07th March 2019

Why people might miss out on a last-minute pension top up: 8 pension myths debunked

With the end of tax year fast approaching, Hargreaves Lansdown has compiled a list of 8 common pension myths that can put people off taking advantage of a last-minute pension top-up.

  1. There’s no point investing before Brexit
  2. My property is my pension
  3. I’m too old to pay into a pension
  4. I’m too young to start paying into a pension
  5. Pensions aren’t flexible
  6. I’ve left it too late to make a contribution
  7. My pension will be lost if I die before retirement
  8. The State will provide for me in retirement

 Nathan Long – senior pension analyst at Hargreaves Lansdown

‘Pensions have a reputation for being complex and off-putting, but for most people, most of the time they’re pretty simple. You pay money in, you get a free top-up from the government and you have the flexibility to draw out as much or as little as you like once you reach the age of 55. If you’re someone that finds pensions as terrifying as heights, spiders, snakes or public speaking then a little end of tax year myth busting may be just help you need to put you on the path for a brighter retirement. 

Pensions don’t die with you, your property probably won’t be enough to get you through retirement and it’s never too late to start saving for retirement. Some pension providers are geared up to accept contributions right up to midnight on 5th April, so gobbling up some last minute tax back from the government really is easier than you think.’

  1. There’s no point investing before Brexit

With Brexit looming it’s understandable that investor confidence is at record lows, but often this can be best time to invest. That doesn’t mean investments might not go down, but if you have a long time to retirement you’ll be able to shrug off any short term fluctuations. The UK stock market also looks pretty attractively valued at the moment as Brexit fears have depressed share prices. If you really can’t stomach investing with so much uncertainty you can always make a contribution and hold as cash within pension until you feel confident to invest.

  1. My property is my pension

Relying only on your home when it comes to retirement is likely to end in tears. Few people relish leaving an area where they are comfortable, leaving a home in which they have built up a lifetime of memories, or moving to a smaller house where there is no room for family to visit. Experience tells us that when the time comes, people see their home as a source of retirement funding only as a last resort if they run out of money. It is also important to cut through the dinner party gossip, in the last 10 years the average house price according to the Nationwide House Price Index has gone up around 44%, compared to a 206% total return from the average UK stock market fund.

  1. I’m too old to pay into a pension

Every little helps when it comes to saving for your future and with new pension rules allowing you to take all your money back out again, you needn’t feel trapped when it comes to contributing more as you get older. Paying in just an extra £100 per month from age 50 could boost your pension pot by more than £33,000 when you get to age 65.

You’re actually only too old to pay into a pension if you are 75, as at this point the Government won’t allow you to claim back any tax relief when you save for retirement.

Less than 1 in 10 of us are expected to be higher rate tax payers in retirement, so if you are paying more than 40% or 45% income tax now, you could benefit from getting higher rates of tax relief now but only paying tax at the basic rate when the time comes to finish work.

  1. I’m too young to start paying into a pension

If you are employed you are only automatically joined to the company pension from the age of 22, but you can still join earlier, and providing you earn more than £503 per month your employer has to contribute too. The longer you save, the bigger your pension, so starting early makes a huge difference. Someone with annual earnings of £30,000 can boost their pension by around £30,000 if they start saving at age 18 instead of 22. 

Parents who are looking to give their children a helping hand can pay up to £2,880 into a pension for them and get a £720 boost from the tax man too. Doing this for a new-born would leave them with around £100,000 at the age of 18 but having cost only £51,840.

  1. Pensions aren’t flexible

Committing to a regular contribution is the easiest way to grow your pension, but this can often be scary for those who do not have a regular income. However, most pensions allow you to start, top up and amend your contributions fairly easily, so uncertainty should not be a barrier for saving for retirement. Research by Hargreaves Lansdown among the self-employed showed this to be a significant misunderstanding and the ability to be flexible was extremely desirable.

Since April 2015 we can buy a guaranteed income for life, remain invested in our pension and even cash in our whole pension in one gain. This extra flexibility is helping put people firmly in control of how they access their pension to suit their needs in the final years of work and beyond.

  1. I’ve left it too late to make a contribution

Some pension providers can accept contributions on-line or over the phone right up until midnight on 5th April. If you want to make a last minute contribution but your provider has already closed for the tax year, start a pension with a provider who can help you scoop up the tax relief, as you can always consolidate pensions in the future. You don’t need to have decided where to invest either, make your contribution and hold it as cash within the pension until you’ve finalised your decision.

  1. My pension will be lost if I die before retirement

What happens to your pension when you die depends on the type of scheme you have. Modern defined contribution pensions will normally allow the full value of your savings to be paid to your heirs without tax if you die before age 75. Defined benefit pension schemes are a different kettle of fish. You will normally be entitled to a pension paid to your spouse or financial dependents, sometimes a pension for dependent children, and you may be entitled to a lump sum too but check the rules carefully to ensure you know how your own circumstances are catered for.

  1. The State will provide for me in retirement

The New State Pension provides an income of £8,546.20 in 2018/19, but this is unlikely be enough for even the most frugal to live on. Fortunately with the advent of auto-enrolment few people will get to retirement with only the State Pension to rely on.


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