Pension saving can be embarked upon in a number of ways, including via workplace pension schemes and private arrangements. While many lean upon the state pension overseen by the Department for Work and Pensions (DWP), this is increasingly becoming viewed as a safety net, and not enough to sustain Britons in retirement. Now, a recent report from the Institute for Fiscal Studies has stressed the importance of taking pension saving into one’s hands.
If a person fails to do so, it said, they could risk no longer being able to maintain the same standard of living they have had throughout their working lives.
The report stated: “In the presence of uncertainty about earnings and employment, individuals should save more at younger ages, in particular in years when earnings are high.
“However, the general pattern remains – that is, many would be expected to save the minimum amount early in working life, and then increase their saving rate substantially when children leave home.”
While auto-enrolment into a workplace pension scheme can provide an important financial push, looking at when individuals should start saving is also an important consideration.
“While retirement may seem far off, it’s the contributions paid at younger ages which have longest to benefit from compound investment growth.
“It’s also risky to assume that earnings will necessarily rise or financial pressures disappear later on in life.”
Mr Cameron highlighted that with many individuals now taking longer to get on the housing ladder and start a family, problems could extrapolate.
This could mean financial pressures extend well into a person’s 50s and even their 60s.
Having to deal with major financial responsibilities later on in life, coupled with the prospect of earnings not rising, and expenses not falling – there are significant implications for a person’s retirement.
If a person does not save amply for their pension, then they could risk falling short in retirement.
Another problem which frequently arises in this regard is rising life expectancy.
With Britons spending more of their adult lives in retirement than ever before, it is likely more funds will be required for retirement.
This, coupled with the fact the state pension is rising for this very reason, could create a financial strain on older individuals.
Mr Cameron concluded: “Aegon analysis shows an employee aged 22 earning £25k per year could build a pension fund of around £145k in today’s money terms at age 67 at the auto-enrolment minimum level of eight percent.
“To achieve this same fund value starting pension saving at age 35, you would need a total contribution of 14 percent, almost double.
“What’s more, for most people, simply paying the auto-enrolment minimum of five percent, with a three percent employer contribution will still fall far short of maintaining their lifestyle in retirement.”
Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to email@example.com. Unfortunately we cannot respond to every email.