What are the top seven most common pension myths? The internet has made it especially easy to find a wealth of hints and tips concerning pensions. Some of it is good, but much of it is misleading and confusing. Having a clear and concise understanding of pensions can help you avoid mistakes and plan for a better retirement.
1. I Don’t Earn Enough to Pay Into A Pension
We all know how hard it can be meeting the mortgage payments and putting food in our family’s bellies, let alone finding extra money to pay into a pension fund. A little can go a long way! Paying in as little as £20 per month in your twenties can give you an extra £22,000 in your pension fund.
2. I Can Always Depend on the State Pension.
While past generations have relied solely on a state pension; its future is set to be unreliable. It’s estimated that the average life expectancy of 65 will increase by about one year every decade. If you are still young, there is unlikely to be enough taxes paid into the system to support the ageing population by the time you retire.
3. Once I agree to Pay Into A Pension Fund, I Can’t Stop
Most Pensions are flexible enough to allow you to change contributions if your circumstances change.
4. If I Die My Pension Fund Will Be Lost
This depends on what kind of pension fund you have. Most Defined Contribution Pensions will pay your full savings fund to your heirs should you die before reaching 75.
Defined Benefit Pensions are slightly different. Most of the time your surviving dependents can receive a survivors pension or a lump sum. All pensions are different. Always read the small print.
5. I have To Buy An Annuity When I Get To Retirement
It is still possible to buy an annuity, but there are also other options for those wishing to opt for cash payment or stay invested and drawdown from their pension pot.
6. I Can’t Join My Workplace Pension Scheme Until I Reach 22.
It’s true that auto-enrolment means that you are automatically enroled into a company pension from the age of 22 provided that you are earning enough. However you can opt to join earlier, and if you earn more than £490 per month, your employer must contribute too.
There is also a new government initiative is set to lower the age for Pension Automatic enrolment, to include those over the age of 18, by the year 2020.
7. If The Company I Work For Goes Bust I Lose My Pension
You can rest in the knowledge that most pensions benefit from protection should the unthinkable happen. Defined Contribution Pensions are your own pension pot and are not connected to your employer.
If You are part of a Defined Contribution scheme and your company goes bust, you may face a slight reduction in payout. However, these schemes are covered by the Pension Protection Fund which ensures that, in most cases, members receive at least 90 percent of the income the would have otherwise received.