When you’re young and just starting to save for the future, retirement is the last thing on your mind? Why would it be – it’s such a long way off! But that’s the issue it’s never too early to start thinking about your retirement and it’s certainly not safe to ignore.
Young people in the UK are largely in the dark when it comes to pension planning and it’s a worry.
There are two main reasons for this lack of interest in pension planning. Firstly, most people aged 16-24 are struggling just to handle their current financial situation, let alone plan for 50 years down the line. Secondly, the world of pensions and retirement can seem like a minefield, with confusing terms and a baffling array of options. So, here’s a simple guide to the basic terms of pension planning.
You might have heard about auto-enrolment. It’s a government scheme making it mandatory for your employer to provide a workplace pension scheme and make contributions to your retirement saving. It’s an opt-out scheme, meaning that if you do nothing you’ll be opted in.
What exactly is a workplace pension anyway? It’s where you make regular monthly contributions – usually a percentage of your earnings – straight into a pension scheme. It’s taken off your pay automatically, before you get it – just like student loan repayments, income tax and NI contributions. Your employer also pays into the pension, and it’s topped by tax relief from the government. The money is invested by a pensions company until you reach retirement.
But what if you’re self-employed or decide to opt out of a workplace pension scheme? In that case, you’ll need a private pension. There are two main types…
A stakeholder pension is the easy way to get started. The minimum monthly contributions are low and flexible, and the money is invested for you in a low-medium risk portfolio so you don’t have to decide where to put the savings.
If you know a thing or two about investing and you’d rather have more control over where your retirement savings are invested, a self-invested personal pension (SIPP) might be for you. Many regulated organisations offer fully-managed options taking the hard work away from you.
Regardless of your other savings, you can rely on getting the state pension as long as you’ve made enough National Insurance contributions.
Speak to our experts today about the best pension options for you: 0207 416 6806.