The Importance of Pensions

Whilst not the most exciting of subjects, a decent personal pension is important if you are going to enjoy the years after you retire. It also gives you greater flexibility on when you can retire.

The State Pension age is gradually increasing – as I know personally because when I thought I was within 10 years of drawing me, I hate to say it, old age pension, I had a letter saying my state pension age was increasing by a year! For those now in their twenties, or perhaps older, there is the possibility that there will be no state pension at all, or if there is one, it is set at a lower level, in real terms, than today.

The company pays more contributions on your behalf than it is legally required to and has also set your contribution at a higher level in order that you build up a reasonable fund. The company’s rate of contribution is set but it is possible to pay more contributions yourself and, subject to limits, get tax relief on these. It is also possible to make a greater salary sacrifice, again subject to limits, although this is an area the government is looking into and there may be greater restrictions in the future.

Most co-workers are in the company scheme but if you are not then it is worth seriously considering why you have opted out. If you leave the company and join another employer’s scheme it is important to consider the level of contributions being made and whether you wish to top these up.

As referred to earlier having your own pension gives you greater choice on when you retire although the earlier you start drawing it the smaller the pension you receive.

The company can not give specific pension advice as, by law, this has to be provided by someone properly licensed to do so. If you are a member of the company scheme or thinking of joining then you can ask advice from Scottish Widows who manage the company scheme.

Relying on a lottery win to fund your retirement is a very risky strategy. Relying on being able to work beyond your retirement age is also risky as no one knows what the future holds and you may not be able to continue working for a variety of reasons.

It is worth bearing in mind that when you retire you have more time to do things than when you are working and so your requirement for money to spend enjoying yourself may well increase. Thinking about how much you will need is a good place to start when deciding if your pension is going to be adequate for your needs.

It is never too early (or late) to make pension contributions. If in doubt, take advice now.

David Grist, Finance Director