Pension Advice for Generation Y and Millennials
Being part of the Generation Y and Millennial era likely means you are being weighed down in financial commitments already. Maybe you have been trying to clear your student debt or have been trying to put money aside for a house deposit. The last thing you are probably thinking about is your retirement and how much money you should be putting away in your pension.
Luckily, time is on your side, and we are here to help you put get your investment priorities in check, and tell you why saving now, will save you hassle in the future.
What is a Pension?
A popular misconception with young people is that pensions are just for old people. Wrong. Pensions are long- term saving plans. You simply put away money during your working life so you have income later, for when you retire or want to work less.
There are several types of pension schemes. Some may be run by your employer; others you can set up by yourself like tax- efficient ISAs
A pension scheme is designed to provide you with income in addition to the state pension which at the moment can be accessed when you are 65, however, this is constantly rising. By the time our Generation Y and Millennials retire, they would be lucky to get their state pension by the time they are 70. Therefore, making provisions at an early age for your pension will pay off massively later.
Getting a Pension
If you are employed, many employers have a pension scheme where they contribute money. It is essentially a sum of money taken from your salary and paid into the scheme. Many people do not utilise this so it’s always worth checking with the HR department. However, not all companies offer this yet, but by 2018 all employers by law will have to contribute to their employees’ pensions. Pensions are usually auto- enrolment so you if you do nothing, you will be opted in.
Should I Take My Employer’s Pension?
You seriously consider your works pension scheme as your employer may top up your pension as part of a benefits package. There is also no tax to pay on this contribution. You may not be seeing the immediate benefits of these contributions, but you will be seeing them in the future.
How Much Should I Be Putting Away Myself?
There is a simple way to determine how much you should start saving for a comfortable future; just half your age and use that number as a percentage of your pre-tax salary. Put this same percentage away each year until you retire.
If you are starting a pension at 26, you should be putting away 13% of your, if you are 32 years old, you should be putting away 16%. Therefore, the earlier you start putting money away, the easier your life will be the older you become.
Furthermore, as your pay packet is likely to increase with age, you should also keep your contributions in proportion to your salary.
Even if you cannot afford this, a modest monthly saving will see you have financial freedom in the future. Putting away £20 a month at 25 could mean you have a pot of £24,000 by the time you retire. Just imagine if you double or triple this number.
If you don’t want to commit to a pension yet, it is wise to start saving into a tax-free ISA, you can move money into your pension at a later date.