More and more young people are now saving into a pension, but it can be a confusing affair and it’s easy to become disengaged with the subject if you’re not sure of how it all works.
The sooner you start taking an interest in your pension (and what it means for your future) the better – and there’s no time like the present. Here are our top tips for saving into a pension and improving your overall saving habits.
Think about your retirement
No matter what stage of your life (or your career) you’re in, it’s important to be considering your retirement. It’s a milestone you should be preparing for throughout your entire working life – even as early as your twenties.
While you don’t necessarily need to set solid goals just yet, you should have a rough idea of what you’d like to achieve:
- What age would you ideally like to retire?
- How much would you need to make that happen?
- What kind of lifestyle would you like to live?
Of course, this is all subject to change, but having a vision can help you stay motivated and keep your savings on track. Knowing that you’re regularly putting away for your future can also significantly improve your financial wellbeing and confidence.
Contribute to a Workplace Pension (and bump up your contributions)
Thanks to auto-enrolment, if you’re in full time employment you’ll likely already have a Workplace Pension. While it can be tempting to think of using that money for something more immediate, it’s crucial that you don’t opt-out, as this essentially means missing out on money from employer contributions, investment returns and tax relief.
It’s also important to understand your contributions and see if you can afford to increase them. The truth is that the minimum contribution of 8% (5% from you plus 3% from your employer) under auto-enrolment is unlikely to be enough to maintain the lifestyle you’d like, so you might want to consider bumping them up. Even a small increase can have a huge impact on your overall savings.
If you’re not sure whether you have a Workplace Pension, or you want to discuss changing your contributions, speak to your employer.
Keep an eye on your pension
It’s not enough to just pay into your pension. To really get the most out of it, you need to regularly track it to make sure it aligns with your plans for the future.
It’s likely that many people in their twenties don’t know how exactly how much is in their pension, and being in the dark isn’t conducive to success. Make a commitment to review your pension regularly – at least once a year.
In your younger years, you’re also more likely to switch between jobs, meaning you’ll amass a number of different pensions each with different amounts in. This can get confusing trying to keep track of all of them, so you might want to consider consolidating them into one. Be sure to check the respective fees and returns before you do.
Make saving a habit
Not everyone is naturally good at saving. Those who do it well do so because it’s become second nature, so you need to make it a habit.
Be disciplined with your savings contributions, and always ‘pay yourself first’. If you wait until the end of the month and save what you have left over, you’ll probably not have much to contribute. By paying into your savings at the start of every month, you’ll more easily adjust to having less to spend.
Technology is helping to make subconscious saving even easier. The introduction of apps such as Monzo, Tandem and Moneybox allows you to round up your purchases to the nearest pound, with the spare change going into a savings pot.
Escalate your savings annually
Regular saving is great, but it’s even better when you can do it incrementally. Where possible, try to opt to have the amount you save each month escalate annually. This way you will benefit from compounding rates of return, and the chances are you’ll hardly notice the difference in net pay as this will most likely increase each year too.
Be realistic
With all of that said, you should still be realistic. Make sure you still make allowances in your budget for fun and some luxury purchases, otherwise you’ll quickly become disheartened.
The most important thing is simply sticking to a plan. If you try to save too much from the start, you’re more likely to break the plan later and either withdraw from these savings or stop making the contributions. Make sure your plan is realistic and something you can commit to in the long-term, and you’re unlikely to have many problems.
Saving for the future doesn’t have to be hard. By laying the foundations early on and forging habits you can stick to, you can easily improve your financial security and secure the retirement you’d like.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
