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Do you know what a pension is?

Do you know what a pension is?

Category: Pensions

Updated: 13/10/2016
First Published: 13/10/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Pensions are something we all need to get our heads round, and we're continually told that it's important to start saving into one from as early as possible. Yet new research suggests that this advice could be falling on deaf ears, with many younger people not aware of what a pension actually is.

The research, from NOW: Pensions, shows that 40% of respondents aged 18-30 consider their knowledge of pensions to be poor or very poor, with 28% of those saying they don't need to understand them as they're a long way off retirement, while 27% find them too complex.

Overall, 71% of the 18-30 year olds surveyed said they find pension terminology and jargon a barrier to engaging with the subject, which could explain why 60% don't know what a workplace pension is and a similar amount (58%) don't know what auto-enrolment is.

These are worrying findings, as they suggest that many younger workers won't be inclined to save for retirement until they're older, by which time it could be difficult to make up the shortfall.

The findings coincide with a report from the Office for National Statistics, which found that 10% of respondents hadn't heard of the pension reforms or automatic enrolment, while 24% of people answered that they'd "heard of but knew nothing" about them. A further third felt they didn't understand enough about pensions to make decisions about saving for retirement.

Not only that, but it was also found that people have more faith in the property market than pensions for providing a retirement income, which could lead to people making risky decisions when it comes to financial planning.

The survey found that 45% of respondents thought that investing in property was likely to make the most of their money if they were saving for retirement, compared with just 25% who thought the same about paying into an employer pension scheme. The findings echo comments made by Bank of England chief economist Andy Haldane, who said earlier this year that he thought that buying property would be a better investment for retirement than a pension.

This could set a dangerous precedent among those trying to work out how they should save for their later years. After all, while property can be lucrative, there are huge risks involved, and it doesn't come with the same tax advantages as saving into a pension – if anything, it comes with greater tax implications that could have a negative impact.

This is why it's so important to find out everything you can about pensions and the benefits of them, and to start saving as much as you can! Saving into a workplace pension means you'll get contributions from your employer and tax relief from the Government, so essentially, you're getting extra cash towards your pension pot. Who doesn't want free money?

It's never been easier to get started, with automatic enrolment meaning your employer has to sign you up to a pension scheme (if they're not obliged yet, they soon will be – all workplaces will have to offer a pension scheme by the end of 2018). It may be tempting to opt out, particularly if you're on a low income or think you don't need to worry about saving yet, but your future self will thank you for it – the sooner you start, the better your retirement income will be.

What next?

Find out more about automatic enrolment and pensions in general by reading our retirement guides

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.