“I want you to contribute to a pension. Trust me, just do it. You’ll thank me in 40 years’ time”.
“What? That’s great, but I’d rather pay my bills this month, go to my friend’s party and I’m thinking about a holiday to Spain this year, so… this pension thing, it can probably wait. Actually, it doesn’t sound that appealing, locking my funds up for 40 years or whatever – no thanks!”
What a terrible viewpoint. One you have probably heard far too often and I can see why you wouldn’t bother. Of course, what we miss are some important points on why a pension can do powerful things for you:
Your employer will contribute to a pension for you – that’s right, they will match your contributions up to a certain level, so by making your contribution you get to double your money. Okay, I’m listening.
The government give you money back in the form of tax relief. For example, if you contribute £80, the government will add an extra 20%, giving you a total contribution of £100, effectively giving you the tax back into your pension. If you pay higher/additional rate tax on your income, you’ll get an extra 20%/25% via your tax return, reducing the tax you pay and keeping more in your pocket.
Within a pension, your funds are protected from taxation and can grow undisturbed, working in the background for your future.
You can’t access it until 55. It seems like a negative, right? Actually it’s a powerful reason why it works well, keeping you on the right track and ticking away in the background for when you need it most – post working life.
Peace of mind planning – I want you to enjoy the here and now as much as you can. After all, where’s the value in always thinking about tomorrow and never enjoying today? It’s finding that balance that counts – having enough to enjoy today whilst getting a head start on tomorrow. It’ll take a weight off your shoulders knowing that you are prepared.
So whilst the message might have been muddled before and it didn’t seem to fit, hopefully now you’ll see why a pension works so well. Unless, of course, you want to miss out on a bit extra from your employer, the government, pay more tax, miss out on decades of potential growth, then wonder where it all went wrong in your later life.
It’s something we do well at AAB Wealth. We work with you to understand what you want your life to look like now and in the future. We share our knowledge so you understand why saving in a pension works for you.