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Why I love my pension, and why you should too

By Sara Neidle
21 September 2021

By Sara Neidle

Last week, it was Pensions Awareness Day, and it was about raising awareness of the importance of saving for retirement. As a savings and pensions enthusiast, I see it as a perfect opportunity to spread the love about pensions and why they are so brilliant.  

We are facing a massive challenge as people are not saving enough for their future. It’s surprising especially as during the height of lockdown (April and June) households saved £54.6bn in three months and kept 29.1 per cent of their disposable income. 

For someone in their early 20s or 30s, saving for retirement is just not a priority, when you are paying your mortgage or childcare, or paying off student debt and have so many other expenses. 

There are so many benefits to having a pension, and I’m going to run through why I think pensions are great and why employers should encourage their teams to take up the pension benefits they offer. At the top of my list: 

  1. You get money back from the government – how insane is that? 

Through your pensions, you receive several tax advantages such as tax relief to encourage people to save, so that we don't have to rely entirely on the state in retirement. For example, if you're a basic-rate taxpayer and you want to make a £100 contribution to your pension, it would actually cost you just £80 of your salary. The government adds an extra £20 on top! 

Not only that, but your savings will continue to grow free from any income tax on dividends and interest, and free from capital-gains tax while they are still invested in your pension. 

Also, when you do decide to retire, although for many of us it feels like it won’t be until we are 80+, due to pension freedoms, you can take up to 25% of the pension fund without paying any tax. Who wants a luxury cruise or Ferrari? Only joking! 

There are lots of other great tax breaks (for the moment), however I’ll leave the experts to tell you about them.

  1. You can get free money from your employer…yes you heard me free money!

Not to bore you, but the latest statistics from the Department for Work and Pensions reveal that in 2020, people saved £105.9bn into workplace pensions, an increase of £5.5bn on the previous year. It’s probably down to auto-enrolment, which was a scheme introduced nine years ago, which has seen more than 10 million people start to save for retirement.

Under auto-enrolment, employers must enrol certain staff into a workplace pension scheme and make contributions on their behalf. If you are wondering how this works in practice, employers must pay a minimum of 3% of qualifying salary into a pension and employees a further 5%. There is even a possibility where your employer can pay in more if you also make additional contributions. 

  1. It’s an easy way of saving, and you don’t have to think about it or do anything

For many younger workers retirement can seem ages away, and you’re not wrong. That is the beauty about it. Anyone can start drawing down on their pension from age 55 onwards. If you are unable to access your pension until then, and you start investing when you’re young - at least I did when I was 21 years old – it means that you are making your money work harder over the long-term. Depending on what pension you have, for example, I have a company pension, it ultimately means you can sit back and relax, and let your money do the work.  

  1. You are in control 

I like to be in control of my savings and investments. Pensions are very different to how they were decades ago. Given the times, there is much more flexibility and freedom to do what you want with your pension. For example, you no longer need to buy an annuity, if you don’t want, and you can leave the rest of your pension invested in the stock market, even after taking a tax-free lump sum. Not only that, but you can also drawdown as much or little as you like when you finally need to access your pension savings. As a result, you are much more empowered and have way more control over your pension savings! I like that idea.

Many of us just can’t admit the importance of a pension, and only realise too late when we haven’t got a retirement plan in place. I think pensions are pretty great, don’t you?