The world of pensions can be a confusing one. There are many misconceptions surrounding pensions which can wrongly put people off using one to save for their retirement; here are a few of the most common ones:
I’m taxed on the way in, and taxed on the way out
Many misunderstand the most beneficial aspect of pension saving – tax relief. When you pay into a pension, this is topped up by the Government to offset tax already paid. This means that for most people1, if they pay £100 into a pension, the Government pays £25. When you take money out of a pension, usually 25% of this is tax-free, meaning only 75% of withdrawal amounts are assessed for income tax.2
I can only take my pension when I stop working
This is not true. Anyone who is 55 or over2 can legally access their personal pension benefits. Individuals have the choice to start dipping into their pension savings even if they are still working and earning an income. This can be a useful semi-retirement tool to support a move from full-time to part-time work rather than stopping work altogether.
If my employer goes bust, my pension goes with it
Media coverage of high-profile company collapses do not help here; it’s no wonder this is a concern to many. Thankfully pensions now benefit from various protections which aim to ensure that this does not happen3. The Pension Protection Fund4 covers most final salary pensions while for modern workplace pensions, you and your employer save into a pension pot that is held in your name by an organisation separate to your employer.
At Beaumont we often speak to people who do not understand their retirement options. Pensions can be complex, but recent pension freedoms have tried to make it easier and more flexible to make the most of your pension savings. And remember, a pension is a useful tool to build up retirement savings plus it’s never too early or late to start putting a bit away for later life.
- Basic rate taxpayers within their annual allowance limit – source UK Government Income Tax Statistics
- Tax treatment depends on individual circumstances. Both your circumstances and tax rules may be subject to change in the future. This information is based on the current legislation.
- Source www.workplacepensions.gov.uk/employee/workplace-pension-myth-buster/
- See www.ppf.co.uk for further details