According to new research from LV=, there are a number of essentials in order to have a happy retirement. A detached house with a garden, 21 days holiday abroad and lots of time spent with the grandchildren are just a few of the necessary ingredients needed in the retirement cake.
But these things all come at a cost - £208.08 a week or £225,756 over 17 years to be specific - and the last thing that you want to be worrying about is your finances. This is why it’s important to make sure that you have enough money to last.
The state pension is just £110.15 a week, and so many people may see a fall in their standard of living once they retire, if they haven’t been saving.
To lessen the burden in later life, a new auto enrolment scheme is being rolled out over the next few years to encourage more workers to start saving up for their retirement.
Everyone over the age of 22 who earns over £9,440 will be automatically enrolled on a pension scheme by their employer, saving workers the hassle of signing up themselves.
Industry experts predict that people will need to save around 15 per cent of their salary each year in order to build up a substantial pension package, and so it’s clear just how much money is required to get by.
Who will pay into the pension?
You will be required to pay into the pension by putting aside a little each month, and your employer will also contribute too. Most people enrolled in a pension scheme are entitled to help from the government as well. This comes in the form of a tax relief, which means that some of the money that you’d usually pay as tax will go into your pension instead.
Once you’re enrolled in a pension scheme, it’s possible to ask your provider for a pension projection so that you can get an idea how much your pension pot will be worth when you retire. Each year you’ll receive a statement summarising your savings so that you know exactly how much you have in your pension pot. This can be a great way of working out whether you’re on track for your goals or whether you should start saving a little bit more each month.
Is it worth it?
Putting money into a workplace pension scheme is a great way of saving, as you won’t be the only one saving up for your future. Since your boss will be contributing too, and you’ll get tax relief, you’re basically getting free money.
However, if you’re struggling with your finances and already have substantial debts to pay, this might not be the best time to start saving for your pension.
I don’t want to start saving just yet. Can I opt out?
If you find yourself enrolled on the scheme and you’d rather start saving later on in your life, you can opt-out by informing your employer of your decision.
It’s easy to only think about your current financial situation, and for some people, the extra outgoings each month may mean they have to make cutbacks elsewhere. But if you are able to meet your other commitments such as mortgage repayments, rent and phone bills, it may be worth giving it a try. By saving during your working life, you can help to secure a comfortable future for yourself without setting yourself up for any financial strains at an old age.
No one wants to struggle to make ends meet, and retirement is all about enjoying yourself and having a good rest after working for many years, so for many the introduction of this new system will give them the much needed encouragement to start saving for the future.
What are the basic requirements of these new pensions?
Under automatic enrolment legislation, the minimum amount that must be paid into pensions is currently 2 per cent. You are usually expected to pay 1 per cent and your employer is expected to match it. 0.2 per cent of the money that you pay will come in the form of tax relief from the government. But there are other schemes where your employer may pay more than 1 per cent, and so this is worth investigating.
Is there anything else I need to know?
Since it is common for workers to move between jobs during their lifetime, pensions are designed to be flexible. It’s usually possible to combine a pension from one job, with the money you’re about to save in the next job, but it is worth discussing the best way to do this with your pension provider. If you’d prefer to continue paying into your old pension after you’ve left, this is often another possibility.
If you become self-employed after working for someone else, you also may be able to continue contributing, but your employer will stop making payments.
Are there any other ways that I can save?
It’s possible to save for retirement without a workplace pension, and some people choose to save up themselves by making use of accounts with generous interest rates.
Fixed rate savings accounts and Fixed rate ISAs are a great way of protecting your savings from fluctuating interest rates. Look out for accounts with annual tax free allowances and high interest rates. These allow you to make the most of your savings and reap the benefits as you begin to build for the future.
Notice savings accounts can also be a great way of saving for retirement. You’ll earn interest on your savings and you’ll be able to withdraw cash if you need to. You need to provide suitable notice before withdrawing your cash, so this could be ideal if you need access to your funds, but want to avoid dipping into your savings too often.
If you’ve been telling yourself that you’ll start saving for retirement nearer the time, the new auto enrolment scheme could be ideal for you. With a small saving each month – and free money from your employer and the tax man – over time you’ll be able to build up a fund with a substantial amount
The content published on this website is intended to provide information only. The reader should seek advice from experts on the subject matter and independently verify the accuracy and relevance of any information provided here before relying upon it or using it for any reason. You can view our terms and conditions here.