Here at Perennial Wealth, we’re often asked whether pensions are better than savings and investments. While there are positives for both – pensions offer an effective way to save and benefit from tax relief, while investments allow you to access your money at any time – we think the key question to ask is not how to save your money, but how much you should save.
According to a recent survey, more than 50% of people in the UK aren’t saving enough for their retirement or aren’t saving at all. We’re not sure whether these people are relying on social security, or are simply in need of independent financial advice to navigate their finances, but failing to save an appropriate amount for retirement can have dire consequences in the long run – not just for you, but for your dependents too.
While it may seem like retirement is far into the future, your retirement years are going to make up a significant portion of your life – and you will want that part of your life to be as comfortable as possible. According to recent figures, a 65-year-old man has an average life expectancy of 85, while a woman of the same age has a life expectancy of 87. In light of this, you should never overlook longevity. You should be saving enough to last twenty years and longer – especially considering a quarter of 65-year-old men will reach their 92nd birthday, while a quarter of women are expected to reach 94.
We understand, of course, that navigating a pension can be hard. But there are ways to feel on top of it and start saving in a way that will benefit you in later life.
Make the Most of Contributions
Feeling on top of your pension is all about feeling confident that you’re saving enough. With this in mind, increasing your contributions can be essential. If you’re an employee whose company is paying into their pension pot, you should be considering these payments as a delayed pay rise – just as you might navigate a pay rise for yourself now, you can navigate a pay rise for your future.
It’s at least worth seeing if your employer will raise your pension if you increase your own contributions. Under auto-enrolment rules, an employer should be paying towards an 8% minimum contribution, providing you’re earning over £10,000 a year. Some employers, however, will agree to increase the amount to a certain limit if you contribute more to match this, and not only will this give your savings a boost, but it will also provide higher tax relief. Of course, it will depend on their specific pension scheme rules, so look into the finer details and ask your employer’s pension department what you can do.
Pay into a Private Pension
Every time some more money goes into your account, you should be thinking: pension. If you’ve recently paid off debts from 2023, for instance, then you could pay the extra money – which would normally go to paying back that debt – into your pension. Even if it’s a small amount, you’ll soon find that it’s making a significant difference in your pension, not to mention building your tax relief in the process.
Akin to this, you could also pay any extra money into your own private pension – which you may already be doing if you’re self-employed – which exists on top of the typical employer scheme. As with all types of investment, this will require a lot of careful thought, as there are a lot of alternatives to consider – including standard personal pensions, stakeholder plans, and SIPPS. But it can be a good way to stay on top of your savings through various investments, while still receiving tax relief at a marginal rate.
Speak With the Experts
We mentioned before that feeling on top comes with being confident in your saving abilities, but we’re well aware that this is easier said than done. While there are surefire ways – such as the two mentioned above – to build up and feel on top of your pension pot, not everyone is financially confident enough to make the right decisions. That’s why advice is so important. With a trusted financial advisor, you can put all of these difficult and stressful decisions into someone else’s hands, ensuring that you don’t make mistakes and your future is as secure as possible.
It’s hard to stay in control of your finances in 2024, let alone manage the finances you’re going to need in the future. If you’re finding it difficult to make strong decisions, speak with a financial adviser and get a lie of the land. You’ll probably find that expert financial advice is the most effective – and most necessary – way to ensure a retirement without money concerns, just as it should be.