Answering the doubts you might have

Not convinced about joining a scheme? Take a look at some of the reasons why people don't join and what we say in reply.

Pension contributions are too high and I need all my money now.

Pensions don't cost as much as you think they do. 

For example, although the pension scheme booklet may say you have to pay, for example, five per cent, as the contributions are tax free the actual cost is reduced to about 4%.  Also if you are joining a contracted-out scheme, your National Insurance contributions will go down, making the real cost about 3% of net pay, ie 3p in the £1. Remember, the employer also pays into your pension scheme – so if you are not in the scheme you are missing out on extra pay.

Pensions are good value for money. Look at what your pension contributions will buy:

a)  Regular pension for life.

b)  A tax free lump sum.

c)  Death benefits for dependants.

d)  Possibly ill-health insurance.

Can you afford not to be in the pension scheme – what will you live on in retirement? See the paragraph about state benefits below.

Pensions are a long way off – I am too young to think about pensions, I will worry about them later.

The sooner you join a pension scheme the better.  Usually you are covered for ill-health and death benefits from the first day of joining.  Also the value of your pension and lump sum may be affected by a late start. For example, in a Defined Contribution scheme, if you joined before you were 25 (and your employer contributed 6%) you would need to pay only 5% into your fund to get a decent pension.  If you delay joining the scheme until you are 35, you would have to pay 12% to get the same pension.  In a Defined Benefit scheme your final pension may be reduced by a quarter.

Pensions are too risky.  You hear lots about mis-selling and schemes going bust.

The mis-selling of private pensions was mostly between 1986-1996 and since then we have had significant legislation governing the selling of pensions.  People who were mis-sold pensions got compensation, and rules are much tighter now.  There is now also a Pension Protection Fund to safeguard your occupational pension against fraud or company insolvency.  Your pension is now virtually guaranteed by the Pension Protection Fund.

I have other investments that I am taking out for my retirement.

Does your employer contribute to them?  Are your contributions to these investments boosted by 20% tax incentives?  Will your investments provide a tax free lump sum?  Have you put all your investment eggs in one basket, like property, or are they spread out in shares, bonds and property?  Did you know that all the financial experts say the best investment for retirement income is an occupational pension scheme?

The Government will look after me – I will live on State benefits.

State benefits are means-tested and discretionary.  This means that a future Government decides whether to give you benefits and how much. You might not qualify for benefits such as State pensions, and your savings might put you over the minimum income level to claim.  If you live with other people, their incomes may be cut by future Governments to save money.  Occupational pensions give financial security in retirement and they are not affected by other incomes or savings.

The main things you need to know are that with occupational pensions:

1.   They don't cost as much as you think.

2.   Employers make contributions too.

3.   Your contributions are tax free.

4.   You will receive a regular pension.

5.   You will receive a tax free lump sum.

6.   There are often insurances against ill health and death service.

7.   Your union and financial experts recommend you to join.

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© 2003 (USDAW) Union of Shop, Distributive and Allied Workers
This page: http://www.usdaw.org.uk/pensions/starting/1162916179_19485.html
Last Modified: Friday, 02-Nov-2007 03:11:14 EST
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