The pension equation is simple enough. The more you save during your working years, the more comfortable a retirement you’ll be able to afford.
It’s straightforward alright, and also a little bit depressing if you’ve reached 35 or even 40 and haven’t saved a penny. You might start wondering if you’ve left it too late, and if there is any point starting to save for a pension at all.
The answer is an optimistic and unequivocal yes. Whatever your age, it’s never too late to start. You just have to learn to be a cannier saver.
Here are few tips.
Don’t despair
Clearly it’s better to start a pension at 20 than 40, because your pension pot has longer to grow. But not everyone can. Rocketing rents and soaring student loan repayments are just two of the financial pressures facing those in their 20s and 30s. Understandably, these burdens can feel like more of a priority than saving for retirement.
So it’s becoming increasingly common for people to reach 35 or 40 without any pension at all. If that’s you, don’t despair. According to the Government you’re not due for retirement – or you won’t reach the state pension age – for at least another 32 years if you’re 35 or another 27 years if you’re 40. In other words, there’s plenty of time to get saving.
And remember, you probably don’t need as much money for a comfortable retirement as you do for a comfortable middle age, because by then you might have paid off a mortgage and any children you have will have flown the nest.
On top of that, expenses associated with working – like commuting costs – will no longer affect you, and you might even be able to downsize your home, freeing up more cash for retirement.
Give yourself more time
And just because you can take your state pension at 67 (assuming you’ve built up enough qualifying years of national insurance contributions) doesn’t mean you have to. Your company can’t force you to retire if you’re fit and well enough to do your job, so working for an extra couple of years – even part-time - can maintain your standard of living for longer and give you time to build up a bigger pension pot.
As an extra bonus, you can defer your state pension during these years and receive the unclaimed amount when you do eventually retire.
Make more money
Still, the simple fact remains. If you start paying into a pension later, you’ll need to put more away each month to have a chance of a comfortable retirement.
That might be easier said than done if your monthly salary is already stretched to the limit and there’s no work promotion on the horizon. But there might be other ways to make some extra cash, and over the long term of a pension every little helps.
For a start, use comparison websites to make sure you’re getting the best deals on home and car insurance, utility bills and more.
And can you use your assets more imaginatively? Does your house have a spare room that can be rented to a lodger, for example, or could you car share on the daily commute and cut fuel costs in half? Ring fence any extra income for your pension and it could make a big difference 25 years or so from now.
Join your company pension scheme
And whatever you do, get on the company pension scheme and pay in at least the minimum every month. Under the auto-enrolment system your employer is legally obliged to pay into your pension too, and the Government tops it up with tax relief. If you can pay in more than the minimum each month, well, so much the better.
If you haven’t been auto-enroled in a scheme already and you are eligible, you will be registered by 1 February 2018 at the latest. You can opt out of the scheme (you’ll be automatically re-enrolled every three years), but if you don’t have a pension already it could be a good way to save for your retirement. Squirrel all the extra money you can into your pension for the next 27 years and that retirement could start to look a lot rosier.
The value of investments can go down as well as up and so you may get back less than you invest.
Find out everything you need to know about planning for your financial future and starting a pension now at Aviva. Pick up tips and tricks, use the Shape My Future tool to see exactly how much you might need a week when you retire to live the life you want.
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