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Ten Myths about Pensions

How many of us will utter the Phrase "I don't believe it" when it comes to the day we are due to retire. The amount of income you have in retirement will probably dictate your quality of life until the day you die. The question is do you want to take control of your retirement or leave it to the state?

10 Common Myths

Ten common myths about pensions and how to get one foot in the grave(y)

The Author

Graham Bond is a fully accredited and qualified financial adviser, based in Bristol in the UK. You can find out more about his services at the website of his company, Consilium.

The opinions expressed here are general, and are not intended to constitute advice for any individual. For best financial advice, speak directly to a qualified financial adviser to discuss your own unique circumstances.

I've got plenty of time to think about pensions?

Ideally the earlier you start planning for retirement the better. The longer you defer saving for retirement the more you will need to invest at a later date.

For example the life expectancy for a male in the UK is 84 years. If you want to retire at 60 there is a good chance that you might be in retirement for 24 years.

If you start saving for retirement at the age of twenty you will have 40 years to save for retirement. However if you leave it until you are 40 then the time to save will be much less and the amount you will need to save will be much more.

I have left pension planning too late, so why bother?

Whilst you might have left planning too late, some saving is better than nothing. Every penny counts when it comes to retirement. If you rely purely on the state then it is unlikely that you will be able to maintain your standard of living.

Pensions are expensive?

There is a common misconception that pension are poor value for money. A number of factors have contributed to this myth. Some old pension arrangements were expensive; many new contracts have very competitive charging structures making them attractive for retirement planning.

Investment returns on pensions are poor?

It's true that many savers have experienced poor stock market investment returns on their pension contracts over the last few years. However, many other forms of investment have also experienced the same issues.

Investors should always take into account the amount of risk they are prepared to accept when investing whether in their pension or an alternative investment vehicle. Having a broad spread of different types of assets such as equities, bonds, fixed interest, cash or property can help reduce the volatility of your investment.

This process is called asset allocation. As you approach retirement you should also look to reduce your level of risk by choosing less risky assets such as bonds, fixed interest and cash based investments.

I cannot afford to save for retirement?

It is sometimes difficult to make ends meet with bills, mortgages, food holidays etc, but try to consider planning for retirement. Any contributions you might make may qualify for tax relief . If you are a basic rate tax payer, for every £100 contribution you put onto a pension the government will pay £20 towards the cost and you will pay £80. If you are a higher rate taxpayer the amount the government will contribute as tax relief will be higher.

The state will look after me?

I'm sorry, but with people living longer and the proportion of people working reducing, the state won't be able to look after individuals in retirement. The current state pension is about £100 each week, but with the costs of food, fuel and bills increasing, the basic state pension will not go very far. Although the Government may continue to keep funding State pensions it will act as a safety net for individuals with no retirement income.

Information on State Pensions has shown that 42% of pensioners depend entirely on their state pension. However the basic State Pension is only 16% of the average UK Salary. In 1979 it was 23% of earnings.

Are there better ways to save for retirement?

Many people prefer to use alternative investments such as Buy to let property, Individual Savings Accounts , or other forms of investment to save for retirement. Any form of saving for retirement is better than nothing , however some forms of saving are more tax efficient than others. It is always worth speaking to an independent financial adviser to find out the advantages and disadvantages on the various forms of retirement and savings concepts.

Should I use property as opposed to pensions to save for retirement?

Although property prices have increased over the last two decades and last few years have demonstrated how volatile property can be. You also have to consider the cost of any borrowing you may take out to buy the property, maintence costs and the fact that if the property is not your main residence you may have to pay capital gains tax if you sell the property for a profit.
Although property investment is a good option you should also consider other forms of savings to run alongside your property investment.

Pensions are not flexible enough?

Since pension's simplification occurred a few years ago, pension and retirement planning has become much more flexible. New style pension contracts are flexible enough for you to increase or reduce you contributions at any time. You can start and stop paying whenever you want and you can transfer to another provider usually without penalty.

Once you are in retirement a flexible approach to income can be taken up to the age of 75. It is possible to take you Tax free lump sum and not draw any income until it is required. You should always speak to an independent financial adviser to discuss the most suitable options available to you.

Should I join my employers pension scheme?

You should always consider joining you company pension scheme especially if they are prepared to make a contribution to it on your behalf. Even if it is your intention not to stay long term with the employer it will be worth considering.

If your employer was to offer you a pay rise would you turn it down? Think of employer pension contributions as an increase in salary even if you have to contribute as well.

Instead - How to get it right!

If you want to find out more about Pensions advice and how we can help you please visit our website www.consilium-ifa.co.uk

If you are considering investing it is important to remember that the value of your investment and the income generated could fall as well as rise and that there is no guarantee you will get back more than you invested.

The content contained within this article should not be regarded as advice. No individual or company should act upon such information without receiving appropriate professional advice.

The Consilium Blog

Financial Advice you can Trust

Consilium Asset Management are Independent Financial Advisers based in Bristol.

We pride ourselves on the quality of the advice we give and the service we provide to our clients.

If you would like to find out more about us and the services we feel free to conact us or visit www.consilium-ifa.co.uk
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Your Views

If you have any views about where people should consider investing for retirement, or about the opinions expressed here, why not let us know!

  • outsource123 Nov 30, 2010 @ 5:05 am | delete
    Great lens guys!
  • Brian Sep 2, 2009 @ 9:37 am | delete
    Makes you think about you long term future and what you should do.
    Lots of interesting links.
  • karenls Aug 25, 2009 @ 5:53 am | delete
    pensions are a minfield and seem very confusing. I understand the need for one but would like more help and advice
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