While retirement may seem like a long time away for many people, it’s important to prepare for the future. In addition to the state pension, many people will be contributing to private and workplace pension plans over the course of their lives. Here’s how you can make changes now which might make a massive impact on your future finances.
Steve Webb, partner at pensions consultants Lane Clark & Peacock and former Minister of State for Pensions, told Express.co.uk the best way to boost your private pension “is to make the most out of what your employer has to offer”.
He added: “Although there is a legal minimum which firms have to contribute, many employers will go further if you put more money in yourself.
“For example, if you put an extra £10 per week into your workplace pension, your firm might match that so that you get £20.
“It is hard to think of any other way of investing your money that gets such a good return.”
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Jon Ostler, CEO of personal finance comparison site finder.com, also shared his tips with Express.co.uk on how you can get the most out of your private pension.
He said: “The state pension is actually not bad by global standards due to the triple lock over recent years, which ensures the basic state pension will rise by a minimum of either 2.5%, the rate of inflation or average earnings growth – whichever is largest.
“However, the future relative value of the state pension is likely to be much lower and a private workplace pension is essential for your future.”
Mr Ostler offered his tips for making sure you get the most out of your private pension.
Pensions: It’s never too early to start planning for your retirement (Image: GETTY)Make sure you’ve opted into auto-enrolment
“If you are employed then you will have been automatically enrolled into a workplace pension scheme, employees contribute a minimum of five percent of their salary and employers will match three percent
“If you opted out of this then you will be forgoing ‘free’ money from your employer so it really is advisable to stay in this scheme if possible.
“For example, someone earning the UK average salary (£29,669) will pay £18.18 into their pension each week, but the combination of your employer having to pay more and a 20 percent tax break will see an extra £18.19 go into your pension every week.”
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“If you’re in a position to do so, putting some money into your pension as soon as possible will make a bigger difference than if you did it in the future.
“This is due to compound interest, which is where the amount earned on interest becomes more and more substantial as time goes by.
“Someone who earns £35,000 and contributes under the automatic workplace pension scheme for 50 years would gain £211,041 more than if they just kept the cash every month.
“This shows how much of an impact compound interest can have!”
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“Cutting spending is often the easiest way to snowball savings and investments.
“Cancel subscriptions you never use, see if you’re overpaying on broadband, mobile or energy bills, look at cycling or walking instead of driving and expensive car costs.
“On top of this, if you get a pay rise, place the extra money into savings.
“Once you’ve made some savings, plough that money into your pension pot.”
Keep this simple rule in mind to know how much you should be putting in
“Take the age you start a pension and halve it. This is the percentage of your pre-taxed salary you should put into your pension each year until you retire.”