I’ve been looking at the amount I am likely to receive in terms of the state pension and it doesn’t look like it will be enough for me to live on. At present, 15% of my wages are going into a pension with my employer contributing more on my behalf.
Is it a wise move to continue with that or would I be better off putting that money into a savings account, such as an Isa?
You certainly aren’t alone in thinking your current arrangements won’t provide enough for you to live on comfortably in retirement. What you’re doing at the moment sounds as if it is probably the best approach.
You are benefiting from initial tax relief on your pension contributions and also payments from your employer. You wouldn’t get either of these if you saved into an Isa or savings account instead.
You should keep saving as much as you can into your pension. This will put you in a stronger position in retirement.
If you have control over the investments in your pension, you should also make sure you’re investing in sensible funds and not taking too much, or too little, risk.
Only look at alternatives to pensions if you need the flexibility they provide, but remember the benefits you’ll be giving up if you’re not saving into a pension.
Moneywise says: Three reasons to save into a pension
- Growth – Pension schemes invest in a range of assets including funds, bonds, shares and cash. They are riskier than cash but over the long term they tend to vastly outperform. Over the past 30 years, UK equities have grown 1,433%, according to research by True Potential. In contrast, cash would have increased in value by just 438%.
- Tax benefits - The government refunds the income tax you’ve paid on pension contributions. This means you automatically get 20% added to your pension for every contribution you make. Higher- and additional-rate taxpayers can claim back the extra tax paid via their self-assessment.
- Employer contributions - If you are paying into a workplace pension, your employer should be making contributions to your pension too.This has to be at least 1% of your earnings at present, rising to 3% by 2019, but many employers contribute far more.