When you're young, retirement can seem like a lifetime away. Maybe if you have a family you feel like you cannot afford to save, or if you're over 50 you think to start saving now would be too little too late.
In fact, it's never too early to start saving for your future, and if you're starting to think about giving up work or phasing in your retirement, it's a good idea to start saving as much as you can comfortably afford.
People are living longer. Recent Office of National Statistics figures suggest that a 65 year old today will on average live for another 20 years or more. This means that you may spend longer in retirement and need a larger pension pot to help support you.
Our interactive Retirement Planner can help give you an idea of what your pot may be worth at your expected retirement date based on current contributions, and what income that might provide you with. See what affect increasing your contributions could have on the pot available.
Rising costs. There's no way of knowing how much things will cost in the future. The value of your money today can change over the years due to inflation. As a result, money today could be worth less in the future.
To try to counter the effects of inflation, it's useful to increase your contributions each year. This should help strengthen the value of your pension.
The sooner the better. The earlier you start adding to your pension, the more time your fund has the potential to grow.
A pension is a long-term savings plan and although you may not see the benefits immediately in your day-to-day life, you'll be grateful that you've an income to rely on at retirement.
You could be missing out! The longer you wait to save into a pension, the more you will have to contribute to reach your desired income at retirement.
Let's take a few scenarios. Ellen, George and Ashley all want to have a minimum income of £10,000 per year, from age 65 (in today's terms after taking their full 25% entitlement to tax-free cash), but they are all starting to save at different ages.
|Ellen is 25||George is 35||Ashley is 45|
Figures are based on the income from a lifetime annuity with example charges of 0.50% a year and an investment return of 4.20% a year to retirement. Contributions are shown gross of basic rate tax relief and increase each year at 2.5%. Inflation at 2.5% a year has been assumed.
The rate used for converting the pension fund into a pension income assumes an annuity interest rate of 1.3% a year. The income figures are gross of tax based on a single life, level annuity payable monthly in advance, with a five year guarantee, after 25% of the pot has been taken as a tax-free lump sum.
These figures are only examples and are not guaranteed - they are not minimum or maximum amounts. You could get more or less than this. What you get back depends on how your investment grows and on the tax treatment of the investment. It can also depend on the cost of providing the income from your pot or from an annuity.
By starting now, you could end up with much more than if you delay.
Paying into your pension gives you a significant tax advantage and your employer may also contribute to your pension pot. It's a good idea to save as much as you can comfortably afford so you can enjoy your retirement – without financial worries.
Try our interactive Retirement Planner tool and see how much you need to save to achieve the retirement income you want.
Increasing your contributions is a way to compensate for starting saving late. If you'd like to increase your contributions, please speak to your employer or speak to a financial adviser. Please note that financial advisers usually charge a fee for their services. Visit Unbiased to find an adviser near you.
Use our action plan to help you review your savings and find out if you're on track to fund the retirement you want.
See your options in retirement and find out your possible retirement income based on your current savings level.