That’s a rather large topic for a blog I hear you say. Yes, that’s true, but there are a great many people out there that are weary and in some cases ill-informed about the topic. I wanted to set out some basic principles as to why they are so valuable and necessary.

Pensions are designed to help you fund your future. There are three main types of Pension: Defined Benefit (DB) and Defined Contribution (DC) and the State Pension. There are various others, but these will be relevant to most people.

  • A DB pension will pay you an income for life when you retire. These are rare in the private sector but common in the public sector. (e.g. Teachers, Police, NHS etc)
  • DC pensions are the ‘norm’ for the majority of employees and individuals, but require you to own, understand and take responsibility of managing your own pot of money. This pot is then used to help fund your retirement / future plans.
  • The State Pension (now New State Pension) is an income paid by the Government to individuals for life. The timing of when you receive it and the amount, will vary based on factors such as your age, your National Insurance contributions.

A recent poll highlighted 44% of millennial’s have no pension provision. So is it only young people that haven’t grasped how useful pensions can be? Absolutely not – another piece of research showed that for 49% of people aged 65+, the State Pension is their main source of income, suggesting pensions were not their focus either.

The New State Pension is, in full, worth around £9,100 a year for an individual. That, by most people’s measure, it not a large amount of money to live on. The average Council Tax (Band D) bill is £1,750 p/a, equating to 19% of an individual’s state pension or 10% for a couple.

If nearly 10% or 20% of your income is committed to, before anything else, you really will need another source of income to support your future lifestyle.

Auto enrolment has got millions of people saving into a pension, which is great. I do fear though, that people may become complacent and think they’re sorted for retirement. That may well be the case, but for many people, the amount being put aside, will not be particularly significant. Please do not let that be you. Have a look at your pension projection and information and take an interest, in your future.

The main downside to pensions is the fact the money is locked away until you’re 55. However, that it may be a positive, as you can’t be tempted to spend it! Once you are over 55, you can normally access 25% of it tax free and thanks to legislation changes in 2015, there are more options available as to how you access that money.

Who doesn’t want something tax free??

Pensions are a hugely valuable tool to help you save for the future, so please give it some thought.

We can help you understand your retirement provisions and plan for your future, so do not hesitate to reach out for a chat.

Thanks for reading and