If you’ve just entered the world of work, you’re probably just getting used to getting paid and budgeting on your own for the first time. The thought of starting saving for retirement is probably the last thing on your mind. But it really is important that you start thinking about your pension as early as possible – here’s why.
Where to start
Starting a pension is simply about making sure you have enough money to live on and do all of the things that you dream of doing when it comes to retirement time. But instead of thinking about this as you near retirement age, you should start saving up as soon as you can, so that you’re putting away smaller amounts over a longer period.
It couldn’t be easier to start a pension fund as most employers must enrol qualifying staff into a workplace pension scheme by law. If you’re over the age of 22 and earn more than £10,000 a year, you’ll be automatically enrolled in a workplace pension, although you do have the option to opt out once you’ve joined. Contributions you make into a workplace pension schemes will be topped up twice – first by your employer and then by the government in the form of tax relief – so they’re worth looking into.
Why it’s important
As soon as you hit State Pension age, you’ll be able to claim a State Pension once a week. This is currently 65 for men and 60 for women, but is set to rise to 68 for both in the next couple of years. This could increase further if life expectancy continues to rise.
The maximum State Pension for people under 80 is currently is £115.95 a week which adds up to around £6,030 a year. Although you’ll be able to live off a figure like this, you might not be able to enjoy the type of retirement that many of us hope for. To ensure that you’re not penny pinching in your golden years, it’s important that you start thinking about putting money away as soon as possible.
According to new research by pension provider Aegon, young people between the age of 16 and 24 want to retire on an average of £64,000 a year! To achieve this type of pension pot, you’d have to have saved nearly £1.9 million and start saving from the age of 20, banking a return of five per cent on investments.
Although Aegon said that expectations for retirement become more realistic as people get older, you do need to be sensible about what you’ll be able to start saving at such a young age. Your priorities when it comes to finances are likely to be more focused on saving for a deposit on a house, or paying off student debt. And while these are important goals to work towards, thinking more long term and saving a little every month for your pension will ensure that you’ve got something to fall back on when you do finish working.