Why it’s not all doom and gloom on Pension Awareness Day

The advent of pensions is something that should be celebrated and cherished throughout the UK in the same way as the NHS. It allowed ordinary working people to have some security in later life and meant that they could actually retire.

Before pensions, elderly individuals would have to be looked after by family members, or they would have to work until they were no longer capable of doing so. You could say the introduction of pensions allowed people to take care of themselves in old age, meaning that the next generation could concentrate on their children and themselves. It could even be argued that it freed large parts of society from a cycle of poverty that came from looking after both elderly relatives and children, encouraging greater social mobility. 

Many people say pensions are too hard to understand, which they are not. They are simply a saving plan with tax breaks that other savings plans don’t have, because you cannot get at the money until you reach a certain age.

And tax breaks are one of the major benefits of pensions. There are no other investments that, if you are a tax payer, I would use the word ‘guaranteed’ about. Pensions are the exception to this, within your allowances, you put money in and you will receive a tax break from the government. The more tax you pay, the more you get from the government. Every pound you put into a pension, the government gives you money back. In addition, the money grows largely without tax. Name me another investment that does that?

On top of this, employers will often match your contribution. If you have a pension scheme at work, and by law your employer has to have one, check out the contribution levels. We see many people not putting into the company pension scheme, therefore missing out on money that they are entitled to as part of their remuneration.

Now that pensions are more flexible, it is possible for your spouse and children to inherit your pension pot. You may even be able to fund your children’s pensions and that of future generations.

Many people say that they can’t afford to save into their pension. We understand that, but we say just start with a very small amount. Get into the habit, if you can, of putting away an amount, no matter how small. Think that you are paying your future self.

We all make choices as to where our income goes, and most of these will prioritise immediate needs over future ones, because of the way we have evolved. Take your expenses, how much data do you really need to pay for on your phone? Or your TV subscription – do you really watch all the film channels? The holidays? Going out? It’s not an either/or. You can do a little less of one of these and save a little more into your savings and pension.

Lots of people knock pensions. In recent weeks we have seen headlines about younger people not being able to retire because they will not be able to accumulate enough. Let’s stop that. Let’s start by getting rid of the clichéd idea of retirement that most people hold. The idea that conjures up images of gold watches, golf courses and cruises all at the age of 65. In order to fund this lifestyle it’s true that you are going to have to accumulate quite a large sum of money. However, in our experience the majority of retirees we see do not retire in this way.

Most people don’t just stop doing the job they have done all their lives, they slow down first. Age legislation means that, for the vast majority of us, we can continue to work. Many employers, now more than ever, are recognising the skills of older and experienced workers and want to keep these employees in the workplace.

We see people time and time again moving to fewer hours so they have more control of their time. In the majority of cases, people do this because they want to. It means they are still receiving income, not drawing on pension monies, but do have greater control of their time. They can continue to work in this way for many years, finally getting to the point where they fully retire.

Taking this view of retirement, which is far more prevalent than the individual who just gives up work completely at 65, even a small amount of saving now will give you more flexibility to do more of what you want in later life, because the chances are that you are going to be living longer and healthier lives…and that’s a good thing.

So take a bit of control, find out what you are entitled to, and see if you can save into a pension.  Your future self will thank you.

Matthew Phillips

Managing Director

Commentary first appeared in:

Money Observer - Why it’s not all doom and gloom on Pension Awareness
 
What Investment - Abandon thoughts of doom & gloom about pensions
 
Your Money - Pension Awareness Day: your future self will thank you

Opinions, interpretations and conclusions expressed in this document represent our judgement as of this date and are subject to change. Furthermore, the content is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or a solicitation to buy or sell any securities or to adopt any investment strategy.

Thomas Miller Investment is the trading name of the businesses in the Thomas Miller Investment Group. This note has been issued by Thomas Miller Wealth Management Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number 594155) and is a company registered in England, number 08284862