When should I start to think about a pension?
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According to Ray Black, founder of money-minder.com, the sooner the better. “Getting into an early habit of putting money aside for your retirement will serve you well in the future, and the longer your investments have to grow the more chance you’ll have of building up a decent pension pot.”
Currently, the state pension (£95.25 a week) is not means-tested—meaning it doesn’t reflect the true cost of living—so unless you want to be scrimping and saving in old age, it’s wise to invest as much as you can afford into a pension plan on your own. According to the National Association of Pension Funds (NAPF), two thirds of Brits fear their state pension will not provide them with enough money when they retire, highlighting this shortfall.
With people living longer, population growth slowing, and fewer younger people entering employment (and paying taxes), there is less and less money now going into the state pension fund. At present there are approximately 4.5 working people for every pensioner—by 2025 this will fall to just 3.5 people per pensioner. So with an uncertain future it’s best to make other provisions for retirement.
There are many different types of pensions, which all invest your money in different ways. Most people will need some guidance in setting up a pension plan and figuring out the best way to invest, so always seek expert advice.
Generally speaking, though, determining how much to put into a pension fund is reliant upon two main factors: age—the younger you are when you start a pension the more chance it has to grow; and the income you hope to retire on. Putting in as much as you’re able to is a wise idea, but since pensions are a long-term investment, be sure not to lock away vast sums of money if you think you might need to access some of it in the short term.
Black’s general recommendation is this: “If your employer doesn’t provide a pension scheme and you need your own pension plan, a good starting point is to try to save at least 12p out of every pound you earn, from as soon as you start working and for as long as it's affordable.”