Pensions: why have one, what do they mean for your future and what is the alternative? - Evolution Financial Planning

The Office of National Statistics ONS, has revealed that just under 50% of people do not have any private pensions. This means that when they retire, they will be relying on the State or any investments they have to fund their income.

Pension companies are struggling to fund individuals’ retirements mainly due to an ageing population and low interest rates. Many schemes are in debt and others are generally underperforming. So is it worth getting a private pension, or should we look to save our money another way?

Why bother?

12% of people surveyed by the ONS said that they wish they had never taken out a pension because it is under performing and it won’t provide enough income in their retirement.

Reuters revealed that many pension schemes are in deficit, which means that they don’t have enough funds to pay out what they will finally own to their pension holders when they retire.

Pensions are money invested in the stock market, so depending on how good your fund manager is, your fund could even decrease if they make a poor judgement in their investment choices or their charges are high, or even if the stock market struggles. These are all risks that we all take in order to give us a good pot of money when we retire.

You have the control, you can transfer your pension into a better performing one, you can change your broker. You have the power to decide what stocks and shares your money will go into.

You’re not able to get to your money until retirement, so you have to wait before you can spend the money. This can be a good thing for some people who would be tempted to spend it before they retire and therefore leave themselves with nothing.

What type of pension to have?

Private pensions mean that you have to fund them yourself, but it is a secure form of paying for your retirement and you have total control over who you choose as a fund manager and where your money is held.

Employer pensions include the possibility of your employer contributing towards it too, with some even matching what you are putting in, which is an added bonus. However you do not have control over which company manages your funds.

All pensions are tax-efficient too, and if your payments come straight from your gross salary, you won’t pay any tax on them. If they don’t, you can still claim the tax back.

A pension also provides security. It’s a guaranteed income for the rest of your life once you retire. The State pension at present is not enough for most people to enjoy the lifestyle they would like and the age of retirement is much higher than a private pension.

Remember it is worth starting early. Many young people going into their first job will not even think about pension contributions, but with longer living and the State not being able to provide, it is worth taking the step of starting your pension early to build up a decent fund by the time you retire. Who knows what will happen in 30 years time, we may not even have a National Health system to rely on.

What are the alternatives?

There are other ways to save your money and some make more than others.

ISA

You can save up to £20000 per year in an ISA and you have the choice between an investment or a cash ISA depending on the level of risk you wish to take with your money. All interest you make is tax free and you have the choice to move it or take it out when you want.

Property

Property can be a good investment for the long term. The market can still suffer from dips in value which is a risk you take and you may have to pay tax on any profits you make. There are many different options to choose from therefore it’s important to seek advice before starting out on this journey.

Stock Market

Pension funds tend to be focused on more reliable investments which carry less risk than some stocks and shares. If you are happy to take the risk, you can make more dramatic returns on your investments if you do it yourself. It is worth doing your homework before deciding to go down this route as it carries high risk and the investments you choose can drop in value too.

So, a pension is still a very good way to save for your retirement and should be thought about as part of your saving strategy. It is worth getting good solid advice before making a decision. A financial advisor can help you choose what is right for you.

For information about savings, investments and pensions, contact us.

Interested in learning more about the pension options available to you? Would you like to be part of a group that aims to empower women to create wealth for themselves and their families? Well, the Money Mastery Collective Facebook Group is just for you. You can join here. A brand new Pension Challenge will be launching in the group on 1st July – don’t miss out, join us today and connect with like-minded women like yourself! 

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