Every week there is more worrying news about the future for retirees. From ongoing political debates about increasing the retirement age, to the rocketing cost of living requiring us all to save more or work longer, it’s all a reminder of the advantages of a private pension. If you’re in a younger age bracket with decades to go before retiring it may not seem like a top priority, but financial experts say that it should be. We asked Lisa Bardell (Business Partnership Manager at Options UK) to give the 5 top reasons why everyone in the Gen Z and Millennial age groups should consider making plans NOW!
1: Start saving today!
Lisa: Yes, I know this is easier said than done when inflation and the rising cost of living is putting more pressure on finances. That’s especially so for young people starting their careers on lower salaries, paying for their education, or saving to get on the property ladder. It’s only natural to want to enjoy life now and not feel like making financial sacrifices for your retirement when it is decades away. But if there’s one thing that you will hear from any professional financial adviser, it’s start planning and saving as early as possible. So, if you don’t have any plans in placed yet, the first and most important step to consider is speaking to a regulated independent financial adviser (IFA). If you don’t have an IFA, this link is a good place to start looking.
2: You CAN plan for retirement AND have a good time now!
Lisa: Yes, you will have to budget for and prioritise pension payments over other outgoings – but it might not cost as much as you think. It all depends on your personal financial circumstances now, and the kind of lifestyle you want to have when you retire. There are private pension products that will suit your current income, projected future earnings and outgoings, and what you want to do when you retire. If you are working, every UK company is legally obliged to auto-enrol their workers into an authorised pension scheme. Employers make contributions of 3%, workers contribute 4% with 1% tax being reclaimed. The key point in this context is not to opt out so that you get the benefit of the employer contribution and tax relief from the government.
3: You CAN’T rely on the UK state pension
Lisa: UK state pension payments vary depending on personal circumstances, but the maximum payment right now is £185.15 per week (£9,627.90 per year). All the indicators are that in the decades ahead pension payments are unlikely to catch up with the real cost of living for millions of workers. A Which? survey carried out last year revealed that real-life retirees today need at least £12,000 per year to cover essential costs if they’re single (or £18,500 for couples) – and that rises to £19,000 and £28,000 respectively if they want to enjoy a few little luxuries like a meal out or an annual holiday.At the moment, if you’re eligible to receive a UK state pension you get that when you reach the age of 66. However, it could be increased to 68 in 2026 according to a recent government announcement (so that could mean those born after April 5th, 1977, would be in the first wave who would need to work to 68 before receiving the state pension). Some experts (such as the International Longevity Centre UK) even think the state pension age could be 70 by 2040. The message is clear – the UK state pension is unlikely to support the life you want to lead after decades of hard work, and if you don’t make your own private pension plans you’re going to have to work much longer.
4: Make your pension work as hard as you do!
Lisa: Every pound you save for retirement needs to be earning a return on that investment. That’s why it’s worth thinking about private pension products such as SIPPs (Self-Invested Personal Pensions). This type of pension product gives you choice, flexibility and performance by allowing a range of investment opportunities to be used within your scheme. SIPPs have tax advantages too. If ethical investments are important to you, there are SIPP products which meet those needs as well.Yes, you won’t be surprised to hear me say that at Options we do offer SIPPs – but they really are worth thinking about. However, not all SIPPs are the same, so if you do choose one it’s essential to make sure it’s appropriate for your needs or circumstances. Again, the best place to start finding out if this is a product suitable for you is to seek advice from an IFA. Or you can contact us at Options and we will be happy to provide information about SIPPs and other retirement solutions we offer.
5: Choose your employer wisely
Lisa: In a jobs market where there are labour shortages in many sectors, more and more employers are investing in employee benefits packages to attract and retain the best employees. If your current employer has a workplace pension it’s worth taking a closer look at whether it meets your future needs, or if you can get a better deal if you think you need to increase your pension pot.If you are self-employed or run your own business it’s a good idea to consider the tax advantages that SIPPs provide. Those advantages became even more attractive following an announcement in the UK Budget in March, Corporation Tax increased to 25% from April 1st, 2023 (although the existing 19% level will remain for companies reporting annual profits up to £50,000). SIPPs can be used to reduce this tax burden (click here to find out more).
Don’t just dream about your retirement – start putting plans in place now and make sure those dreams come true!
Lisa Bardell, Business Partnership Manager at Options UK