When it comes to saving money for your pension there is one thing that everyone agrees on. The earlier you start saving, the better off you will be when it comes time to retire. So the first step is the commitment to start saving, the second is deciding exactly where you are going to save your money. There are many options that may seem confusing, or that you weren’t aware of. We will take a look at a few of these here.
The State Pension
The State Pension may provide enough money to survive on but not much else. At the moment, depending on your national insurance contributions, the most you can expect from the government is around £8000 per year. In other words, it is not a particularly comfortable amount to retire on and reduces the likelihood of fun and fulfilling golden years. To raise that pension amount to give yourself a decent life you are going to need to invest money elsewhere. Fortunately, the younger you are the more time you have, so monthly contributions will be significantly less than someone who panics later in life and has no choice but to start saving. Even then, some experts recommend young people aim to put away 12% of their income.
Workplace Pension Scheme
If your workplace offers a pension scheme it would be worth your while enrolling in it if you haven’t already done so. This year (2018) it will become a legal requirement for employees to be enrolled automatically in their employer’s scheme if they have one. These schemes assist with your savings because whatever money you put into it will be topped up by your employer, and you will also get tax relief from the government.
Private Investment Pensions
If you are self-employed, or don’t have an available work place pension, or are looking for an alternative option to supplement your pension you should like into establishing a private pension. With these pensions there is a lot more to consider than simply a straight forward opt in or opt out as with a workplace scheme. Some things to take into account are the fees for setting up and running the pension, the rules on contributions and transfers. Also, what the investment options of the pension are – property, cash, shares and bonds.
The three main types of private investment pensions are:
- Basic pensions are where you choose your risk and investment strategy and make regular contributions to it.
- Stakeholder pensions which are similar to the basic pension but where the investment strategies are preselected for you.
- Self-invested personal pensions (SIPPs). These are for people making larger contributions with larger risks. Recommended for more experienced inventors.
It might seem like a long way off now, but your retirement is going to roll around sooner than you think. What sort of life do you want to have in retirement – just scraping by or having the funds to travel and do the things you love? If it is the latter, then it is best to start saving now. Take your time to check your options, learn about what is available and find the one that is best for you.