Pension saving — the sooner you start the better

Posted by TEBI on July 6, 2020

Pension saving — the sooner you start the better



Financially, the coronavirus crisis is a huge blow for many young people.

In the short-to-medium term, job prospects don’t look good. In the longer term, the huge government bailouts we’ve been seeing need to be paid for; today’s twenty-somethings will be helping to finance them through their taxes for decades to come.

But none of that is an excuse to postpone investing for retirement. Indeed, ensuring you’re properly provided for in your later years is even more important as a result of recent events.

This article is aimed primarily at a UK audience, but contains important lessons for young employees everywhere.


How much should I be paying into my pension each month? It’s a question posed fleetingly by millennials, often accompanied by a spiral of panic about house prices and student loans. In the face of these worries, retirement feels like a problem to be dealt with tomorrow.

Indeed, the more research is done, the more daunting pensions seem to be. Stats about how much a certain age group should have already saved do nothing to assuage the fear. Though it’s tempting to bury your head in the sand, hope is certainly not lost.

The key to preparing for your retirement lies in starting early, no matter how much you’re able to start with. Here are some handy tips for understanding how to take control of your pension plan.


Ask for help

One of the key barriers to pension provision in this age group is a lack of knowledge. Millennials admit to knowing very little about their current pension plan or the options available to them.

There are lots of ways to rectify this problem, the most obvious being: ask for help. Begin by asking friends and family how they are preparing for retirement and their tips for getting started.

After this, take to the internet. There are dozens of helpful and impartial websites containing easy-to-digest information about how pensions work. Money Saving Expert, The Money and Pensions Service and of course The Evidence-Based Investor are just a few you could use.

It’s important that you use impartial sites so that you aren’t being biased towards a particular product or service. So, if the website also offers pension plans or other banking products, take their advice with a pinch of salt. Knowledge is power, so get your head out of the sand and take control by educating yourself.


The workplace pension

If you’re a UK citizen aged over 22 and earning more than £10,000 annually, you will have been auto-enrolled in the workplace pension. This is a scheme set up by the government to help more people begin to save for their retirement. Currently the minimum requirement for employees to contribute is 5% of their annual salary. On top of this, your employer will invest 3% of your annual salary. Your contribution will be taken from your monthly pay cheque so you won’t see this money coming into your bank account any more.

Though you can opt out of the pension, think carefully about whether this is the right choice for you. Some will feel the 5% loss each month more than others. Remember that you’ll feel it even more acutely later in life if you don’t commit to investing this now.

In addition, your employer’s contributions will rack up, essentially giving you free money towards your future. If you do choose to opt out, make sure you replace that pension with another that’s more suitable for you.

Find out more about your workplace pension, and how you could personalise it, by speaking to your company’s finance department. You should have an online account that will hold all of your personal data.


Put it all in one place

If you’ve worked for multiple different companies so far in your career, you might have several pensions. To keep things simple, it can help to bind these together into one pension so that you can keep track. There are lots of organisations that offer this service, so again, do your research and pick one that you trust.


The power of compounding

The earlier you start saving, the more those savings will earn each month thanks to the power of compound interest. Anything you invest today will earn you interest, adding to your pot. Then, next year, you’ll earn interest on everything in that pot, so you’re essentially earning interest on interest.

If you choose to set up a private pension, alongside or instead of a workplace pension, consider how soon you might be able to start this. If you have a lump sum to invest, no matter how small, compound interest will maximise this. Similarly, by starting early you’ll reduce the amount you need to set aside each month later in your career to achieve your financial goals. Not only does this set you up well for retirement, you’ll have more monthly disposable income throughout your career. 


The good news

The good news is that saving for retirement does not need to be scary or difficult. By doing some research, getting started, and investing steadily throughout your career, you can easily achieve a financially secure retirement. The old proverb rings true: the best time to plant a tree is 20 years ago; the second best time is now.




New investors will find plenty of helpful information on TEBI about getting started. This video series by Andrew Hallam is a good place to begin:

How to become a millionaire, Part 1

How to become a millionaire, Part 2

How to become a millionaire, Part 3

How to become a millionaire, Part 4

How to become a millionaire, Part 5

How to become a millionaire, Part 6


You might also want to look at our series Back to Basics:

Part 1: Starting with evidence

Part 2: Growing your wealth

Part 3: Protecting your wealth

Part 4: Choosing a strategy

Part 5: Maintaining discipline



Picture: Icons8 Team via Unsplash



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