By sidestepping these common mistakes, Britons could take their pension planning to another level and reduce the risk of falling short of money later. As the new year begins, finance experts at Standard Life have listed four common pension mistakes that can help people avoid them in the future.
Don’t turn down money from an employer
When offered the opportunity to join a workplace pension, it’s nearly “always a good idea” to do so.
Standard Life stated: “For most people, their employer must automatically enrol them in a workplace pension scheme (thanks to the ‘auto-enrolment’ rules). People may even be offered a pension plan if they don’t meet the criteria.“
Before opting out of a workplace pension plan, it’s important to understand what one is rejecting.
“Their own payments to the plan (five percent or more of earnings) are deducted from one’s salary, often before they pay tax, making it easier to save.
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“Their employer also pays into the plan. At the very least, their payment must be equivalent to three percent of their earnings.
“Many employers offer more than this or match any extra payments people make for no extra work on their part.”
The experts explained anyone who decides against investing in a workplace or personal pension also turns down help from the Government.
For example if someone pays £200 a month into their pension plan, the £40 of tax relief they receive on that payment means it will only cost them £160.
Higher-rate or additional-rate taxpayers could claim back even more.
Don’t expect the state pension to cover everything
Another common mistake is to assume that the state pension will meet one’s retirement needs. However the state pension won’t be available until one’s late 60s and “it doesn’t go very far”.
Currently, the new flat-rate state pension is £185.15 a week, or just over £9,600 a year.
To put that in perspective, a full-time job on Minimum Wage (37.5 hours a week), would give someone around £18,500 a year (before tax).
If people think they’d struggle on Minimum Wage, there’s every chance the state pension may not cover all their needs, the website states.
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The website explained the investment should match one’s life-stage and priorities.
Is the pension plan age-appropriate? If one’s retirement is still some years ahead, they could potentially afford to take a little more risk.
Conversely, they may want to dial down the risk as their retirement date looms.
Does their plan reflect one’s future goals? These could relate to anything from retiring early to investing responsibly.
Viewed from that perspective, saving into a pension pot starts to look like an opportunity, not a chore so it is really worth engaging with it.
Britons should always remember the value of investments can go down as well as up, and people may get back less than was paid in.