Pension myths

The pension basics

1. I’ll pay into it when I’m older – no-one my age pays into a pension

• Actually the opposite is true. For example in 2021, 8 in 10 eligible employees were paying into a workplace pension.
• A pension pot is actually an investment in the stock market. When you put money into it, it goes into one or more investment funds. So the sooner you start paying into your pot, the more time your money has to either grow or get through any stock market ups and downs.

2. If I move jobs, I’ll lose all the money I’ve saved with that employer

• The money in your pension pot belongs to you. And it’s looked after by a provider that’s completely independent of your employer.
• Moving to a new job won’t make any difference to it, though your new employer will probably set up and start paying into a new workplace pension for you.
• That’s why people often end up with many different pension pots. If that happens to you, you can bring all your pots together into one – that’s called consolidation.

3. My employer isn’t around anymore so I’ve lost my pension

Whatever’s happened to your employer, your pension pot will still be out there! They will have set your pension up with a separate financial provider who you can contact directly. So you just need to:                   

• find any pension paperwork you still have - it will tell you who your provider is and hopefully give you details like your account number
• if you don’t have those details, our Finding your pension article will tell you how to track it down - or just go straight to the Government’s free Pension Tracing Service.

Think you can’t get a pension? Think again!

4. I can’t get a pension because I’m self-employed

There’s nothing to stop self-employed people getting a pension. You’re probably already paying National Insurance towards your State Pension. You can also:

• take out a personal pension and enjoy 25% government tax relief
• use the Government’s National Employment Savings Trust (NEST)
• set up a workplace pension for yourself if you work through a limited company

5. I can’t pay into a pension if I’m on maternity/paternity leave

• If you’re on maternity or paternity leave and being paid by your employer, your and your employers’ contributions will still go into your pension pot

6. I can’t get a pension because I’m just too young

• If you’re under 22 you won’t be automatically enrolled into your employer’s workplace pension but you can ask to join it
• If you’re under 18 you can’t set up a personal pension, but someone over 18 can set one up for you

Pension saving on a budget

7. I can’t afford to put a lot in, so it’s not worth it

A little saved over a long time can go a long way, thanks to the long-term wonders of compounding.Compounding is what happens when your investment’s growth in value stays invested and itself starts growing.
It ratchets up the impact of annual growth and can have a surprisingly big impact over the years. Let’s look at a practical example:

• Imagine that you invest £1,000. Then imagine that your investment grows by 5% a year for the next 20 years.
• In its first invested year, your £1,000 will grow by £50 to £1,050. That extra £50 will then itself grow, so in your second invested year your money will grow by £52.50 to £1,102.50.
• Those may not seem like very big numbers. But over the years they’ll build up. So at the start of your tenth invested year, you’ll have £1,551.33, which will grow by £77.57. That’s 50% more growth than in your first year.
• Fast forward 20 years and your first contribution of £1,000 will have turned into £2,526.95. In its final year it will have grown by £120.33 – more than double its original growth. And all without you investing any more money.
• Now imagine that you have invested more money every month and it too has been compounding. It too will have grown and grown again!
• And that’s why, over the long term, even saving small regular sums can have a big impact.

This example shows how compounding growth works. Your pension might not grow in the same way, and charges will impact how much it grows. It's also an investment, which will fall as well as rise in value. 

8. I’m not earning enough to get a pension

• Only workers earning £10,000 or more get automatically enrolled into workplace pensions. But you can ask your employer to enrol you if you’re earning less, and usually stop and start paying into it whenever you want to.
• If you’re self-employed and have a personal pension there’s no minimum amount you can pay into it – and again you can stop and start paying whenever suits you

Alternatives to workplace and personal pensions

9. Why am I even worrying? The State Pension will sort me out…

• Just now, the most you can get from your State Pension is about £11,502.40 a year. If you haven’t paid National Insurance for the full 35 years you’ll get less. That might not give you your ideal later lifestyle, so it’s always a good idea to have other pensions too.
• If you’re not sure how much your ideal retirement lifestyle could cost, visit the Retirement Living Standards website. It’ll help you work out your later life budget.

10. I’d rather put my money into an ISA or save for a house

• Then go for it – having a mix of savings and investment options is a great idea! But be sure to keep saving for the long term. We wouldn’t recommend switching your pension payments into shorter term, possibly less reliable ways of saving.
• A little research and forward planning can make a big difference here. Make sure you understand how each investment works, any risks involved, what sort of return you might get and if it’ll help you hit your savings goals. You can learn more about these two options in our article 'Should I put my money into an ISA or pension?'

Your two bonus retirement goals myths

11. I’ll lose the money by the time I retire

• Putting your money away for the long-term by investing in things like stocks and shares has tended to perform better than money held in cash savings accounts. With cash savings you also have the risk of inflation, which means that the money you put away at the beginning hasn't grown enough to keep up with everything costing more. Investment growth can help with this, and don't forget about the magic of compounding!
• Any money you put into your pension is yours and will be waiting for you later on. Of course, its value could go down as well as up over the time you invest.

12. That’s all so depressing! I’ll be working until I’m 70, 80 or 90 at this rate! What can I do?!?

• If you’re worried about that, then all the more reason to start saving now. The longer you’re saving for, the more you can invest and the more time you give your pension pot to get to where it needs to be. Even saving just a little now can make a big difference later on.
• You don’t have to wait until you’re 70 plus to access workplace or personal pensions – from April 2028 on, you can access them once you turn 57 (it’s 55 plus until ‘28). That could help you stop working or at least work less at a younger age.
• Assuming you’ve paid enough National Insurance, you’ll start getting your State Pension once you reach your late 60s. At the moment it kicks in when you’re 66, but that’s going up to 68 in a few years.

Are pensions worth it?

The cost of living crisis has made many of us focus on our short and mid-term financial security. But paying into a pension is an action you can take right now that helps secure your long term finances. And when you do it, you’re likely to get help from your employer, the government or both.

That’s why we always say yes. Pensions are always worth considering.