The prospect of saving for retirement in your 20s may seem like a chore, especially when there are nights out with friends, holidays abroad and that brand new car to pay for. But it could be the difference between surviving on the breadline in old age, and maintaining the lifestyle you’re accustomed to throughout your twilight years.
Currently, there are three types of pension available:
State pension – You receive income from the state once you reach a certain age (currently 67)
Workplace pension – Contributions from your salary, your employer and the government.
Personal pension – Intended to supplement other pensions or for the self-employed.
In 2017, 73% of UK employees were paying into a workplace pension. This is a huge improvement on the 47% in 2012, and it’s mainly thanks to the government’s recent pensions initiative requiring all employers with one staff member or more to offer a workplace pension, and automatically enrol all eligible employees.
In the past, the state pension was handed out to almost everyone, until a shakeup in 2016 saw anyone with too few National Insurance contributions receive nothing. 50,000 women and 20,000 men, predominantly full time mothers, part time workers and those unable to work, were affected by the new rules, which saw everyone with less than ten years’ contributions go without a state pension. In order to receive the full rate of pension you now need to have paid thirty five years’ worth of NI contributions, and whilst previously anyone who paid in for longer built up a ‘second pension’, you’ll now continue to pay NI after the 35 years, but you won’t receive any more benefits.
The days of being able to rely on a state pension to cover the costs of retirement are over, and final salary pensions are few and far between thanks to an aging population. Less than two decades ago, in 2001, the life expectancy for men was 79 and for women it was 83. Nowadays, men can expect to live to 80, and for women it’s now 85. With that number increasing constantly as a result of better healthcare and advanced technologies, the state pension age will continue to rise too, but there’s still an almost twenty year period that we need to be financially prepared for. So your workplace pension and any personal pensions you save into will be key to a comfortable retirement.
The consumer watchdog Which? calculates that the average person needs an annual income of around £26,000 to fund a comfortable retirement, so depending on your situation, the earlier you begin saving, the better. The state pension is currently just over £8,000 per year, and according to The Money Advice Service, in order to have an income of £20,000 saved by the time you retire, you need to put away £250 per month from the age of 25. Wait until 35 and that amount increases to just over £400 per month.
The government has launched a calculator to let you see how much your state pension will be, and when you can start collecting it. Visit Check your State Pension to find out how much you could receive in retirement, and work out how much you’ll need to have saved in your workplace and personal pensions to supplement it.
When did you start saving into a pension? Do you feel confident you’ll have enough money to live on in retirement? If you’d like to review your current position and get some impartial advice from a qualified financial advisor, get in touch with us or visit KWFS.
Related Articles:
The pension perk tens of thousands are missing out on: National Insurance Credits
