16th October 2018 at 3:01pm
By Elle Tucker
Remember your first day at work? It can be an incredibly exciting experience.
There’s a lot to think about. What to wear, how to make the right impression, where the canteen is, when is payday…?
And for those joining the workforce in the past few years, the whole concept of living ‘like a grown-up’ with responsibilities now comes with its very own word: ‘adulting’.
No wonder: they often have to find a way to get a career going, meet rent and property prices, manage student loans, and that’s just for starters…
Even for those of us whose first day at work is a distant memory, we can probably remember what it feels like to be the ‘new recruit’.
There’s pay of course, but it’s also important to find out what employee benefits you might be getting such as annual leave, private healthcare and, importantly, your pension.
Now that the Government has introduced auto-enrolment, employers need to provide a workplace pension scheme. So, it’s vital to find out if you’re eligible, and what your employer offers.
… start investing in a pension in your 20s or 30s
Why? Well, a pension is a very tax-efficient way to save for the future – and with a workplace pension, your employer’s contributions will be paying towards your future too. You pay in and so do they. It’s a win-win.
Saving this way over a long time really can add up to a decent pot later on. And many people agree – which is why since the auto-enrolment workplace pension was introduced, up to 10 million people in the UK have joined one. By not joining the scheme your employer offers, or taking full advantage of what you’re entitled to, you’re effectively passing up on free money for later in life. Read more on the benefits of a pension here. Keep in mind that a pension is an investment and its value can go down as well as up and could be worth less than was paid in.
The view from the Money Coach
Natasha Rachel Smith, Consumer Affairs Expert and Money Coach, didn’t think about her pension at first because “the idea of retiring was such a foreign concept”.
But, she continues, “a few employers later, I did join my first personal pension – just shy of 24 years old. By then I realised the employer contribution was free money I was turning down”.
“So start contributing to your employer’s personal pension straightaway,” suggests Natasha, “and aim to get the biggest contribution your employer is offering. Starting it early gives you a better chance to have years of stress-free and truly enjoyable retirement.”
Getting into the savings habit
Saving isn’t just for the long term, of course. As soon as you start earning, it can make sense to start saving for the short and medium term too.
Putting money aside for a rainy day is ideal to cover any unexpected expenses and keep your day-to-day finances in good shape.
A tax-efficient ISA could help you save for the bigger things in life, such as a property deposit. You can read about ISAs, in our article on how an ISA can help you save, and find out more on the Help to Buy ISA, backed by the Government, which gives savers a bonus on top of their savings as long as they meet certain criteria; or the Lifetime ISA which is intended to help those under 40 save for a first home or top up pension savings.
Certain ISAs can either be cash savings plans or investments. For those that are investments, their value can go down as well as up and could be worth less than was paid in.
Natasha and many others like her started saving towards a deposit on a home early in their careers. They are challenging assumptions that some may have had that millennials are ‘entitled’ – in fact, a new generation of savvy savers is emerging.
‘Sensible’ is the new cool
“Something is happening with our nation’s younger people. It appears that ‘sensible’ is the new cool”, says Guy Shone, journalist and CEO of Explain the Market, in Standard Life’s forthcoming report on millennial saving.
“We often hear that young people need to ‘learn’ from those of us over 40. The story goes that with time we can make them as ‘good’ as us. But the awkward truth is that when you isolate ability from conditions it is clear that THEY are already better than us.”
There’s still a way to go before we are all saving enough for retirement, but by starting sooner rather than later, we can begin to bridge the gap.
Elle Tucker is a freelance journalist.
The information here is based on our understanding in October 2018 and shouldn’t be taken as financial advice. Your own circumstances will have an impact on tax, and tax and legislation may change.