A recent study by Unbiased found one fifth of Brits have no pension savings. This number is even higher amongst 18- to 34-year-olds, standing at around one quarter.
Thankfully, young adults are in a strong position to remedy this. Read on to find out how young professionals can boost their retirement savings.
1. The younger you start to save for your pension, the easier it is to do so
In the modern age, life expectancy is higher than in the past. This means it’s never been more important to build a pension fund that can support you throughout retirement.
Your pension may need to support you for 20 years or more. That's why it's crucial to ensure it's sustainable. If it isn't, you may not have the lifestyle in retirement you desire.
When you’re young, retirement seems a long way off. However, the earlier you start to build your pension fund, the easier it will be. While you will have longer to make contributions, you will also benefit from compound returns. This can make a significant difference in the long term.
2. Don’t pause in your contributions
Compound returns are why it’s crucial to not let disruptions affect your contributions. Because the effects are so significant, any pause can have a large effect in the long run.
When you’re in your 20s, you’re likely to have many other financial commitments. For example, saving for a mortgage deposit or the cost of a wedding.
Furthermore, some people are tempted to reduce their contributions, so they have more disposable income. However, even taking a short break can have a dramatic effect on your retirement planning. This is especially true the younger you are.
For example, Aegon calculated how a pause would affect an average 25-year-old. A break of just three years could reduce your pension fund by £15,500 by the time you retire.
To ensure you don’t have a shortfall in later life, make sure not to take any breaks in your contributions.
3. Maximising your employer contributions can be a good way to save more
Since 2012, all workers are automatically enrolled into a workplace pension scheme. The minimum contribution is typically 5% of your salary. Your employer pays a further 3%.
However, if you want to save more, you can increase your contribution. Even increasing it by 1% can have a significant effect in the long term.
Furthermore, some employers will also increase their own contributions when you do so. This can be a helpful boost, as it doesn’t affect your earnings.
Not all employers offer to match your contributions, however. That’s why it’s important to speak to your boss before you do so.
4. Make sure to keep track of your pensions
Over your working life, you’re likely to have several jobs. You’re also likely to have a workplace pension at each.
If you have several pensions, it can be easy to lose track of them over time. You may even forget about them entirely if it was long enough ago.
According to a Guardian report there are around 1.6 million “lost” pensions in the UK. Their total value is £19.4 billion, or around £13,000 per person.
To ensure that you have enough in retirement, it’s important to make the most of all your pension savings. That’s why you should keep careful track of which pensions you have, so they aren’t forgotten. Keep your regular pension statements and remember to update your address when you move.
5. Speaking to an adviser can help you to maximise your pension contributions
To have a comfortable retirement, it's crucial to have a large enough pension fund. This is where you may benefit from speaking to a financial adviser.
An adviser can help you to make informed decisions. This can give you feelings of confidence and security. An adviser can also find ways for you to increase your contributions. This might involve helping you to reassess your finances to find new ways to save.
Just like with saving for retirement, the earlier you speak to a financial adviser, the better.
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The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.