Yet

Finding time to get through your to-do list can seem impossible, but the sooner you get your pension sorted, the more you’ll be able to save in the long run. If you’ve started a pension fund before, you can combine it into a savings plan that suits your current income. If this is your first savings plan, speak to your employer about signing up for your workplace scheme or set up your own private pension.

Common questions

Are pensions worth it?

Why should I pay into a pension?

What are the advantages of a pension?

What are the disadvantages of not having one?

In conclusion

No excuse is worth putting off saving for your future. The sooner you start a pension fund, the more you’ll be able to save into a pension fund and the more comfortable you’ll be in your retirement.

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