There are many people that do not have a pension or just pay into the state pension. However, if you have a job, then you have to be offered the opportunity to pay into the work pension scheme. This is something that some people will choose to opt out of. However, there are lots of advantages of paying in and it is good to be aware of those so that you can decide whether you do want to opt out or not.
More Money for Retirement
It is important to plan for your retirement and make sure that you have enough money. Although we should all be entitled to a government pension, if we have been working and paying in or some benefits to live off, these will just be a small amount and are likely to be very much less than you will be used to having income wise, compared to when you are working. You may feel your income can be less on retirement and you will probably spend less on travel as you will not be commuting and you will not need work clothing and hopefully will not need to support your children. However, you may need to heat the house more, as you will be there more often if you normally work outside of the home as you may want it warmer. You will also have more leisure time and need to fund that if you want to go out and about to places or have holidays. You may also still want to buy things for your children and you may have grandchildren to buy for as well.
It can be easy to assume that we will not need so much money in retirement, but in reality, if we want to have a pleasurable retirement, we may find that we will need the same amount of money or perhaps even more. It can be worth thinking about how much you think you will need and then you can more easily decide whether you will need to think harder about getting a pension.
Employee Pays in Too
When you have a work pension, your employer will pay money into it as well. This means that the pension pot will accumulate more quickly compared to a private pension or a savings account. The amount they put it will vary depending on your employer but it is a good idea to find out more about the scheme that they offer and how much you could have. The fact that they pay in will mean that you will not only have a bigger pot, it will mean that when it comes to your retirement you will have bigger pension payments or be able to draw out a larger lump sum of money.
They are Transferable
If you think it is unlikely you will stay with the same employer for a long time, then you might think it is not worth bothering with their pension. However, the money you pay in, will stay in the fund and so you can still draw it out in retirement even if you are not working for them. You can also transfer it, so that all of your pension fund is in one place, if you wish to. It is wise to get advice from an independent financial advisor before doing this though, as you might find that you will lose out if you move the money as there could be costs associated with this. However, what is important to consider now, is that you will not lose the money you have paid in, even if you are only with that employer for a short amount of time.
When you pay into a pension you reduce the tax you pay. This is because employer pension payments are taken from your salary before it is taxed. Therefore, you will pay less tax on the salary that you get. However, you will pay tax when you retire and start taking your pension, if your income is above the taxable threshold for income tax. You may find that it will not be that much anyway though. If you are high earner and pay a lot of tax, then this could make quite a significant difference and it is a completely legal way to avoid paying tax which many people take advantage of.
Better Than Private Pension
A private pension can be an alternative to a work pension. However, as your employer pays into the work pension, there is a huge likelihood that the work pension will be better as you will have a larger pot of money in it to invest. There will be a limit to how much you can pay in, so some people might choose to have a private pension as well, but it is normally better not to have a private pension instead of a work pension.
Gives an Additional Income
You may feel that as you are paying your National Insurance, you will get a government pension and that will be enough. However, the government pension is not that high, which means that you may not find that it is enough. There are also fears that the pension age may be made even later in years to come or that the pension may be means tested and not paid to everyone. Although nothing is certain, it is wise to have an alternative plan just in case and having extra money for your future is not a bad thing.
You no Longer have to Draw it as Pension
It is also worth noting that the rules around pensions have changed fairly recently. It used to be the case that you had to use your pension pot to buy an annuity and draw it as pension. These days you can draw a lump sum from your pension pot and that means that you have a bit more freedom with regards to what you do with the money when you do retire. Therefore, if you are concerned that you will not get much back from your pension, then look at the rules and see how things work.