Don’t let pension go to pot
SAVING enough in a pension to fund a comfortable retirement is difficult enough, but making avoidable errors will only make it harder.
Here are seven pension mistakes all of us risk making at some point but must avoid, says Jenny Holt, managing director for customer savings and investments at Standard Life.
Relying solely on state pension
You will not get a penny in state pension before the age of 66, and the retirement age will continue to climb.
Even when you do get it, it will not cover all of your outgoings. The new state pension pays a maximum £9,627.80 a year, and then only if you qualify for the full amount.
Many do not. A single pensioner needs £10,900 a year for just a “minimum” standard of living, according to the Pensions and Lifetime Savings Association. That rises to £20,800 a year for a “moderate” lifestyle.
Losing track of your pensions
More than £19billion of pensions sit unclaimed, worth on average £13,000 each. If you have moved jobs or home and not told your provider, one of these pension pots could be yours.
If you cannot find old company or personal plans, contact the official Pension Tracing Service. Call 0800 731 0193 or visit Gov.uk. Beware
private imitators that will charge a fee.
Rejecting money from employers
The workplace auto-enrolment pension scheme has given 10 million workers a company scheme for the first time. They must contribute 4 per cent of salary, with a 3 per cent employer contribution and 1 per cent tax relief lifting the total to 8 per cent. Employer contributions and tax relief double your contribution, so resist the temptation to opt out, even if money is tight.You will regret it.
Saving the bare minimum
Auto-enrolment is a rare pension success story, but it will not guarantee a comfortable retirement on its own.
Save more under your own steam, if you can. Consider putting extra in a tax-efficient self-invested personal pension (Sipp) or Isa. Underestimating value of tax relief The Government pays tax relief on both workplace and pension contributions. This is given automatically to basic rate 20 per cent taxpayers, so each £100 of pension only costs them £80.
Higher earners claim further relief through their self-assessment return.
This means 40 per cent taxpayers pay just £60 for each £100 that goes into their pot. Again, if you do not take advantage, you are turning down free money, this time from HMRC.
All pensions are not the same
Typically, your pension is invested in stocks and shares, plus lower risk assets such as cash and bonds.
You need to check whether this matches your attitude to risk, and how successful its performance has been. The closer you are to retirement, the fewer risks you should take.
Also, take a close look at the charges, as high fees can erode the value of your pension over time.
Neglecting your pension
Dismissing your pension as boring can cost you dear. You need to make sure it is on track to deliver the retirement you need. “It’s time to show your pension plan some love,” Holt says.