Do you remember your first job, and when you had to decide whether you wanted to contribute to your company’s pension plan or not? I certainly do, and what I remember is that it was pretty confusing. The company offered a match up to a certain percentage of my income, but they were very vague about where the money would be held, how and when I would be able to access it, and in the end, I decided not to go with it. most personal finance bloggers would say that it is completely crazy to pass on the company match, since it is basically free money. You put in £50, the company adds £50, making it an instant 100% return on your money. But the catch is you can’t access it until you reach retirement. And then it will either come in the form of an annuity, providing you with an income for the rest of your life, or a lump sum. But remember companies still have to be profitable, so they will judge your life expectancy when defining your annuity, and unless you live to be very, very old, there is as chance you won’t get back as much as you contributed.
I am fine with the concept, since it is also made so other people can be financially secure in retirement. However, I think it is unfair to change the rules half way through your employed life. For example, my mum found out she had to work five extra years to get her full pension, when she was already in the 50s. That is why I have decided to go completely private when it comes to planning for retirement, and invest my own money, so I can only blame myself if something happens to my nest egg, and if I decide to retire early, I can access it whenever I please.
BUT there is a huge risk to that. If I were not saving diligently every month since college 15 years ago, I would have nothing saved, and it would be much harder to make up for the lost years. You have to start early, even if the amounts don’t seem like much at the time, with decades and compound interest on your side, saving £100 a month in your 20s is like having to save £500+ in your 40s to make up for the lost years of compounding. When I see how most people save a little money, then there is an emergency, and they deplete their savings (be it a real emergency like a job loss or a health issue or a whim like renovating the kitchen or going on holidays), this is definitely not a strategy I recommend.
Whatever you do, what matters most is that you are thinking about and planning for retirement. You need to understand clearly what you are getting into when signing up for a pension plan, how you would fund it, decide how to invest it and be able to access it. Investment provider L&G reports that only 33% of people aged 55-64 have no clear knowledge of how annuity works, and 26% don’t understand how they can access their pension plans. So close to retirement, this is worrying news.
That is why L&G has decided to start a big campaign to help people understand their finances, and has offered people the chance to ask questions to a panel of expert via Google Hangouts. The last one was hosted by L&G’s CEO Nigel Wilson and tackled Pensions & Retirement.
You can check the video below to learn more
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