Aviva Wealth took home the Best Pension Platform – Medium Portfolio gong as well as being named by our readers as the Best Overall Platform at the YourMoney.com Investment Awards 2024.
Since the winners were announced, YourMoney.com has showcased tips from the leading investment platforms as part of our Spotlight series.
Joanne Phillips, managing director of Aviva Wealth, has added her expertise to the series with five reasons why you should stick to your pension plan when finances are stretched.
Five reasons to continue saving into your pension when finances are stretched
Paying into a pension if your retirement is years or even decades away can feel like the definition of ‘jam tomorrow’. When the cost of living means money gets tighter, it can be tempting to cut your pension payments so you have a little more in your pocket each month. At Aviva, we know that can have a big impact on your retirement.
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A common reflection from many retirees we’ve surveyed is: “I wish I saved a little more for my retirement a little earlier”. We can learn from their experience and reap the rewards in the years to come.
With that in mind, here are five reasons why you should stick to your pension plan when finances are stretched:
1. It’s a tax-efficient way to save
To encourage people to save, pensions get tax perks from the Government. This tax relief works to power up your pension pot by giving you a top-up whenever you pay in. For every £80 you pay in as a basic-rate taxpayer, the Government tops it up with an additional £20, giving you £100 in your pension. If you’re a higher- or additional-rate taxpayer, you can claim even more when you do your self-assessment tax return.
That extra money means you’ll have the opportunity to grow your pension pot much faster. Not taking advantage of it means you may have to save more further down the line.
Remember, the money paid into a pension is invested and can fall as well as rise in value, and you may get back less than has been paid.
2. Extra cash from your employer
Most of us are now enrolled in a workplace pension automatically – although you can choose to opt out. The benefit of a workplace pension is that your employer makes a contribution to your pension alongside your own. Many will even increase the amount they pay in if you pay in more.
If your employer matches up to 5% of your salary, cutting back on contributions could result in missing out on hundreds or even thousands of pounds of additional contributions each year. By cutting or stopping your pension payments, you’ll lose that – and there’s no chance to get it back later if you change your mind.
3. You’ll put a bigger hole in your pension
The longer you pay into your pension, the more time you’ll have to take advantage of growth – and ride out any dips in the market. Taking a break from payments even for a short time can have a big effect on the pension pot you’ll receive when you retire.
For example, a £100 monthly contribution growing at an average 5% annual return over 30 years could become over £84,000. But the same investment over 28 years would see you make around £74,000. You’ll have cut your payments by £2,400, but lost £10,000 from your final pot.
You may think that there will be a time in a few months or years when you’ll have more spare cash and catch up with your pension contributions. The closer you get to retirement, the more you’ll have to pay to catch up. The worst-case scenario is that you’ll have to delay your retirement date or accept a lower income from your pension than you wanted.
4. Your pension doesn’t just benefit you
Most pensions let you name a beneficiary from your family or even friends. If something happens to you, your pension savings can be passed to them, helping them financially even after you’ve gone.
So when you’re paying into your pension, you’re not just taking care of yourself, you’re also building a pot of money that could possibly help a partner or child. Cutting back on this doesn’t just affect your future – but theirs too.
5. You can relax about the future
A pension is much more than just a pot of money. It represents a safety net at a time when you either won’t want to, or be able to, carry on working. When money gets tight, it can be easy to worry, but when you’re paying into your pension, you’ll have peace of mind that you’re heading towards a retirement you can control.
It may seem like a luxury to look years or decades down the line, but having a pension working for you in the background lets you focus on the present and deal with the challenges you’re facing today. Your financial future will be taking care of itself.
Aviva is the UK’s leading diversified insurer and operates in the UK, Ireland and Canada with 19.6 million customers.
