Why should I bother with paying into a pension at my age of 55 years now when I have never had one?
I see your point. Pensions are complex, constantly changing, full of jargon and subject to the whimsy of governments. Why would you bother?
Theoretically, if you have lots of other assets that you can use to generate an income in retirement, then you don’t need to bother with pensions. That said, you should probably ensure that you’re not dependent on just one or two types of investment. I met a woman recently whose whole retirement plan was based on investment in Eastern European property. It might work, but it’s a little narrow for my tastes and I’d make the same point about all those depending solely on UK property. Very few things go up in a straight line for ever.
Equally, it would have been great if you weren’t starting your pension at 55. I’m put in mind of the old Chinese proverb about the best time to plant a tree. The answer: twenty years ago. However, the other half of the proverb says that the second best time to plant a tree is today. And the fact that you’ve never done it shouldn’t put you off doing it now.
There are two main reasons to look at pensions, no matter what your age. First, your employer might match your contribution. Under ‘auto-enrolment’, all employers, even the very smallest, are obliged to offer you a workplace pension scheme. In these schemes, you might put in £200, your employer would put in another £200. So for £200, you’d up with more than £400 invested for your retirement and…..
….then there is the Government’s contribution. They insist on making this complicated by talking about ‘tax relief at your marginal rate’, but what it really means is they give you back some of the tax you’ve paid. his can be as high as 45% for high earners, though there are now restrictions on pensions relief for those earning over £150,000. Either way, it might add another £250 to your £400 pot.
These incentives are not to be sniffed at and can allow you to build up a pretty chunky pot quite quickly, quite cheaply. You don’t have to take this at 65, and you don’t have to use it to buy an annuity. You can pretty much do what you like with it. You can even completely ignore it and pass it on tax free to your dependents. Even better, you can take 25% of it as a lump sum.
So, while I’d never say you have to have a pension, there are advantages. And it’s not that difficult to do. If you don’t have a scheme through your employer yet, or you don’t have an employer, then here are some useful thoughts on personal pensions.
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