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5 reasons why pensions are more popular than ever

We look at 5 reasons that could explain why pensions are becoming more popular.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Over £90 billion was saved into workplace pensions in 2018. This is an 8% increase from the year before, which is huge. In fact, it’s the highest increase across ten years. And if we assume the same growth rate, the figure for last year could be close to £97 billion.

We look at 5 factors that could explain why pensions are becoming more popular.

This article isn’t personal advice. Choosing what to do with your pension and savings are important decisions. Make sure you understand all your options and check that what you plan to do is suitable for your circumstances. If you’re not sure, seek guidance or personal advice.

1. Over 10 million people now automatically enrolled

Government rules introduced back in 2012 mean that employees are automatically joined to their workplace pension. And since 2018 every employer is legally bound to provide one for their staff.

We think this is the most significant reason for a surge in pension savers over recent years, but there are other factors playing important roles too.

2. Pensions are more flexible

In the past people were forced into accessing their pension funds by a certain age, had limited options around how to receive an income, and could lose up to 55% of their unspent pension wealth to tax when they died.

These days the rules around pensions and what you can do with one are far more flexible:

  • From age 55 (rising to 57 from 2028), you have the freedom to withdraw what you like from your pension savings. 25% is still usually tax free, with the rest taxed as income.
  • You can choose to keep your pension invested for as long as you like, withdraw the whole lot in one go, or exchange it for a secure income for life.
  • If you choose to keep it invested, you can withdraw multiple lump sums as and when you need to, take a regular income each year or nothing at all – you have complete control.
  • Whatever’s left in your pension when you die can now be passed to your beneficiaries tax free, and they can withdraw what they like. Their withdrawals will normally be tax free if you die before your 75th birthday, or taxed as their income if after.

There are a few things to remember though. After any tax-free cash, all pension withdrawals are taxed as income and added to any other income you receive in the same tax year. This is very important when planning withdrawals, and could affect how much tax you pay.

Pension and tax rules can change in future, and the exact benefits will depend on individual circumstances.

Keeping your pension invested also means you need to be happy with investment risk. Although there’s potential for the value of your pension to grow, all investments can rise and fall in value, so you could get back less than you originally invested.

3. People are getting ‘Pension Wise’

To raise awareness and to help people understand what they can do with their pension, the government now provides a free guidance service. You may have seen it advertised on TV - it’s called Pension Wise.

If you’re 50 or over and have a workplace or personal (e.g. self-invested) pension this service can help you learn more about how to access your pension, how each option is taxed, next steps to take, and questions to ask your provider.

You can access it online at www.pensionwise.gov.uk, or by calling their helpline on 0800 138 3944. They also offer face-to-face appointments if you’d prefer.

4. Technology is making pensions more accessible

Technology is transforming the way people manage their pensions and encouraging them to take more of an interest.

In the past, if you wanted to find out how your pension was doing and what you were on track to receive when you retire, you might have had to wait for an annual statement – often sent in the post.

Nowadays you can review your pension quickly and easily online. Our clients, for example, can login to their accounts 24/7 to check on their investment performance, change how much they pay in, and buy or sell investments at the click of a button.

There are also more tools available to help you plan ahead and manage your money on the move – like our pension calculator and mobile app.

5. Self-preservation and realisation

Many people are starting their own pension. This could be because they want to take control of their investments, or perhaps they’ve realised they’ll need to make more provisions if they want the comfortable retirement they envision.

People are also recognising they might need to wait longer than they first expected before they’ll get their state pension. The government has continued raising the age at which we’ll receive the state pension (currently about £8,750 a year).

It used to be age 60 for women and 65 for men. But it’s already risen to 65 for women and it’s in the process of rising again this year to 66 for both men and women. From 2028 it will go up again to 67, and may change in the future.

Also, despite more people joining their workplace pension, they are typically less generous than in the past. Many workers used to be offered a final salary pension which promised a valuable retirement income, but these are rare now. You should check with your employer to find out exactly what type of scheme they offer, including the scheme rules and benefits (for example how much your employer will pay in and how you’re able to access your savings later on).

How to start your own pension

Find out more about the HL SIPP

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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