We created Envizage to help you plan your financial future so you and your family can live happy and fulfilled lives. Envizage can empower you to make informed decisions. So why take a risk with your pension when you can use our tool to help give you a richer, more secure future.
Saving towards retirement is essential. Whether you’ve started drawing on your pension or you are on the first rungs of the career ladder, there are some risks you simply cannot afford to take.
Risk one: you don’t have a pension
It’s never too late to start a pension. If you work for a company, joining your employer’s pension scheme is a no-brainer. Yes, you will have to put away at least 5% of your annual salary, but your employer will top this up by at least another 3%. These contributions are income tax and capital gains tax free, so a basic rate taxpayer (someone paying 22% income tax) effectively gets a £25 top-up for every £100 saved.
The even better news is that someone on an average salary of just under £30k could build-up a pension fund of at least £64,000; all for the cost of three Deliveroos every month.
If you are self employed, having a pension allows you to mitigate your tax bill. If you pay higher rate tax you can claim the extra allowance back through your self-assessment tax return.
Risk two: you are not putting enough into your pension
Increasing contributions from 5 to 7% of your annual salary over 30 years, and assuming you earn £30k or more, boosts your pension by £27,000, a total of over £92,000 (for just one extra Deliveroo each month). If you work for yourself you can put as much as £40,000 a year into a personal pension.
Personal pensions come in several forms: personal, stakeholder or self invested personal pension (Sipp). You can set up your Sipp online in minutes and consolidate old workplace pensions in one place. However, always check for any exit charges or guaranteed benefits.
And, you can keep topping-up your pension. If you are under 75 you can pay into a pension plan so long as you are still earning. Pay in up to £2,880 per year and receive 20% tax relief. This also means grandparents can top-up their grandchildren’s pensions.
Risk three: you take too much too early
Scrapping the requirement to buy an annuity means that, for most savers, there is a temptation to take pension cash at 55. Beware, that money (after your tax-free allowance) could attract a hefty bill from HMRC. You may be better off buying an annuity or taking pension drawdown which is a product that allows you to stay invested in the stock market, with the risks and the possible rewards that could entail. Always speak to a pension adviser.
Risk four: you are female
The amount someone saves towards their pension almost always depends on how much they have earned during their working life. The gender pay gap was 9.6 per cent in 2018, meaning the average pension pot of a woman at 65 is £35,800 – a fifth of a man’s at the same age. Over their working lives, women face a ‘triple whammy’. Not only do they earn less than their male counterparts before they have children, they often fail to keep their pension topped-up during maternity leave and in the years after. When you start a family, you need to keep your pension topped-up. This is because you get your national insurance contributions paid which builds-up your state pension entitlement, so doing the same for your company or personal pension is essential.
Risk five: you think your state pension will be enough
From 6 April 2019, the flat rate basic state pension was just £168.60 a week – an extra incentive, if one was needed, to save. And, relying on the state pension comes with another risk too, the rising state pension age. The Women Against State Pension Inequality’s (WASPI) campaign has highlighted the issues around the rising state pension age.
We created Envizage to help our users understand and manage risk and uncertainty. By effectively doing so, we help everyone to improve their lives today and in the future. We do this by understanding our users’ unique financial circumstances and their desired future outcomes. We then help our users assess whether they will be able to achieve those outcomes. We help our users to visualise their futures and achieve their aspirations via apps powered by our analytics engine. Want to hear more from Envizage? Follow us on Twitter: @Envizage_me and LinkedIn.