Rise in frozen pension, failures in work pension schemes, low interests rate, and the pressure of day-to-day living in austere times have all been blamed for the lack of interest in company pension plans. But many people's decisions to snub the pension pot are based on misconceptions about both pension plans and about the post-work economic landscape that British people can expect when they reach retirement age.
Below are ten of the most stubborn of those misconceptions:
1. My children will look after me
If the current economic climate is any indication, our children are going to be faced with as much, if not more, financial pressure than our generation as they seek to make their own way in life. Retired people who have failed to make provision for their post-work lives risk becoming a hidden to their children. By remaining financially independent, retired people can enjoy their time with their children without the worry of guilt and resentment.
2. I can not afford to pay into pension funds: I can barely afford the mortgage
Small contributions will gradually accumulate and any contribution is better than none, even if it is only a pound or two a week. If you really are that hard up, there is sure to be something in your life you can give up to enable you to pay in: a chocolate bar; a bag of crisps or a coffee, sometimes.
3. Pension Plans are risky – if not downright scams. My boss will dip into the pension funds
Your employer will have no access to employees' pension funds. Pension plans are overseen by Plan Trustees who are legally accountable to you. As for risk, there are different levels of risk you can choose between. Even if there is a small drop in the value of your pot, employers' and government contributions will usually make up for it.
4. I'll focus on being successful – or winning the lottery
Being driven to succeed is obviously a good thing, but a back-up plan is always sensible just in case fame and riches evade you. The National Association of Pension Funds claims that over three million people are banking on the National Lottery to fund their retirement. That would require at least five balls and the bonus at odds of over 2 million to one!
5. I'll wait until later; there's no reason to start saving this early
One compelling reason to start as early as possible is the free money employees get from government and employer contributions to pension funds – almost like a pay rise! Another is the value of compounding interest which means the earlier you start contributing to pension plans the further your money goes.
6. I'm thinking of changing my job and do not want to be stuck with lots of pension plans
Although it can be beneficial to have lots of different pension funds, you do not have to keep them all. It is perfectly possible to transfer your pension pot from one scheme to another.
7. There's enough equity in my house to fund my retirement
The property market is inherently unstable, and house prices can fall sharply leaving your retirement income compromised. Have you considered what you would do if you could not sell your house at all? Then there's tax and the need to fund alternative accommodation.
8. There's no point in a pension; I will not be around long to need it
With life expectancy having reached 86 for men and 89 for women, there is a good chance that a large number of retired people will be relying on a pension for twenty years or more.
9. I'll be happy enough with the new state pension
The actual payout to be expected from the new state pension will not be determined until Autumn 2020, but the full amount should be around £ 150 a week. What you are actually given may be less if you have had any breaks in your National Insurance Contributions.
10. I do not want an 'income for life'
Gone are the days when your pension could only be converted into an 'income for life' by making a one-time transaction with an insurance company for an annuity. Due to recent changes in the rules, you can spend your retirement money as you see fit.