By Dan Kihato
The pension has always been looked at as a benefit for the older generation. Most people believe that they will never retire and will work till their death. But, that doesn’t mean that one should avoid thinking about one’s pension.
Additionally, the pension is not just for those who have worked in the formal sector. If you have been working in the informal sector, then you may still have a chance to get a pension from the government.
If you are a workaholic and contemplating professional indulgence until your late 60s, your retirement corpus can boost your financial autonomy, provided you are wise enough to delay accessing the same. While delaying pension access might sound counterintuitive to some, it actually allows you to tap into the diverse pension freedoms and flexibilities in play.
Adherence to Increased Life Expectancy
Based on statistics released by the government, a 65-year old working individual is expected to live up to 88 years on average. Therefore, if you are planning to continue your professional career deep into the 60s, delayed pension procurement can help you sustain the financial support for a longer period and ensure that your retirement income doesn’t run out before you live out the expectancy period.
Pension Growth
Delaying your pension subjects the same to compounding interests. Therefore, if you keeping adding to the pension corpus or keep the same untouched for at least 5 to 10 years more from the day the access is allowed, the post-retirement portfolio is expected to evolve into something significant. However, you may want to consider asking your employer for a pension contribution pause in the following circumstances,
if the amount is a significant chunk of your pre-tax pay and you have other investments to protect or grow. The conventional wisdom is that a pension contribution pause would be ideal if you are approaching financial independence or if you have enough investments outside the pension scheme. However, your contribution will be considered as part of the total income when computing the tax and so you may not get the full 40% tax relief.
If you choose this option, don’t just divert the money into another investment tool because you would be putting short-term needs over long-term interests, which could make it difficult to consistently accumulate wealth. It could also be financially disastrous in case something happens to you before you are able to use up the pension.
Maximized Investment Potential
Your pension provider is often in control of the investments. This way, it becomes easier to de-risk the portfolio as you approach the retirement age. In case you plan on prolonging your professional career, you can push back the retirement age back and make full use of the riskier yet more lucrative investment options.
Top-Ups
In case you keep working, your employer is bound to top up the corpus by 3 percent each year. Therefore, it is advisable to extend your professional career if your body permits the same whilst delaying pension procurement till the time you actually retire.
Tax Relief
While the employer adds 3 percent, you are expected to add 5 percent of your annual salary to the pension fund. This expense is entitled to tax rebates, which varies depending on the income tax bracket you are in.
State Pension Perks
Not claiming the state pension even after reaching the eligible age readily qualifies you for a lump sum amount or higher weekly proceeds, based on the criterion.
Regardless of the reason, pushing pension procurement makes even more sense now that you aren’t bound to purchase annuities after getting hold of the retirement corpus. Each of the mentioned reasons makes sense, further justifying delayed pension access.