Is it worth paying into a pension? .

Good question. After all, you’ll have the state pension when you hit pension age and you could invest in all kinds of other savings products instead of paying into a pension. So, what’s the point? At Ascent Financial Planning, we’re ready to talk you through every aspect of pensions so you can make informed decisions about your financial future. Let’s start here with our expert guide.  

Pensions can be part of your long-term (and short-term) financial planning 

 A pension is a way of saving for the future so you can stop working when it’s time to retire. You can plan ahead, see how much you need to save and build up a pension pot. But is it worth paying into a pension for 10 years? Is it worth paying into a pension for 5 years? When retirement seems so close, is there any point? You might be surprised to find the answer is yes. It’s more than possible to start a pension at 60. You can pay into a pension and get tax relief on your contributions right up until to the age of 75. If you work up to state pension age, you still have time to build a modest-sized pension pot.  

The key is to maximise your contributions however you can. For example, if you opted out of your workplace pension, you can ask your HR department if you can opt in again. If you’re already paying into a pension, think about upping your contributions. Even a small amount per month can make a big difference. 

What are the advantages of paying into a pension? 

There are several substantial benefits to paying into a pension: 

•  Tax relief . Any money you pay into your pension (as a basic-rate tax payer) will automatically get a 20% top-up from the government. So, for every £80 you pay in, the state pays in £20. The government will pay in more if you pay more tax (although you may need to claim it yourself).   
• Employer contributions. If you are employed, your employer must pay extra money into your pension if: 
  - you're between age 22 and your state pension age   
  - you earn £10,000 or more a year. 
  They can choose to pay in if you earn less. These employer contributions are normally at least 3% of your wages, but can be higher. Establish whether your employer offers contribution matching, which means they will pay in a higher amount, up to a certain limit.  
  Think twice about 'opting out' of a workplace pension or decreasing contributions. Opting out is usually a bad idea, as you're effectively throwing away free cash. Meanwhile, lowering your contributions can have a negative effect. If you lower contributions below the minimum 5%, then your organisation doesn't have to contribute (many do, but it’s not obligatory).
• Lump sum. Once you hit 55 (57 from April 2028), you can take up to 25% of your pension as one more tax-free lump sums. You can take this sum even if you are still working and paying into a scheme.  

Common doubts, misconceptions, and concerns 

Pensions can be complicated and that gives rise to many misconceptions about them. These doubts can prevent you from making the first step and starting a pension, but our experts are here to dispel the myths so you can take the right financial path.  

• I can retire on my state pension 

Some people assume that the UK state pension will be all they need to retire. This is a serious misconception. The current full state pension is around £240 per week, which, for most, will barely cover living expenses. Plus, as living costs continue to rise, relying solely on the state pension is likely to leave you unable to maintain the lifestyle you want.  

• My savings will be enough

Savings are a great way to build up additional funds, but they can’t replace a pension. Savings might give you easy access to your money but pensions are designed to help you save for the long-term and to increase your wealth through tax relief, employer contributions, and growth potential. And remember, starting a pension doesn’t mean you have to stop saving. A pension can work with your savings, giving you more financial padding for later life.

•  Pensions are only for the rich

One of the biggest misconceptions about pensions is that they are only for the wealthy. In fact, pensions are for everyone. Just starting your career? Nearing retirement? Either way, from the moment you start saving for retirement, your money grows over time. And don’t forget that you will be eligible for the state pension if you pay national insurance contributions (NICs). There also exist pension plans called SIPPS (Self Invested Personal Pensions), which offer flexibility and let you contribute an amount that fits your budget. And the earlier you start, the greater the compound interest will be. Don’t let the myth that pensions are only for the rich stop you from opening a pension.   

• Pensions are too complicated

It’s true that pensions can seem a little intimidating. They come with an array of terms and phrases that can put you off investing, but with a little help from our experts at Ascent Financial Planning, you can navigate the world of pensions and set up the right pension arrangements for you. What’s more, there’s now technology that can help you see exactly how much you have invested and how to manage your pension. With experts on hand, user-friendly solutions and useful resources, pensions can be clear and simple so you can concentrate on your goals. 

• Pensions are a scam 

Pensions are highly regulated and designed to offer long-term financial security. However, pension scams do exist so it’s best to be aware of fraudulent activities: 

- If it sounds too good to be true, it probably is. Be wary of promises of high returns and ‘no risk’.  

- Never share private or sensitive information over the phone or email unless you’re 100% sure who you’re dealing with.  

- Feeling pressured? A genuine pension adviser will never push you into financial decisions, whereas scammers will create a false sense of urgency to obtain what they want.   

• It’s Too Late to Start Saving for Retirement 

As we’ll discuss in the next section, it’s never too late to start saving for retirement. The earlier you start, the more compound interest you accrue but late starters can still make a substantial impact on their financial future. The secret is to start as soon as possible. Even small contributions will make a big difference.  

Can shorter contribution periods still be beneficial? 

While it’s best to begin saving into a pension as soon as possible, you can still build a pension pot if you start later. Starting at 60 gives you 7 years of saving and investment growth before state pension age. Combined with tax relief, every pound you save works harder than cash in a bank account.  

Strategies for starting at 60 

• Make sure you are getting the full employer match. 
• Use salary sacrifice: Save National Insurance as well as income tax on pension contributions. 
• Check your expenditure: Even small savings redirected to a pension can make a meaningful difference over 7 years. 
• Consider working slightly longer: Every extra year of work means one more year of saving. 
• The cost of waiting. Every year you delay costs you. Starting at 60 versus 65 means 5 extra years of compound growth.  

Pensions as part of bigger plans 

While starting a pension is a good move, it shouldn’t be your only investment. The best option is to make your pension part of a broader financial plan that will take care of you in the future. Investing in a pension as a standalone product that’s unconnected to other savings and investments means you have to keep track of a number of different products that are not in harmony with each other. But there is another way.  

At Ascent Financial Planning, based in North Wales, our experts can help you put together a retirement plan that takes into account not just your pension but any other investment products you may have. We’ll also help you choose a shrewd investing strategy that will help keep risk in check. For example, diversifying your investments across a range of assets is a good way of lowering your risk as retirement approaches. A diverse portfolio that includes a pension can reduce volatility, as bad performance in one area will often be balanced out by better performance in another.   

Together, we’ll create a plan that’s built around your specific circumstances. The plan will be clear, straightforward and easy to follow, and our experts will help you review your retirement options. We can explain the pensions you already have, show you how to make the most of your contributions, and support you every step of the way. 

 Next step 

The right advice at the right time can be game-changing. Talk to Ascent Financial Planning for tailored guidance on pensions and long-term financial planning.  

Saving into a pension can help you build money for retirement, with the potential for long‑term growth. The value of pension investments can rise and fall, and because pensions are typically invested over many years, returns are not guaranteed. You could get back less than has been paid in, particularly if investments are taken out at an unfavourable time.