Pensions: will a furry monster help you to save?



The newest member of the Department for Work and Pensions staff isn't your usual civil servant; he's a giant furry monster called 'Workie' the workplace pension.

In an effort to engage workers with their workplace pensions the government has followed on from auto-enrolment with a new £8 million advertising campaign. The aim is to turn pensions from something scary into something a bit more cuddly and accessible - and technicoloured furry beasts have been deemed a good way to do it.

Engagement is definitely what's needed if auto-enrolment is be a success; experts have already said the contribution levels set out under the scheme (which will rise to 8% by 2017) aren't enough to secure a decent retirement income and are only a start. People need to engage and save more.

However, I'm not sure if a furry friend can help. Sure, Alexander the meerkat has made insurance cuddly and done wonders for Comparethemarket.com, but insurance is easy, pensions aren't.

If we are to have any success with pension saving, and especially in getting younger generations (with housing deposits to save for and student loans to pay off) to save then we need to make pensions easier.

I'm pretty sure that the average worker is unaware of what they lose if they opt out of auto-enrolment - giving up an employer contribution and government tax relief. By doing this they are snubbing free money (albeit money they can't touch until they're older).

Simple savings

As the DWP rolls out 'Workie', we are hearing rumours of impending changes to tax relief – with higher rates for the axe. There is speculation that it will be replaced by a flat rate of 33%, meaning higher earners will miss out but basic rate taxpayers will gain.

However, any change in the tax relief won't matter if you can't get people to understand what they are giving up and instead of bringing in cuddly advertising campaigns I think the government should be taking its cue from the supermarkets and advertising what a good deal it's offering.

If the 33% tax relief rate is introduced pensions will become a 'buy two get one free' offer – you pay in £2 to your pension and the government will give you another £1.

Yes, Workie is cute but that sort of message is the sort of thing we need in order to get people saving – they know they have to participate to get the deal and they can see the deal is a good one. Pensions don't need to be cuddly, they need to be simple.

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Pensions: will a furry monster help you to save?

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

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