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Pensions: feel the fear and do it anyway

house for pensionsUntil I hit my forties, I didn’t take pensions seriously. When I was young there was an element of resentment about my employer deducting my contributions every month – I could think of better uses for the money then. Now I’m just relieved that I was made to contribute, even though I’m in a closed defined benefit scheme and am too fearful to find out what income I’ll get from it.

These days, I have a self-invested personal pension (Sipp) though I don’t put nearly enough in it. And I am a born-again convert to pensions and as an evangelist, want to promote them – particularly for women.

Pensions do have an image problem. But if you think of them just as a way of saving with tax relief added then they become easier to understand. There is more to pensions than that – but nothing too complicated. Investment firm Hargreaves Lansdown has listed 11 misconceptions about pensions. The one I’ve heard so many times is my property is my pension. And it’s rubbish! After all how many people want to sell up when they retire and move to a smaller house? What’s more “in the last 10 years the average house price ... has gone up around 16% compared to 93% total return from the average UK stockmarket fund” says HL.

Of course, HL is in the business of selling funds so they would be in favour of investing. And the advantage of property over shares is that (barring disaster) bricks and mortar will always exist while the value of shares can evaporate. Investing in property – rather than relying on your home – could be a valid way to provide a retirement income: see our new guide to Buy to Let here. There are disadvantages to investing in property for your retirement covered in the guide: remember it should only ever be part of a portfolio (and watch out too as changes in rules make it less attractive to be a landlord these days).

Probably the most worrying misconception on the list is the state will provide for me in retirement. As we’ve said many times on this site, this is not true. The state pension is derisory – less than £160 a week – and you won’t necessarily get it unless you’ve got enough National Insurance contributions. Get a state pension forecast here to find out what you can expect. And when you’ve got the news, think about starting your own pension. You can have one even if you’ve not got a job: you can put away up to £2,880 a year in a Sipp and the government will top it up to £3,600. It will be worth it in the long run, seriously.

See all our guides to pensions here.

 

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Wednesday, 23 January 2019