18 January 2012

Some Pension Myths

What can I do to help people get a better income in retirement? Debunk some myths, perhaps...

I don't need a pension - the Government will provide for me
Oh yes?! The Basic State Pension is now £5,312 per year. Do you think it is more likely to increase or decrease?!

My house is my pension
It's true that a pension is not the only way of generating an income in retirement. But if  you plan to use your house you would have to sell it or rent it out, and where will you live?

I'm too young to start saving for a pension
If you are going to wait until your 30's, 40's, or even 50's before starting to save for a pension there is much less time for investments to grow (yes I know that growth hasn't been on the agenda for a while but I fully expect it to return in due course). So you would have to save a very large proportion of your income. Much better to spread it over a working life.

Pensions are too risky
The best growth generally comes from investments which go up and down in value, which is often described as "risky". But over the longer term the ups and downs turn into growth. Anyway, where can you put your money that isn't "risky"?

Pensions are too expensive
It's certainly worth looking at charges in a pension plan - some older plans are definitely "unfriendly" from that point of view. But it doesn't have to be expensive.

I can't afford to save in a pension
If you don't, then you are effectively stealing from your future self! Yes, you have to live, which includes servicing any debts you have, but most people have some discretion over what they spend on.

Annuities are bad value
Annuity rates are the lowest they have ever been, it's true. It won't (hopefully) always be like that, and in any case, buying an annuity is not the only way to take a pension income.

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