You can start your Pension saving at 40. It’s not too late

Julie Hutchison of Standard Life writes that one can start his savings regardless of your age, which helps you to have improved retirement plans instead of having no savings at all.

Celebrating birthdays sometimes make us feel happy at the same time will be annoying with the growing age when we turn up to 40’s, as it reminds us that we have become old. When we turn back, the biggest scare that anyone would have if they have not planned for their retirement is about the finance. Not to worry too much if you are thinking about your financial status after retirement, it’s not too late as you can start saving into your pension even in 40’s and can have a good amount in your hand at the time of your retirement.

If you are an employee and have not a member of an employer’s pension scheme then as per the new rules, you will be automatically enrolled into the employer’s pension scheme. The employee will have an option to opt out if he/she wishes to. Going with the pension scheme has got lot of benefits, one can start the savings with the minimum amount that is around £80 a month and can get good returns. If a person pays around £80 a month as part of pension, then the government will add £20 to your pension for every £80 you put in and if in case of an employee, then the additional amount has to be put up by your employer into your pension so in either of the cases it’s profitable.

A case study that could be you
Let’s assume that a person who is earning £30,000 a year has not started his savings yet and now he is into 40’s. This person has decided to join the company pension scheme towards his retirement and he started paying a total of 8 per cent of salary each month until he retire, age 67.

As per the new law by the government the minimum pension contribution should be 8 per cent of salary and out of this 8 per cent, at least 3 per cent will be contributed by employer and the remaining 5 per cent by the employee. This is introduced in order to help people save more amounts for their retirement assuming that if the salary increases 2.5 per cent with inflation at each year and you get 4.5 per cent outlay progress on your pension savings each year, the average calculation amount for your retirement would be around £96,000 pot in today’s money.

At the time of retirement, one could take 25 per cent of total pension pot as tax free and the remaining 75 per cent of pension would be given as the annual income equivalent to approximately £4,500 today if the person has bought an annuity and if this is added to the state pension then on a total you would get £12,000 as part of annual pension income, which is a good amount.

Buying an annuity depends upon the person, it’s not necessary that everyone has to buy an annuity. Considering this year’s budget, it’s more likely that most of the people instead of buying an annuity with the pension pot they are showing interest in keeping their pension fund invested as this seems more safe and yield to better income as it grows continuously and has the facility to take their income from their retirement pot each year.

What if I’m not an employee?
The employees will have more benefits when compared to self-employed. The self-employed doesn’t have an option to have company pension where the employer also contributes some amount to your savings. So a self-employed has to make savings into a personal pension, or perhaps a self-invested personal pension (SIPP). The person has to save more amount towards pension in order to get good returns after retirement. So it’s good to start the savings at the earliest, even before you reach 40’s.

Will £12,000 be enough income?
Something is better than nothing. So at the age of your retirement i.e 67 , you would be free from most of the loans and fees that you might have to pay. So £12,000 annually along with some other investment returns would give you some confidence to lead a good life the way you wanted. If both, wife and husband works and have the pension and other investments, then both of you can live peacefully. So start saving, never the late. Even if you start with the small amount initially, unknowingly it will give you good results at the end.