Putting a scarlet sock in the white wash might be crushing for a week, but make a mistake with your pension and you could pay for it for the rest of your life. Here’s the low-down on what not to do.
Assuming your employer’s scheme plus your state pension will be enough, most people need some form of additional pension to live comfortably when they retire.
1. Putting it off
You know you should start saving for your future and you fully intend to but just not today. You might want to rethink this one. Because if you put it off, it’s not just what you could have saved that you’ll miss out on. You’ll also be kissing goodbye to any tax relief you’d get on your payments – this can help boost your pension fund.
How your investments perform and importantly, how long you’ve been saving for also help determine how much you have when you retire. So, if you put off saving in a pension, you’ll have to pay a lot more in to make up for lost time and you’ll miss out on the effects of potential compound growth.
2. Compound growth, eh?
It sounds a bit complicated and we won’t go into the formula of how it’s worked out, but put simply, compound growth is the force that can help grow your pension fund. Think of it as growth on the growth that helps savings grow at a faster rate than simple growth.
3. Not saving enough
Well you’re not alone on that front. According to the Money Advice Service, ‘More than half of people in the UK either aren’t saving at all for their retirement or they aren’t saving nearly enough to give them the standard of living they hope for when they retire.’* But how much is enough? Well, it depends on what you want in retirement and what other savings you’ve squirrelled away. To get an idea of how much you might need and how much you might get, seek professional financial advice.
4. Thinking your home is your pension
Come retirement, you may find yourself in the lucky position of living in a mortgage-free house that’s too big for you. You might think you will sell up to buy something smaller and use the equity left over to fund your retirement. For a start, you may not be ready to sell – and even if you are, it could take time to find a buyer at the price you need. Then there are the moving and legal costs.
5. Opting out of your employer’s pension
Did you know if you opt out of your employer’s pension scheme you could also be waving goodbye to potentially thousands of pounds? That’s because when you pay in, your employer will usually pay in too – as long as you’re still employed there. And they might match your payments, so the more you pay in, the more they might pay in too – check your pension plan documents to find out what your employer will pay.
6. Not keeping track of your pensions
Do you know how much your pension is worth? Do you know how many pensions you have or where they are? How about the type of funds they’re invested in or how much risk is involved? If you passed on any of these questions, it’s time to take stock and review your pension.
A good rule of thumb is to check your pension savings at least once a year. Find out if your pension is on track to give you a retirement you’ll love by speaking to your financial adviser.
*Source: moneyadviceservice.org.uk as at June 2016.
Find out more
If you would like to find out whether you are saving enough for a comfortable retirement Call 08000 85 85 90 or email email@example.com.
The value of your investments can go down as well as up, so you could get back less than you invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.