Start a pension scheme now

Start a pension scheme now

The earlier you start contributing to your pension scheme, the more income that money will generate for your retirement. FSA/ABI figures estimate that a 20 year old man who started to save £50 a month and retired at age 60, would get £60 a month, where if he waited until he was 30, he would get £37 a month. If he waited until he was 35, his £50 a month contributions would give him only £28 a month.

The table below illustrates more fully the value of starting a pension earlier. It illustrates the different pension incomes which may be produced by regular contributions of £50 per month. Figures are based on male, purchasing an RPI-linked, single life annuity. (FSA & ABI Pensions calculator, November 2002)

Weekly private pension income from regular contributions of £50 a month

Age starts saving	Age of retirement:  60	Age of retirement: 65
20	£60	£88
25	£48	£71
30	£37	£56
35	£28	£44

Make the most of your Tax Relief

Another good reason to start now is to make the most of the tax relief you are entitled to for contributions to your pension.

For the 2009/10 tax year, if you earn less than £37,400 a year, you get 20% tax relief, i.e. for every £80 you put into your pension, the Government tops this up by a further £20.

Those earning over £37,400 get 40% tax relief, so for every £80 saved in their pension scheme, the Government adds £40. Remember that if you earn more than £37,400 a year and want to benefit from your 40% tax relief, you need to claim the difference between the basic rate of 20% and the higher rate of 40% through your tax return or making a claim to HM Revenue and Customs (HMRC) by telephone or letter.

Please see www.direct.gov.uk for more information.

Take up any pension benefits your employer offers you

Many employers already offer employees contributions towards a company pension scheme, but not everyone currently takes these up. From 2012, all employers are legally required to contribute a minimum of 3% into an employee’s defined contribution pension scheme (based on qualifying pensionable earnings), or offer a defined benefit scheme with equivalent or better benefits.

For more information, please see:
http://www.pensionsadvisoryservice.org.uk/future-pension-reforms/auto-enrolment

Work out and review your savings with the joint ABI/FSA Pensions Calculator

This online calculator helps you work out how much you need to save to be comfortable in retirement. Developed by the FSA and ABI, it estimates the income your defined contribution pension might provide you with on retirement. A defined contribution pension includes all personal (including Group Personal pensions) and stakeholder pensions.

By filling in some basic information on your current fund value (you’ll find this figure on your yearly statement from your pension provider(s) – if you have pensions from several providers, make sure you add up the current fund value of all of your pension pots), and how much you (and your employer, if applicable) are contributing on a monthly basis towards your pension, and it will give you an estimate of the income you might expect on retirement.

It should give you a good idea of whether you can afford to retire at a specific age, whether you need to increase contributions to your pension, or whether you will need to work longer.
 
The online Pensions calculator can be found at:

http://www.moneymadeclear.fsa.gov.uk/tools/pension_calculator.html

Near or At Retirement: What to expect