Research from pensions advice specialists reveals millennials think they’ll need an income of £35,648 a year to live comfortably in retirement and the State Pension will make up 36% of this. Based on their expected comfortable living amount, the State Pension will need to be at least £12,833 a year when they come to retire.
While planning for your financial future may seem a long way off in your twenties and thirties, it’s never too soon to start making plans and saving to ensure you’ll be able to live comfortably in retirement.
With the current full State Pension (£9,110) only covering 25% of their expected annual retirement income, millennials would be left short by almost £75,000 over a 20-year period. And with nearly a third of 25-34-year olds not expecting to receive the full State Pension amount, this shortfall could be even greater.
Knowing how to get the most out of your pension can feel challenging, so experts at Portafina have offered three ways to help avoid a pension shortfall if you are in your twenties and thirties:
1. Stay opted in to your workplace pension scheme
If you are 22 or over and earning at least £10,000 a year, you will automatically be enrolled into a workplace pension scheme. That means you don’t even need to think about paying into a pension as the money comes straight out of your pay packet. The great news is with a workplace pension, on top of tax relief from the government, your employer pays money in too.
Without the 3% extra paid in each month by your employer, your pension pot could be almost £150,000 less when you come to retire3 – another big reason to stay opted in.
If you’re self-employed, it still pays to invest in a private pension from your twenties rather than your forties. In fact, delaying putting aside money until later in life could increase a potential pension shortfall by over £158,0004.
2. Top up your pension savings if you can
While remaining opted into a workplace pension is a great start to building your retirement savings, you could boost your pot by regularly topping up your contributions. The government has set the minimum employee contribution as 5% (including tax relief). Yet if you were to regularly pay in an extra £50 a month, you could increase the value of your pension by over £100,0005.
Jamie Smith Thompson, managing director at Portafina, said: “It’s important not to overstretch yourself. You’ll be more likely to stay committed to paying into your pension long-term the more manageable your payments are. Should you receive a windfall you also have the option to pay lump sums into your pension too.”
3. Keep on top of old workplace pensions
Three-quarters (75%) of UK workers aged 25 and over² are unaware that they are responsible for managing pension pots from previous employers. This has led to a staggering amount of pension cash remaining unclaimed each year.
As you job hop throughout your working life, it’s important to keep on top of your workplace pensions. In your twenties and early thirties, this could mean simply staying organised with pension paperwork. Or, see if you could maximise your savings by switching pension providers or consolidating your pensions into one scheme.
Jamie added: “It’s important to know the risks that moving or consolidating pots could bring. While it could mean lower fees and better performance, it could also mean giving up valuable benefits and guarantees.
“The bottom line is, it’s best to seek expert help before making any final decisions. A regulated financial adviser will analyse every aspect of your pensions, giving you all the facts you need to make an informed decision, unlike most combine-and-go online platforms. With something as valuable as your retirement savings, it makes sense to be absolutely sure.”
To find out more about how you can save for your future, please visit: https://www.portafina.co.uk/blog/opting-out-of-auto-enrolment-could-cost-you-thousands/