I speak to a number of successful people who don’t trust pensions, don’t like them and in most cases, never will!!
…and guess what, I understand exactly where they are coming from.
It’s difficult to have supreme confidence in an entity that is constantly changing, where the goalposts move almost on an annual basis. Uncertainty and lack of control means it is really difficult to be confident that your money will be there when you need it.
Yet, recently released figures based on research by ‘Top Cashback’ claims that retiring without enough money is the biggest financial fear for UK adults.
4 out of 10 respondents said that this was their main fear!
A dilemma indeed.
Unfortunately, many people really misunderstand pensions. Now don’t worry, I’m not going to give you ‘war and peace’ here but on a simplistic level, a pension is just an investment with different rules wrapped around it.
Imagine an investment where:
- You are incentivised to invest and receive tax relief depending upon what you earn
- You obtain tax free growth on your money
- Up to 25% of the value of your investment can be taken as a tax free lump (age 55)
- The value of your investment is outside of your estate on death
Sounds too good to be true, doesn’t it? Yet, there continues to be waves of negativity about this form of saving. In contrast, the recent budget (March 2016) created a wave of excitement when it was announced that a LISA is to be made available for those under 40, with a maximum limit of £4,000 a year, with an annual bonus of up to £1,000 paid until the age of 50.
I welcome this opportunity to stimulate the savings culture, but is it more exciting than a pension?
We have to be careful that the consensus of opinion doesn’t cloud our judgement around pensions despite the recent tightening of legislation. We were spared any further changes with this latest budget but it is only a temporary respite. Rest assured.
It is essential to ensure that your strategy adapts to changes in the pension landscape. This doesn’t mean ignoring pension funding – it means understanding that a pension is a ‘tool in your box’ to help manage your income tax, to help accumulate capital free of tax and to create options as to how and when you take the benefits down the line.
Your life doesn’t stay static and neither will the pension rules. It’s important to recognise a pension for what it is and play the game of creating wealth in the most flexible and tax efficient manner. How much you commit to pensions will depend upon your own unique circumstances but ignore them at your peril.
Email us to book a FREE CONSULTATION with our Pensions Specialist Martin Reed. Is it time to understand fully where your pensions sit in terms of your long-term financial plan?
You can also click here to read a summary of the key messages for Personal Finance, from the Budget 2016.