When should you start a pension?

Even if we were that dedicated to our careers, with more of us living into our 90s, the chances are we would not be fit enough to do so.
So, a pension – which would provide the income we want when we eventually do accept the firm handshake and the gold watch – is a must for all of us. We can’t afford to depend on the state pension.  It will only deliver £8,598.20 (£165.35 per week 2018/19 full level) for an individual who has 35 years of National Insurance payments, and the growing numbers of old people will mean the state will find it harder and harder to maintain it as years go by.

A potentially rewarding investment

Fortunately, a personal pension could provide the income you need when you retire. It is potentially rewarding because everything you put away (up to the contribution limits) will be boosted by tax relief. This means that the taxman contributes to your pension with you. This will probably ensure that your pension is the most rewarding investment you will ever make.

But when should you start making those contributions?

When you start earning you will have an income rather smaller than you would like, probably made smaller still with student debt to pay off. You will very likely have rent to pay, a whole range of new expenses to take care of. You may want to start putting aside a little something each month to build up a deposit and get on the property ladder for the first time.

There may be very little left over at the end of each month. Saving for retirement can easily be pushed further and further down the list of priorities. If you have any form of expensive debt other than a mortgage, you should pay that off as soon as you can. Most short-term debt, such as personal loans or credit cards charge a lot more in interest than you could ever hope to make by investing. You might need to pay that off first.

Also, it’s sensible to have at least three months’ salary saved as an emergency fund in an accessible bank so you have something to fall back on in an emergency.

But the longer you leave it, the more difficult it is going to be to build up the sum you need.

How much do you need?

With the mortgage paid off and the children earning for themselves, a retirement income of £35,000 may be a target for some couples.

The state pension will deliver £8,598.20 (£165.35 per week 2018/19 full level) for an individual who has 35 years of National Insurance payments, therefore you would require a pension pot somewhere between £300,000 and £600,000, depending on how you choose to take your income, to make up the shortfall.

This is a sizable sum, but it is achievable – if you start building it early enough.

What about your company pension?

The automatic enrolment scheme means that almost every employee is automatically part of a workplace pension. This can be rewarding, especially if your employer makes contributions that match your own.

If you are planning on staying with the employer, it is worth making the most of the scheme – but very few of us now stay in the same job for life.

Most people need a private pension plan of their own.

The sooner you start the more money you can have

The key thing to remember is that the sooner you start your pension, even if you can only afford small a contribution to start with – the better off you can be.

This is because of the effects of compound interest on pension investments. The longer your money has to grow, the greater the final sum you will be left with.

What should you do?

If you have not yet started your pension, it is probably time that you did. Getting the arrangements that are right for you can be easier if you seek professional advice. A call to us at Continuum could provide the help you need.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of your pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.

Book a free initial consultation

Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.


moneyadviceservice.org.uk – Six reasons to start saving into a pension now – 22nd February 2017

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