Are you saving enough into your pension?
According to a new report that came out recently from the International Longevity Centre.
Young workets need to be saving 18% of their annual earning to have enough funds to enjoy an adequate retirement.
The average salary is £26,000.
Therefore people need to be saving£4,680 per year just for their pension.
If young workers want to match the income adequacy of current retirees then this figure needs to increase to 20% £5,200 per year on average.
The UK Govenement rolled out auto pension enrolement in 2008 which is helping young workers work towards this figure with more and more people consiously thinking about pensions and planning for retirement. However there are still many who are falling short and saving nowhere near enough.
Further action is therefore needed to increase the uptake on pension saving and increase the amount of their salaries that people are willing to contribute.
Saving as much as possible, as early as possible is the best way to plan for retirement. Compound interest is a wonderful thing but only works over time. Therefore time invested is more imortant than amount invested.
Let’s take a look at a worked example.
Person A earns the average salary, £26,000 per year and puts 10% of their salary into a pension each year. They get their first job at age 20 and begin saving for their pension.
They work until they are 65, on the same salary and continue to contribute the same amout to their pension each year. The average interest rate over the years is 5%.
When they retire, the amount in their pension will be nearly £500,000!
Now lets look at Person B. They start working at the same age as Person A and earn the same amount if money each year. However they decide that instead of saving their money they go on two holidays a year. They eventually get to 30 years old and realise that a saving into a pension would be a good idea.
To make up for the 10 years they havent been saving into a pension they decjde to save 15% of their salary (£3,900).
As they also reture at 65, they receive 10 years of compound interest less than Person A. Despite saving a higher amount of money each year, when they retire at 65 the amount in their pension is £383,000. Thats £117,000 less than Person A.This shows that the earlier you save the better.
The report also revealed the following worring statistics:
- Only 12.4% of people in the UK are saving more than 15% of earnings, meaning the majority are far off achieving the 18% required for an adequate retirement
- Over 30% of people between the ages of 25–44 make no savings whatsoever. This group is particularly vulnerable, and unless they can accumulate some private savings over the coming decades, they are likely to go into retirement with extremely inadequate incomes
• Fewer than 1 in 10 people [9%] had a specific savings target for retirement, compared to around a third in the US and Singapore [29% and 33%] and over half in Hong Kong [59%]
Although the report raises the issue of policy changes that need to be made by the Government there are many things that you can do to enhance your pension planning for the future.
There is no guarantee that policies are going to change. Therefore you need to take things into your own hands.
Apart from signing up to a company pensions scheme, there are many other ways you can save for a pension.
THANKS FOR READING! IF YOU ENJOYED THIS ARTICLE THEN PLEASE SHARE AND CHECK OUT MY OTHER POSTS.