9th February 2016 at 3:47pm
With new pension changes coming in to force in April 2016, pension news is already a hot topic in the media.
And with an estimated 11 million people not saving enough for a comfortable retirement, there has also been a lot of noise around what is being called ‘the savings gap’.
Pension news is already a hot topic in the media
Even with initiatives such as auto-enrolment doing their best to address this problem, there is still room for improvement.
We can’t rely on just the State Pension to give us a comfortable retirement; some self-empowered saving is required, especially amongst the younger generation.
Adding our voice
We talk a lot about pensions, which is hardly surprising given they make up a large part of our business, but that’s not the only driver.
Our hope is we can add our informed voice to the chorus of opinion on the needs and benefits, whatever your generation, of having one.
One of the things we often talk about is the value of starting early.
With life expectancy in the UK increasing, meaning we could be spending longer in retirement than ever before, it’s never been more important to save as much as we can for as long as we can.
But going by some recent research, it would appear that not everyone would agree with this philosophy.
Research from retiresavvy.co.uk has revealed young workers currently in their twenties could be the first generation to face worse retirement prospects than their parents.
Yet with nearly four in ten 18-24 year olds remaining optimistic about their futures, believing they will be able to have the lifestyle they want in retirement, only a fifth are actually taking the steps to prepare.
The online poll of 1,600 Brits showed some mixed opinion on how the next generation of younger workers should prepare. One in ten felt younger people shouldn’t be saving for a pension at all and one in five felt that young workers would be better investing their money in other things like property.
And less than a quarter of people agreed that younger generations should be saving for a pension above and beyond auto enrolment, but not at the expense of other things like housing and student debt.
4/10 18-24yr olds remain optimistic about their futures
But with it estimated today’s 20-somethings have to face up to the daunting task of saving for a pension pot worth well in excess of half a million pounds, it’s clear that the millennials will have their work cut out.
There are a lot of financial pressures on the younger generation, student debt, the need to get on the property ladder and starting a family to name a few, but they need to look past their immediate financial commitments and think about their financial future.
If you are a young person reading this research, the figures touted might seem a formidable prospect.
Look past your immediate financial commitments and think about the future
But it doesn’t need to be; even by just by making small changes now it really could make a big difference in the future.
Here are some why’s and how’s.
A compounding theory
Starting any saving journey as early as possible is a great first step as you’ll be able to enjoy the benefits of what is termed ‘compound interest’.
A wonderful concept, allegedly deemed the eighth wonder of the world by Einstein, compound interest lets you earn interest on any money that’s already grown.
That means you get interest on your investments, which grows them, and then you get further interest on that growth.
Over time, it can really make a big difference to your pension, investments or savings – although there’s no guarantee these will grow.
The eighth wonder of the world
If you’d like to find out more about compound interest and its benefits then it’s worth having a look at our article ‘What Einstein tells us – reinvest your income’.
Everyday day can be a saving day
Small every day savings can make difference too, there are lots of ways you can save into a pension without breaking the bank or impacting your quality of life.
From cutting back on the daily latté, the expensive phone contract or the odd takeaway or meal out, you’d be surprised the savings you can make.
Just saving on the £3 a day latté habit alone could bring in around £700 a year.
But it’s important to make sure you channel any saving into the product you want to save into, don’t just fritter it away on something else.
If you know you are going to be making a certain saving each month, contact your provider and organise to increase your monthly payments by that amount – it’s as simple as that and keeps temptation at bay.
Just saving on the £3 a day latté habit alone could bring in around £700 a year
For more tips on every day savings why not check out our ‘simple steps to saving in 2016’, these could prove handy when thinking about ways you could save more into a pension.
A way in with Workie
Making sure you join any workplace pension scheme is another great start.
To make it easier to save for retirement, the government introduced auto-enrolment. This means Employers need to provide a workplace pension scheme and make payments for certain employees.
To help promote this initiative you may have spotted a new character appearing on Britain’s television screens, with the launch of a campaign which aims to change the perception of pensions in the workplace.
Workie, a striking embodiment of the workplace pension in the form of a large, furry, friendly character, has been visiting people in all sorts of workplaces, asking them not to ignore him. It’s a fun campaign but with a very serious message.
To make it easier to save for retirement, the government introduced auto-enrolment
If you’d like to find out more about why you might be enrolled in a workplace pension and how they work, then take a look at our feature ‘Auto-enrolling into a workplace pension’.
Exploit your potential
Reflecting on the retiresavvy research, we’d be the first to agree that everyone is entitled to an opinion and yes there are more ways than one when it comes to saving for a life after work, however, we believe having a solid pension scheme in place is a good place to begin.
And the earlier you start the more chance you have of making the most of that compound growth potential.
The information in this blog or any response to comments should not be regarded as financial advice. A personal pension is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in February 2016. Your personal circumstances also have an impact on tax treatment.