No time like the present…
For many of us we follow the same well trodden path. We grow up (remember those endless summers), go to school and after that we either start work or go to college/university and then also join the work force.
Most of us don’t think too far into the future. We might look a year ahead or maybe 3 or 4 years into the future if we’d like to get on the housing ladder or are planning a family. Do many of us really think much further ahead than that though? The honest answer is probably not.
In years gone by public and private sector workers alike were provided with pension arrangements which looked after them in retirement. People didn’t have to give their retirement planning too much thought. Someone else had already thought about this for you and as you approached retirement you’d have a fair idea of what pension you were going to receive. Some public sector workers still have these types of arrangements in place but for the vast majority of us working in the private sector (and indeed even some parts of the public sector) pension arrangements like this — often referred to a Defined Benefit pensions — are no longer offered to workers.
With people living longer and interest rates falling to all time lows over the last 20 years perhaps it’s no surprise that Defined Benefit pensions have become less common. In the vast majority of instances workers are now offered a Defined Contribution pension. Under this arrangement instead of promising what your pension will be at retirement you and your employer instead agree to pay an agreed amount (as a % of your salary) into your pension pot each month. These monthly contributions are then invested until you retire. When you retire you then use these collective savings to help replace (partly or fully) your salary.
If there is one key message that the Pensions Penguin would like you to take away from reading this blog it would be this:
“We all need to plan for our retirement and you are personally responsible for doing this! Nobody else is going to do it for you and if you don’t do something today you will almost certainly regret it in future”
The next blog article will explain what happens to those investments you make each month and why the earlier you start contributing into a pension the better off you’ll be in the future.
