Why do so many of us need forcing into pension saving?

October 25, 2010

– Rachel Mason is public relations manager at Fair Investment Company. The opinions expressed are her own. –

This week, Fidelity predicted that people would miss out on thousands of pounds by waiting for new legislation that would automatically enrol them into a pension scheme rather than getting into one right now.

Well, yes, obviously. The sooner you start saving, the more money you will have. Simple.

Well, actually, maybe it’s not simple. It sounds simple to me, but so many people don’t save into a pension, that I am starting to think I am missing something.

I am nearly 30. I started saving into a pension with the Daily Mail Group Trust at 21 when I finished university and started my first job as a reporter. I was on pitiful money, so bad that I don’t want to say. Oh okay, you forced it out of me, it was £9,500. ‘You can’t live off that!’ I hear you cry. Well actually, back then, I did, quite happily. I lived with my boyfriend (now husband) so shared expenses on the house, but other than that, we were fine, I still went out, we had all the ‘stuff’ we wanted, and you know what, that whole time, I managed to save into a pension, and still do.

I know people have a lot of financial pressures these days, and I know it’s boring to talk about pensions, but it is the difference between having a comfortable retirement and living on the breadline — or worse. I am all for living in the moment, and what’s the point if all you ever do is eat, sleep and work? But the sensible streak in me says I also need to save for a rainy day. In my mind, it is simple – we need to start saving, and the sooner the better.

Think about this tip from Savvy Woman’s Sarah Pennells: If you were to save £100 a month from the age of 25 to 35 and leave it until you retire (at age 65), you’d have a bigger investment pot than someone who started saving £100 a month at 35 and carried on saving £100 every month until they were 65 – assuming both funds grew at 5 percent. Now that is food for thought.

So the key is to save, and save early. Obviously the bigger your pension pot, the better your lifestyle in retirement. For example, in a recent report carried out by Sun Life of Canada, 62 percent of people with retirement savings of £100,000 or more want to retire on more than £30,000 a year. But to get this kind of income, you need a pension fund of £600,000 plus.

So how can you start to save this sort of money? When should you start saving and how much? Well, the general rule is this: divide your age (at which you start paying into a pension) by two, and pay this much as a percentage of your salary into a pension (this includes your employer’s contributions). So, if you are 20, pay 10 percent of your salary, if you’re 30 when you start, 15 percent of your salary and so on. The older you are when you start, the harder it is going to hit you.

There is a pension crisis in this country.

We have more old people than ever before, too many of us rely only on the state pension, and this is putting enormous strain on the economy. Pensions are the last thing on people’s minds when they start working, and although something like an automatic enrolment may work, ultimately, young people need to be educated in the importance having a pension so that they take responsibility for their own finances in retirement without being forced to. Simple.

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