Posted on February 15, 2018 at 12:00 pm by BeeMyMinder
Why you need to start a pension from an early age
In recent years, the average retirement age has increased and these days, the younger generation are now expected to have a working life of around 50 years.
That’s why this month we wanted to highlight some of the main ways you can save, and how you’ll benefit later in life. But before we begin, we’ve detailed some of the common questions that get asked, and the answer to each of them.
Why should you start saving at a younger age?
Well, to put it bluntly, if you don’t start saving at a younger age, you’re going to have a harder time-saving in the future.
Not only will this impact your total monthly disposable income further when you start to earn more, but it will also impact the amount you receive each month when you retire.
We know it might not seem like something you should be planning for, especially if you’re dealing with student loan repayments, saving for your first home or starting a family, but it definitely isn’t something you should ignore.
When should you start saving for a pension?
Ideally, you’ll be saving from your mid-20s, as this will give you a larger retirement pot when you finally stop working. It’s always a good idea to see when your expected retirement age is going to be.
The golden rule is that if you’re in a financially viable position; then earlier is always better. In the modern day, life expectancy has greatly increased, so the later you start saving, the more you’ll have to pay later in life.
Which? Recently revealed that the average amount a retired couple need to cover the basic living costs (heating, food and housing) is £18,000 per year. If they want to go on holidays and take part in leisure activities, they’ll need approximately £21,000.
To reach this milestone, the average couple in their 20s needs to set aside £131 per month. Leave this until you’re a couple in your 30s, and you’ll need to put aside £198 per month. From 40, it rises again to £338 per month.
How do you actually save for a pension?
One of the main ways to start saving for a pension is through your workplace. Previously, companies may have had their own pension schemes, which would have come with its own set of rules and requirements.
However, this has now changed. Automatic enrolment started in October 2012, and since then employees across the country have been enrolled into a pension for the first time, without having to do anything.
There are other ways for you to save though, and these include:
- Personal pensions
- Cash Independent Savings Accounts (Cash ISAs)
- Stocks and shares
- Property investments
- Save As You Earn (SAYE) schemes
Top tips for saving into a pension
- Consider the alternatives – If your finances don’t allow you to start saving into a pension pot, then why not utilise an Independent Savings Account (ISA). You’re able to save a certain amount each month, but still access the money if you need it (in an emergency).
- Don’t say no to auto-enrolling – If your employer is auto-enrolling you, then they are going to be dealing with the set up on your behalf. Not only does this mean that you’re going to have additional income when you retire, it means that you don’t have to worry about it yourself.
- Increase your contributions over time – Certain pension schemes allow you to increase your contributions over time. This can come in the form of a set amount (via Direct Debit) or by a certain percentage of your annual income. Increasing your contributions now means you’ll have an increase in pension payments when you retire.
- Track down old pensions – Combining all your pensions in one place makes them easier to manage, and gives you access to a wider choice of investment. However, you may lose any additional benefits (such as bonus eligibility) if you transfer from a previous scheme.
Useful pension saving links
There’s plenty of reading around to help those looking to start or enhance their pensions. That’s why we’ve created this list of useful links that will give you some more information.
Under ‘How it works’ on our About Us page we have a link to a UK independent advisor (who is authorised and regulated by the Financial Conduct Authority) and can provide direct advice.
Here is a link to a previous article outing the state pension scheme and another to an article about being financially free; worth a read if you’re thinking about the future of your financial security.
So there we have it, our advice and opinions on why you need to start a pension from an early age. What do you think? Is this something that you would recommend to someone who hasn’t already started saving?
We’d love to hear your thoughts, so make sure you let us know on Twitter and Facebook. We’re always updating our community of money-conscious savers with helpful advice, insights and tips from the world of finance and personal saving.
Please remember though, all of the content in this article is for advice only. We can’t give you personalised financial guidance, so if you are seriously considering starting pension saving, then we would recommend seeking professional advice, from an FCA regulated body.