DO I REALLY NEED A PENSION?

Pension Fund On Computer

Economic uncertainty may mean we overlook saving for retirement - but what happens if we don’t put the pennies away?

There are lots of excuses to not start putting money in a pension: you’ve got years to do it in, you’ll probably downsize and make a profit from property, the lottery has to turn your way soon.

Sadly there’s no actually valid reason, besides already having a fortune tucked away somewhere extremely safe, to not ensure you’re paying in to the very best pension possible from as early as you can.

Men are looking at a retirement of around 17 years while women commonly live 26 years beyond retirement. That’s a long time to live off of your savings, and despite the common view that old age is cheap, research shows that your outgoings change only minimally between the ages of 30 and 70, children or no children.

In 2021-22, the full new state pension is £179.60 a week (£9,339 a year). But the actual amount you may get depends on your National Insurance record, and can therefore be less than that. In August 2019, the average for a man who qualified after April 2016 was £160.18 a week (£8,329 a year), while the average for a woman was £152.55 (£7,933) a year. Combined, that's only around £16,262 a year.

In 2017/18, 67% of a retiree’s income was actually generated from a private pension. Though state pension benefits, occupational pension schemes and investments are also major sources of income for UK retirees, the proportion generated from private pensions has been increasing in recent years.

So, a State Pension is barely enough to buy food and pay bills and most people rely on other sources of income in their later years.

Not only that but life expectancy figures are going up all the time and medical breakthroughs are coming thick and fast. Which is nice if you consider the fact that you’ll get to live longer, but less so when you realise you have to keep paying for things during those extra years. Therefore, it’s inevitable that, one way or another, you’re going to need another source of income from the year that your bus pass kicks in. But how is taking out a pension better than simply saving money in a bank account?

It’s all down to tax relief and interest rates.

If you were to save £50 a month from the age of 20 and keep it in a moneybox, you’d have £27,000 by the time you were 65; a little less than the average annual salary according to recent statistics, and probably not worth than much by the time you do reach 65, due to inflation.

However, if you were to invest the exact same money in a typical pension, growing at around 9% per annum, excepting charges, you could expect to have saved £314,000 – more than eleven times as much.

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