Do you really need your workplace pension?

According to retirement expert and head of retirement income options at WEALTH at work, Mark Hewitson, the question is not ‘do you really need your workplace pension?’ but ‘why would you not have a workplace pension?’

Mark Hewitson

Mark Hewitson

He said: “You get free money in the form of employer contributions and tax relief on your own contributions, so generally speaking a workplace pension is a no-brainer.

“However, not all pensions are born equal and on top of that, there’s a range of other savings vehicles that suit different aims, so we have to consider which ones are right for us at different points in our lives, when we inevitably have different goals.”

One of the main types of pension is a defined benefit (DB) arrangement. This is where your employer promises a set level of benefits on retirement. This can be a retirement income, a lump sum or both. You and your employer make contributions and a set level of pension for life.

“DB pensions are becoming rare, with many of those that still exist now closed to new members,” said Hewitson. “DB pensions are the gold standard of pensions because they generally offer a guaranteed income and they take away all the hassle of having to manage your own investments.

“They’re not usually the most flexible savings vehicles around – ordinarily you have to wait until you retire to take your benefits but with tax relief on what you pay in, contributions from your employer and guaranteed retirement income, they provide ‘free’ money and unrivalled security.”

There are often added benefits with pensions, like life cover, ill-health payments if you can’t work, and pension payments for beneficiaries after you die.

Jackie Spencer

Jackie Spencer

Jackie Spencer, Pensions Policy and Proposition Manager at the Government-sponsored Single Financial Guidance Body, said: The State Pension is the foundation on which to plan for retirement and a pension is a great way to save for later life to have the retirement that you want.”

Hewitson added: “Outside of the State Pension, there are virtually no other savings vehicles that give you the assurance about what you will get when you retire. The key is that ‘guarantee’, which you also get with a DB pension.”

The other main type of pension is a defined contribution (DC) arrangement. With a DC pension, you build up a pot of money that you can then use to provide benefits in retirement.

Unlike DB schemes, which promise a specific income, the benefits you might get from a DC scheme depends on factors including the amount you and your employer pay in, how the investments in the pension pot perform and the choices you make at retirement, for example taking cash or buying an annuity (a guaranteed income for life).

Hewitson said: “I’d never suggest that a pension is the only option for savers; it could be complemented by other savings vehicles on your journey to retirement and even after retirement but when we’re talking about long-term options for later in life, a pension should be the first thing we all think about.”

Spencer added: “For most of us, even though it can feel like a long way off, retirement should be a goal that we put some real thought into setting and a pension’s most likely to match our long-term needs. However, we will all have other financial aspirations along the way, like buying a house or a car – it’s important to look at making the most of today while still saving for your retirement.”

The Single Financial Guidance Body is a new organisation which brings together three government sponsored providers of financial guidance: The Money Advice Service, The Pensions Advisory Service and Pension Wise. It is sponsored by the Department for Work and Pensions. Later this year, it will launch as the Money and Pensions Service.

With significant experience in the Higher Education sector, WEALTH at work is a specialist provider of financial education and guidance in the workplace supported by regulated advice for individuals.

Please note that neither USS nor your employer can give you financial advice or recommend a particular financial adviser. You should click on the Important information section below to learn how you can find an independent financial adviser that’s right for you and your personal circumstances.

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Published date: 20 March 2019