Six Reasons To Save For A Pension
When I was in my first job coming out of university, and most of the way through my 20’s, if someone had spoken to me about pensions I’d have ignored them. In my mind, it was way too far away to think about and it didn’t concern me. But now I’ve hit 30 it’s hit me like a tonne of bricks. I should have been paying more attention to my pension as soon as I started earning money because there are so many reasons to save for a pension.
Your retirement might seem like a long way off. You may have so many other things to be spending on. But a little attention now will help you in the future. If you’re still on the fence as to why it’s important now here are some of the reasons to save for a pension.
The earlier you start the less it will cost
If you start saving at 18 you’ll only need to save half of what you’d need to in your 40s to get the same end return. This is because of compound interest. The longer your pension savings are put away the more interest it will earn. This is one of the biggest reasons I wanted to start saving as early as possible. If there’s a way to make my money increase in value I’m all over it. And I don’t want to be putting loads away in my 40s or 50s and it not make as much.
Reasons to save for a pension- You’ll need more money
The basic state pension is currently £179.58 a week (from 6th April 2021) so in a normal 4 week month, you’d get £718 which isn’t a lot. Even if you consider you may not have a mortgage at that point (assuming you’ve bought a property). That’s not a lot of money to pay for bills, food, household items, and actually live.
Whatever happens in the world you’ll need an income to live off. And saving for your own pension now means you’ll have extra on top of your state pension to be able to live a better life.
Pensions are tax-efficient
If you’re employed and are auto-enrolled into your company pension scheme your employer takes your pension contribution from your pay after deducting tax and NI. But your pension scheme provider will claim the tax back from the government at the basic rate of 20%. So you get back the tax as an extra investment into your pension which is another of the great reasons to save for a pension.
If you’re employed your company will also contribute
Another plus point if you’re employed and auto-enrolled into a company pension scheme, your employer will also contribute to your pension pot. Each company is slightly different. But they’ll generally match your contribution up to a certain point so you’re doubling what you’re saving. So if you saved £100 in a month, they’ll also add £100. So you’re essentially getting free money from your employer.
Reasons to save for a pension: Keep your monthly contributions as low as you can
There are always going to be demands on your money and financial commitments you need to spend on. And the longer you put off saving for your pension the bigger proportion of your salary you’ll have to put aside to catch up. Even if you forget the extra interest you’ll get, you’ll still need to save double the amount if you save for 20 years compared to saving for 40 years.
You can withdraw a lump sum as well as regular payouts
If you want you can withdraw up to 25% of your pension savings as a lump sum. And you can do this without having to pay tax. Usually, you can do this from the age of 55. So you may decide you’ve built up a good pot and you want to withdraw 25% so you can pay off your mortgage. Or maybe do some home renovations or perhaps go on an epic holiday. And this may still be 10+ years away from when you actually retire. But the choice is there for you.
What other reasons to save for a pension do you have?
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20 responses to “Six Reasons To Save For A Pension”
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Rhian Westbury
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You can never start saving for your pension early enough, my Dad used to tell me this and I thought I had ages to start planning but the years soon creep up on you
It’s also worth noting that the basic amount is IF you did all the years of contributing. So if you had time off for kids, or became a housewife don’t count on that sum! More reasons to save!
So true! Only if you pay in for the minimum number of years will you get that x
These are some wonderful reasons why you need to save for a pension. The sooner the better that’s for sure
I really wish I’d saved more at an earlier age, but at least I have one x
These are all good reasons and have given me the kick up the bum I needed to get one suited for sure!
I have a personal pension as well as an old NHS one. I may put some more into it actually as it’s a great tax efficient way to save
I’m still slowly trying to combine the four different pensions I have from jobs but it’s so tough x
We are looking to retire in 5 years and wish we’d started saving sooner. At least now there is auto enrolment for many which will help. Whatever age you are now – start upping your contributions. Your future self will thank you x
Yeah the auto-enrollment has made a huge difference for a lot of people, but sadly the minimum amount isn’t quite enough x
These have definitely made me think more about the future and pensions as I haven’t got one!
It’s only in the last year that I have really become interested in my pension and I know that at 47, that is far too late. Good advice Rhian, thanks. Mich x
Great advice. The full new state pension, which most people retiring nowadays will receive, is actually £179.58 from April 2021. That’s more than the figure you quote, but still not a fortune, of course. Everyone should save for their retirement to ensure that it is a comfortable one and they don’t have to scrimp and save through their ‘golden years’.
Ahh it must have updated just after I wrote this, thanks for the heads up. I totally agree! x
I wish sometime taught this in school because when I finished uni I didn’t want to save for pension but I am glad I did anyway.
That’s so good that you started saving so early! I wish they taught so much more of this kind of useful life info at school x
These are all such great points! My husband has a pension through work which his employer also contributes too, but as I am self employed it really is something that I need to look into for myself too!
My fiance is self-employed and he doesn’t have a pension either, but we want to create a LISA for him to use for retirement x
Hands up a pension is something I’ve not thought about much. I should really look into it at the moment I have a LISA and that’s it.
If you’re maxing out your LISA each year that’s a really good start x