Many people believe that planning for retirement is something to leave for far in the future. After all, it’s a long way away, right? However, postponing your planning by just a little could mean you end up losing out by a lot. 

The general rule for pensions is to save as much as affordable, as soon as you can, but without overcommitting, as you still have a life to live before you get there! 

And the amount of choice now surrounding pensions and how and when you’re able to access them, means you’re effectively planning for the future lifestyle you want, which could be within your grasp much sooner than was traditionally the case. And who wouldn’t want the chance to take control of what they do with their time from as early as their mid-50s, given the opportunity? Given the pension freedoms which were introduced within the last decade, that is now a realistic possibility for many more of us. 

Making early pension payments allows you to take advantage of compound growth potential to the fullest extent possible. This means that even tiny savings from a younger age can potentially have greater benefit than bigger ones later on. So, it doesn’t matter if you can only afford relatively small contributions at present; you can increase your contributions later as your income grows and something is always better than nothing – you’d be surprised what a difference even a little can make. 

And, in addition to the compound growth potential of your pension, it brings the added benefit of tax relief on everything you put into it. When you contribute to a pension, the Government effectively repays you tax at the rate you normally pay on your earnings, on everything you save.

If you are a basic rate taxpayer, this means that the Government adds 20p for every 80p you pay in, bringing your total contribution to £1, or instant growth of 20 per cent on everything you squirrel away, if you want to look at it that way. While this may not seem like much, it quickly mounts up. Assume you started your pension at the age of 23 and contributed £150 every month. If you’re a basic rate taxpayer, the additional value of the tax relief on your savings would amount to £360 per year, which is a sizeable £3,600 over 10 years, or £7,200 over 20 years, plus any year-on-year growth in value your investment achieves. And again, the longer you can leave it, the more you are allowing it to build.

Higher and additional-rate taxpayers may be eligible for even more relief. For example, a higher rate taxpayer could benefit from 40p relief for every pound saved, with additional-rate taxpayers potentially getting 45p. Your tax treatment is determined by your unique circumstances as well as tax rules, which are subject to change. 

How much should you set aside? 

Some people choose to follow the rough rule of thumb of halving the age at which they begin saving for their pension. Then, each year until they retire, depositing the equivalent  percentage of their pre-tax income into a pension fund. Ie. someone who is 30 would put 15 per cent of their income into pension savings.

However, it’s worth bearing in mind that everyone’s financial situation is different, and what may work for others may not be the most effective method for you.  

Although you do not have to use a financial advisor like Lairgate Financial to help you define your retirement objectives, it is beneficial, because we can assist you in answering significant questions like ‘when can I afford to retire?’ and then forming a plan which gives you the best chance of achieving your goal. 

Starting with an initial consultation, we can help you identify your retirement goals and determine how realistic they are, leaving you with a high-level view of whether you’re on track for retirement and, if not, what actions you might need to take to correct that position.

Understanding where you stand in terms of your finances is crucial to retirement planning. To have a solid plan, you must have a clear understanding of your financial health going forward in time.  

Once we know what your financial future holds, we can help you devise a strategy to better prepare you for retirement, considering a range of options, including factors like the age at which you’d like to take work easier, your income and any other assets and savings you have. And, by looking at all of your circumstances in the round, we’ll likely be able to recommend other steps, outside of your pension, which will help you get yourself into a generally better financial position.

Although you may feel you have a good idea of how you want your finances to look by the time you retire, we can help you figure out which milestones you need to hit each year, in order to get there. 

Done right, your pension can be the most powerful and rewarding form of future investment you will ever undertake, and it is never too early to start. 

If you’re considering your retirement plans and would like to arrange a free, no-obligation initial appointment to take a fresh look at your financial health, and your options for everything from your pensions to your investments and the insurances you have in place, email us  or call (01482) 860700.  

This blog is intended to provide readers with viewpoints, opinions and inspiration regarding options they might want to consider. It is not intended to be taken as advice and we strongly recommend seeking professional financial advice before taking any action.