The Importance of Pension Awareness: Why You Should Care
Looking towards retirement is an important part of financial planning, and starting to save as early as possible can help you get ahead of the curve. This Pension Awareness Week, take the time to understand the Local Government Pension Scheme (LGPS) and how additional benefits, like Shared Cost Additional Voluntary Contributions (Shared Cost AVCs), can help keep pensions on your radar this September and beyond.
The Role of Pensions in Financial Planning
Pensions are a cornerstone of any financial plan, offering a source of regular income when you retire. They provide the foundation to maintaining your lifestyle when you leave the workforce.
As an LGPS member, you are one of the 6 million people benefiting from the scheme’s comprehensive support. The LGPS offers a defined benefit pension scheme, which pays out a secure income for life upon retirement.
With the LGPS, your employer contributes to your pension, effectively giving you additional money to boost your retirement savings. The average LGPS employer will contribute roughly two thirds of the scheme’s costs. You can contact your pension fund to find out the exact amount.
As an added bonus, you have the option to boost your LGPS benefits by contributing into a Shared Cost AVC scheme. Your Shared Cost AVCs could benefit from the power of compound interest – where you pay interest on the amount saved, and on previous interest earned. This can greatly increase your retirement pot, and means the earlier you start saving, the better your retirement could be.
How Staying Informed Can Impact Your Retirement
Consumer research from The Financial Services Compensation Scheme (FSCS) shows ‘almost half of those under state pension age are not engaged with planning for their retirement’.*
Becoming informed about your pension can help you build the confidence to make strategic decisions and avoid costly mistakes when planning for the future. Knowledge is power when it comes to ensuring a comfortable retirement.
Understanding your pension plan’s specifics, such as accrual rates and early retirement options, ensures you get the most out of your benefits, while knowledge of the LGPS allows you to predict your retirement income accurately and adjust your savings and investments as needed.
Common Misconceptions About Pensions
Several misconceptions about pensions can lead to poor financial decisions. Let’s address a few:
“I’m Too Young to Worry About Pensions” As a member of the LGPS, early contributions into a Shared Cost AVC scheme can harness compound growth, increasing your retirement fund over time. This means that starting to save extra at 25, compared to 35, could result in having more money at retirement, or being able to retire early.
“The State Pension Will Be Enough” Sole reliance on the State Pension can result in financial shortfalls, this means that paying into the LGPS is crucial when aiming for a comfortable retirement. The full new State Pension in the UK is £179.60 per week (as of 2024), which may not be sufficient to maintain your desired lifestyle. You can utilise Shared Cost AVCs as a tax efficient way to boost your retirement savings, alongside your LGPS pot.
“I’ll Never Retire, So I Don’t Need One” Life’s unpredictability might force early retirement. A pension provides a necessary safety net. According to the Age UK, nearly 40% of retirees had to retire earlier than planned due to health issues or job loss.†
“Pensions Are Too Complicated” While they may seem complex, numerous resources can help you understand and manage your pension effectively. Websites like MoneyHelper, Pensions Advisory Service and the My Money Matters platform provide free educational tools, like webinars, to help you understand your options.
Conclusion
Pension awareness is vital for helping people who want to achieve a secure retirement. By understanding your LGPS benefits and breaking down common myths, you can be one step closer to a financially stable future. Start focusing on your pension today - your future self will thank you for it!
For more insights and tips on financial planning, register on the My Money Matters platform.
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Webinar title: Pension Awareness Week: Knowledge gives you choice
Sources:
A Pension is a long-term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
Only just been made aware of these. CAn I join a chat or attend a session somewhere please. I work for RCT but live in cardiff, thanks
Thanks for raising awareness on this important topic!
Great read!