The pension mistakes we all make – and how to fix them
It’s easy to slip up when planning your retirement and reduce your potential pot. We ask the experts what to avoid. By Grace Gausden
Saving enough for retirement is essential, with the majority of people now unable to live off the state pension alone. As everything from food to rental costs are becoming more expensive, having a proper plan for when you are a pensioner is more important now than ever – even if it seems like a long way off.
But many people still make mistakes when it comes to their pension – from not saving enough to withdrawing funds early. Below, experts tell i the most common errors people make – and how to fix them.
Delaying saving into a pension pot The earlier you save, the better, as you will have more funds available for your retirement.
Ed Monk, an associate director at Fidelity International, said: “A common mistake people often make is putting off saving for retirement and thinking you’ll do it tomorrow instead. Starting your retirement saving early will make the task of achieving the retirement income you want far easier. Time really is your best friend – but you need to start to take advantage.”
Assuming auto-enrolment is enough Despite auto-enrolment helping people to save more into their pensions, it should not be relied upon alone, experts warn, adding that the default contribution levels probably will not be enough to give you the retirement you want.
Even if you begin saving at the very start of your career, the consensus is that you may need to set aside amounts worth 15 per cent of your salary to reach the kind of retirement income you would expect – and that percentage rises very quickly if you delay saving to later in your career. Auto-enrolment ensures that an amount worth just 8 per cent of your salary is saved. Megan Rimmer, a chartered financial planner at Quilter Cheviot, said: “If you have previously chosen to opt out of auto-enrolment, it would be wise to reconsider as you may be missing out on valuable retirement benefits. “Not only would you be missing out on your own savings towards your retirement, but you would also lose generous employer contributions. When saving into a pension pot, you receive tax relief. If you have opted out, more of your money will be going to the Government as tax as opposed to being saved into your own pension pot.
“You could also miss out on other important benefits, such as a payout from your pension scheme if you were to fall ill and become unable to work prior to your retirement date, as well as any benefits the scheme would pay to your dependents if you were to pass away unexpectedly.”
Thinking it is too late to save
If you are already some way into your career and you don’t have any pension savings, you are not alone. For those in that position it can be easy to think that it is too late and that whatever you save now won’t make a difference.
However, it is still possible to make a really positive impact by starting to save now.
A spokesman for AJ Bell, Tom Selby (inset left), said: “As a very rough rule of thumb, some suggest you should half the age at which you start contributing to get a figure [for contributions] which should be in the right ballpark.
“For example, if you start at age 20 you should aim for a 10 per cent contribution, while if you delay until age 30 then the target would be 15 per cent. This clearly isn’t an exact science, however, as outcomes will depend on a range of factors.”
Missing out on your employer’s pension contributions
In most cases, your employer will make monthly payments into your pension for you, and you will also pay contributions directly from your salary. However, many employers offer to match an increase in contributions up to a certain level. For example, if you add an extra 1 per cent they will do the same. Monk said: “This is an excellent opportunity to boost your pension savings – this is effectively free money – and it’s well worth exploring whether this is a benefit offered by your employer.”
Not reviewing your retirement plan
If your plans or circumstances have changed, you might want to explore other potential sources of additional income – for example, you might consider a phased retirement or look at opportunities for