From feeling frustrated by providers to a “mañana” approach to your finances, we hear plenty of excuses for putting pension saving to the bottom of the pile. But being as passionate about pensions as we are, we’ve got answers to all of them.
1. I want to enjoy today! I may get hit by a bus tomorrow
If you’re aged 30 now, you have a life expectancy of over 80. Of course there’s always a chance that something could happen to you before you reach pension age, but the likelihood is you’ll spend several years in retirement. A meagre State Pension that’s only likely to dwindle further in the next few decades is a pretty good reason for having some private pension savings.
If something does happen to you before you reach pension age then you can pass on your pension money to your beneficiaries and it’ll be treated much more kindly by the taxman than other types of saving. If you die before 75, you can usually pass your pension on tax-free.
2. I’m too young to think about pension saving
Once you start working, it’s never too early to think about pension saving. The sooner you start saving, the more money you should be able to save for retirement, and the longer your funds have to grow thanks to compound interest. Plus, the more you can save now the earlier you could retire. Starting young also means pension saving should be less painful, as you won’t have to make huge contributions to put a decent amount aside.
For example if you start saving at age 30 and contribute 15% of a £30,000 salary, you may have a pension fund worth £196,100 when you retire. If you only start saving at 45, the same level of contributions may leave you with £109,500 at retirement.*
Plus, with the state retirement age going up and the State Pension coming under pressure, those in their twenties and thirties today are particularly likely to need some of their own pension savings by the time they reach retirement.
3. Pensions are boring
We understand: pension saving doesn’t seem particularly exciting, and it’s hard to prioritise it when there are always more interesting things to do. But, as we’ve said, pension saving is important, and it starts to seem a bit less boring when you consider the ‘free money’ you could get from your employer and HMRC when you save into a pension. If you have a workplace pension then your employer will usually make contributions, and the government contributes in the form of tax relief, effectively adding £2 for every £8 you put in your pension.
Plus, here at PensionBee we’re trying to make pension saving more accessible and more engaging. Sign up to PensionBee to get a pension that you can manage online: we reckon you’ll think pension saving is much less boring when you can check your balance on your phone, set a retirement goal and see if you’re on track.
4. I don’t have enough spare cash
Money is often tight and it can be tricky to find enough cash to save into a pension. The important message here is that every little helps, and that you may not need to save as much as you think once you’ve taken employer contributions and tax relief into account. Check out our article on pension saving when you’re on a tight budget for some tips.
5. I don’t trust pension providers
Many people don’t trust pension providers, and not without reason: our Robin Hood index revealed poor customer service and old-fashioned practices in the pensions industry. In fact, this is at the heart of why we started PensionBee - to provide a pension service that’s refreshingly modern, transparent, and customer-focused.
But some of the distrust in pension providers may be misplaced. The high-profile BHS pensions scandal and similar news stories have led some to fear that their pension fund can be diminished or even disappear overnight if their employer gets into financial trouble, but for the most part this isn’t the case.
Defined benefit pensions are a promise from your employer to pay you a certain amount on retirement, and your company may not be able to keep this promise if they have money problems. But most pensions nowadays (including PensionBee pensions) are defined contribution pensions, and this means that they work like a tax-efficient savings account, so they’re not at risk if your employer goes bankrupt. And even if you do have a defined benefit pension that’s at risk, the Pension Protection Fund can provide compensation.
6. I don’t want my money locked away - I might need it!
This is a good point and it’s always a smart idea to have some savings that are accessible at short-notice in case an unforeseen cost crops up. For many people, an ISA is a good way of doing this: it’s a tax-efficient way of saving and you can dip into most cash ISAs whenever you need to.
But as long as you’ve got some savings that you can access, a pension is a good idea too. Remember that the unique benefits of a pension include employer contributions, particularly generous tax relief, and tax-friendly treatment if it’s inherited.
You may be able to access your pension money early if you’re in serious ill health, and recent pension freedom rules mean that you have several options for what to do with your pension money when you reach 55, including withdrawing up to 25% as a tax-free lump sum. Our page on pensions vs. ISAs compares the two products side-by-side.
7. I don’t stay at one job for long enough
If you often move from one job to the next, it can feel like it’s not worth building up lots of tiny pension pots, and there are horror stories of small pension pots being entirely swallowed up by fees.
One of the ways of dealing with this problem is to consolidate your pensions into a single plan, so that you can manage your money in one place and keep an eye on your fees. Also, remember that even if you only pay into a pension plan briefly, you can still benefit from employer contributions and tax relief.
8. I’m self-employed
Pension saving is really important for the self-employed too. You may not benefit from employer contributions, but you still get tax relief when you save into a pension, and if your business is set up as a limited company then you can also choose to make employer contributions to your pension, which has tax advantages too.
9. Property will be my pension
Although property can provide money for retirement there are certain downsides. For example property is a very illiquid asset (it’s difficult to exchange it for cash), and if the property market plummets, you could be left struggling.
Good pension funds, on the other hand, are diversified, meaning that your money is invested in a range of assets to manage the risk. And as we’ve mentioned, there are tax benefits that are unique to pensions. This means that even if you’ve got money in property, it’s probably a good idea to pay into a pension too.
10. I just haven’t got round to it yet…
Yep, we’ve got a to-do list as long as our arm too, but doesn’t it feel good when you tick stuff off? If you’ve paid into a pension in the past, sign up to PensionBee and get your pension saving sorted with minimum hassle. We’ll combine your existing pensions into a simple plan that you can manage online. We’ll even help you locate your old pensions if you’re not sure where they are.
If you haven’t ever saved into a pension, speak to your employer about joining your workplace scheme or look into setting up your own private pension. Your future self will thank you!
- These figures are intended for illustration only. As with all investments, capital is at risk and the value can go down as well as up. We have assumed a retirement age of 65, that your plan earns a 5% return before the effects of inflation and have taken inflation of 2.5% into account.
Reckon you’ve got a good reason for not saving into a pension? Tell us in the comments at the bottom of the page!