Do I need to think about my pension?
In all the excitement of getting your foot on the careers ladder and enjoying your new-found financial independence, it’s easy to forget to save for a rainy day - let alone for retirement!
Whether you’re a student opening your first payslip or you’ve been working for 30 years, taking ownership of your pension is a smart move and will help you to safeguard your future.
We’ve spoken to Rhys, a university student who works part-time. When he got his first job at 18, Rhys was a little intimidated to discover he’d been enrolled onto a pension scheme. Retirement felt like a million years away, so he decided to opt out and take the money instead. Now Rhys is focused on his future career and wants to know if he did the right thing and how he should approach his pension.
To give him some reassurance, we’ve enlisted money expert Iona Bain to explain how pensions work.
Let’s recap - pensions
Pension: A pension is like a pot that you put money into every month for your whole working life. You can’t touch it until you retire. During your working life, the money in your pension will be invested in stocks and shares. This should increase the amount of money you have to use in your retirement.
State pension: A state pension is a regular payment from the government that you can claim when you reach a certain age. Check the government's pension calculator to see when you will be able to claim state pension. When, and how much you can claim depends on when you were born and how many years you have been working and paying National Insurance contributions for.
Private pension: If you’re self-employed, you will need to make your own plans. You could take out a private pension or a lifetime ISA (where the government will pay you a bonus for saving for your first home or retirement).
Auto-enrolment: If you’re over 22 and earning above a certain amount, your employer has a legal obligation to automatically enrol you into a workplace pension. Money will be taken straight from your monthly salary and your employer will add contributions too.
Iona's top tips
Ideally put as much as possible into your pension as soon as you can. This means your money will have longer to grow into a larger sum.
If you are in full-time employment and want to make extra provision for your retirement, you can also combine pensions with savings.
So what did Rhys make of Iona's advice?
"I was honestly quite nervous that I’d made the wrong decision by opting out of my pension at my part-time job, so it’s great to hear that Iona supports me in doing this. I feel like I’m definitely going to start looking at a lifetime ISA as soon as I graduate."