It’s never too early to make a start

Whatever your plans for retirement, start making them early

At the start of your working life, the idea of retiring might seem like a lifetime away  - and for most of us, it could be a while. For many, this is a reason to put pension planning on the back-burner, but sticking your head in the sand now won’t help you when the time comes to retire. Instead, why not see the time you have as an opportunity?   

Start planning

When it comes to planning for retirement, the golden rule is to start early. Making an early start means you’ve got longer to build up your pension pot and, if you get into the habit of saving regularly, you’ll be surprised at how quickly things could add up. It’s a lot easier to save small and regular amounts than trying to find lump sums you can squirrel away.

Another benefit of starting to save early is that the money you save could benefit from investment growth. For instance, imagine you’ve got £25,000 and you leave it to grow at 5% annually. After 25 years you’ll have just under £85,000. If you left that money for 50 years, and the rate was to stay the same, you’d have just over £285,000. Of course, investments can go down as well as up and there is no guarantee that your investment will grow in value. You may get back less than you put in. Do your research to balance your expectations and if you have any questions, it is essential that you seek advice from a financial adviser.

Possibilities a plenty

When it comes to saving for retirement, there are many different options. You could put money into an ISA, or invest in a buy-to-let property. However, the most common way of saving for retirement is saving money into a pension.

Popular pension options:

  • Workplace pension

Perhaps the easiest way to save for retirement, a workplace pension scheme will be offered to you by your employer. Auto-enrolment legislation means that by February 2018 every employer will have to automatically enrol eligible employees into a workplace pension scheme and many already have to do this.

If your employer enrols you automatically into a workplace pension scheme, it is up to you to decide to opt out but there are some real advantages to staying put.

Employer contributions to your pension on your behalf are mandatory and, under the auto-enrolment legislation, these will amount to a minimum of 3% of your salary from 6 April 2019.

Joining a workplace scheme is very easy and everything will be handled by your employer. The monthly contributions that you choose to make to the pension scheme will come directly from your salary and so there’s little for you to organise.

  • Personal pension

Your employer might not yet offer a workplace pension and if you’re self-employed you won’t have access to one, but you can still set up a personal pension.

If you do, there are a few questions you’ve got to ask first: 

  • What are the set up and ongoing charges?
  • What rules are there about the timing and size of your contributions?
  • How good is the range of investment options?
  • Is it easy to transfer your savings to another scheme if you want to?

You’ll also have to decide what type of personal pension you want. There are three main types to choose from.

  • The first is a standard personal pension that will offer a range of different investments and let you make regular monthly payments into your pension pot.
  • The second is a stakeholder pension and these have capped charges and offer a default investment strategy if you don’t want to make your own investment choices. They also offer options on making small and flexible minimum contributions.
  • The third is a Self-Invested Personal Pension. These offer a wider choice of investment options, from where you can invest your money and to the types of asset you can hold within your pension. Generally speaking, these are best suited to people making larger monthly contributions and who are comfortable making their own investment decisions.   

At the start of your working life it’s easy to think that you’ve got plenty of time to sort out your plans for retirement, but the sooner you begin to save, the more chance you’ve got of saving enough to enjoy the lifestyle you’d like later on.  

As with any financial decisions, it is key that you speak to a financial adviser if you unsure about your options or decisions.