Top five misconceptions about retirement finances

The internet has brought us many benefits; the ability to access a plethora of information about almost anything within seconds, for example.

That said, it can also have its drawbacks. The rise of misinformation online is a particularly dangerous sentiment when it comes to retirement finances, potentially leading individuals to make damaging decisions about their financial futures.

So, it is time to separate the fact from the fiction and break down the top five misconceptions about retirement finances.

1. There is one regimented retirement strategy everyone must follow

Prior to the introduction of the 2015 pension freedoms, there was a one-size-fits-all approach to retirement. Once Britons were ready to retire, the majority took out 25% of their pension as a tax-free lump sum and used the remaining 75% to purchase an annuity.

Now, things are different. Indeed, the pension freedoms have given retirees much more power over their finances. They are now able to decide on their own products to help achieve a financially secure retirement – from flexible access drawdowns to alternative investments.

Such flexibility means that it is now possible to build a strategy to suit an individual’s specific needs. Template retirement plans are a thing of the past!

2. I can’t pay into a pension if I work part-time, or if I don’t work at all

Anyone who is employed and earns over £10,000 per year is automatically enrolled into a workplace pension. This is done regardless of the hours an employee works. So, provided the employee in question does not opt-out of the scheme, they are able to benefit from a workplace pension scheme.

That said, someone earning less than £10,000 is still able to benefit from a workplace pension scheme – they must simply ask to opt into it.

For those who are not in work and don’t have access to a company pension, it is still possible to pay into a personal pension. Contributions can be made by the saver, or by someone else on their behalf. Individuals are able to pay up to £2,800 a year if they don’t pay tax – and pension tax relief will then boost the amount to £3,600.

3. Advice is too expensive

According to My Pension Expert’s recent survey, 75% of Britons think that independent financial advice is too expensive. Because of this misconception, many people may choose to make their financial decisions unaided.

But, contrary to popular belief, independent financial advice is affordable! In fact, at My Pension Expert, we do not charge our clients unless they choose to follow the recommendations of our advisers. So, clients are able to explore their various retirement finance options, without facing the prospect of hidden charges.

4. If my employer goes bust, I’ll lose my pension

It is true that those with a defined benefit pension or final salary contribution could be affected if their employer goes bust. However, such schemes are well supported by the Pension Protection Fund, which means that most people will still receive the retirement income they were initially promised.

That said, for the vast majority of employees, they will be part of a defined contribution scheme, which offer huge levels of protection. This is because, when money is paid into a defined contribution scheme, it then belongs to the employee. So even if they switch jobs, or the company goes bust, the money will remain safely in their pension pot.

5. It is a hassle to switch pension providers

Savers are able to switch pension providers at any time in their lives. However, many don’t – simply because they think the process will be too time consuming or complicated, and consequently, they stick with providers that might not suit their needs.

But the process isn’t as painful as many assume. In fact, the experts at My Pension Expert take care of the majority of cumbersome administration on behalf of our clients. The process couldn’t be simpler, so it would be advisable for Britons to investigate the various pension providers on the market and find one to suit their specific needs.

Misinformation about pension finances can prevent savers from making the best financial decisions ahead of their retirement. However, by breaking down these myths and seeking advice where necessary, savers will be able to achieve the financially secure retirement they deserve.