Six myths about pensions you need to know

While almost every working adult has a pension of some sort (whether they know it or not!), pensions are not necessarily the most easily understood financial subject.

A pension is an important form of income, grown and contributed to over a lifetime so that you can retire and live life to the fullest in your golden years.

While the application and purpose are simple enough to appreciate, the ins and outs of pensions can sometimes be more complex. There are plenty of misconceptions and outright myths out there about pensions – some of which we’ll be shedding light on in this blog post.

‘I don’t need to worry about a personal or workplace pension because the state will provide for me’

Unfortunately, while the state pension does provide for most people in the UK, the amount is unlikely to cover the costs of most seniors.

As of 2022, the basic State Pension afforded by the UK government is £141.85 per week*. The full new state pension for those reaching state pension age after 5 April 2016 is £185.15 a week. Even if you received the full rate of new state pension, that would still only amount to roughly £802.32 every four weeks or £9,627.80 per year.

It’s also worth considering when you will be able to start claiming your State Pension. Currently, you can access your State Pension when you turn 66, however, that age is set to increase to 67 years old by 2028.

If you wish to retire before this age, you will certainly need to have alternative income at your disposal.

‘Transferring all your pensions into one pot isn’t safe’

When you consult with a financial adviser about your pensions or explore your own financial options, you could consider combining multiple pensions into a single pension pot.

There’s a misconception that this can be dangerous, the financial equivalent of putting all your eggs in one basket. The truth is, even if your pensions are consolidated into a single plan, your money can still be invested in a diverse portfolio of shares, property, bonds and cash.

This diversification is fairly standard practice for reputable pension providers, meaning your portfolio will weather the storms and counterbalance any dips in one particular fund.

There’s nothing wrong with having multiple pension pots. However, as workplace pensions have the tendency to get forgotten about, many people find that having their pension pot under a single plan makes it easier to manage and control. 

‘I need the help of a financial adviser to make decisions about my pension’

You don’t need to seek professional financial advice in order to change, adjust or manage your pension.

Plenty of people use online tools to track their pensions, manage multiple pension pots, and feel confident exploring their financial options without specialist guidance.

As independent financial advisers, we support people in making the right financial decisions for them – pensions included. While many of our clients prefer to speak to our pension specialists when planning for their retirement, it’s by no means a must-do.

‘I’m in a workplace pension so I don’t need to worry’

Depending on the calibre of your workplace pension and the rate at which your employer contributes to it, your workplace pension(s) may provide you with a decent income when you retire.

Unfortunately, not everyone who has a workplace pension will find themselves with enough income to retire comfortably. Depending on what kind of lifestyle you’d like to lead when you retire, you may need to look into additional savings or investment opportunities to boost your income.

Our team of pension advisers can help you determine how much income you’d need in order to retire comfortably and how best to go amount making that happen. 

‘If you lose track of a pension, you can’t get it back’

Losing track of a workplace pension can be frustrating but they’re rarely if ever irretrievable.

There are steps you can take to track it down, including via a handy government pension search tool. If you’re seeking support from an independent financial adviser like HWIFM, we can help you to track down misplaced pension pots and, if you’d prefer, help consolidate them into a single plan.

According to the Association of British Insurers, as of 2020 there’s over £19.4 billion worth of unclaimed pension income floating around out there – make sure you claim yours!

‘Pensions are basically the same as saving money into a savings account’

Depending on what kind of account you deposit your money into, a pension is distinctly different to a traditional savings account – this is because a pension is technically a financial investment.

When you pay into a pension, some if not all of that money is invested in a diverse portfolio that you may or may not have a say in. The intention is to grow your pension pot through this successful investment, allowing it to build over time and overcome the effects of inflation.

Like all investments, there is risk involved in paying into a pension. While the level of risk in pensions investment can be low, that’s not always the case and there is a chance you may not get out everything you put in.

However, if you pay into a traditional savings account (one with no investment capabilities or opportunities for financial appreciation over time) to save for retirement, your income will undoubtedly fall victim to inflation and may be subject to other financial implications.

You don’t need to understand pensions from the inside out in order to make smart, well-informed financial decisions about your own pension.

Our pension specialists at HWIFM can support you in exploring your pension options and finding an approach that works best for you – get in touch with the team today to find out more.

* This figure applies to those who reached their state pension age before 6 April 2016. Some people receiving ‘additional state pension’ on top of this figure.