- Average private pension pot would provide income of just £2,027 per year
- Tips on making the most of your pension pot from day one
Pensions. It’s a topic that fills many with dread, often avoided for as long as possible. With Pension Awareness Day on 15th September, pensions advice specialist Portafina is educating savers on the benefits of investing in a pension from the earliest opportunity.
A long-term investment, pensions are accessible for most from the age of 55. Workplace pensions offer the option to make monthly contributions from pre-tax salary which are boosted by employers, as an incentive to encourage investors and help towards ensuring a comfortable retirement.
With today’s average private pension pot totalling just £59,564 (at the age it can be accessed1), coupled with the average UK retiree stopping work at the age of 632 and living to the age of 813, their pension is likely to provide an annual income of just £2,027. That reduces to £1,872 for those wanting an income to be paid to their surviving spouse.
Added to the full State Pension of £8,093 for new retirees, the total annual income would be just £10,120. By comparison, the national living wage would provide a pre-tax income of £14,976.4
According to the Association of British Travel Agents, more than a third of 55 to 75-year-olds would spend up to £5,000 a year on just one holiday, and the average over-50 spends £3,8205 a year on luxuries like nights out, meals and gadgets. When balancing an active social life with a limited budget in later life, could you get by on £10,120 a year?
With this in mind, Jamie Smith-Thompson, managing director of pensions advice specialist Portafina, offers direction on how to make the most of your private pension from day one:
- Make the most of your workplace scheme. If your employer offers to match your contributions, that’s free money and can really accelerate the growth of your pension. Making an £80 contribution and seeing the pot grow by £160 is a great feeling, and that’s before any tax incentive from the government and investment growth
- Start early, even if you can’t contribute much. The biggest asset to any saver is time, and small amounts add up quickly. Increasing the payments when you receive a pay rise will help the fund to grow without you having to cut into the rest of your income
- Make sure the investments suit you. If you’re in a workplace scheme, you may be put into a default investment. It’s important that your investments are appropriate for you, so ask to talk to someone about the options, or talk to a financial adviser for personal recommendations.
Jamie added, “It’s ironic that what is perhaps the most generous and effective savings product is so misunderstood. Pensions have the ability to change your life and allow you to create the future lifestyle you want.
“Even small changes to your financial habits, such as making slightly higher monthly contributions to your pension or switching to one with lower fees, can help you on the road to creating a future to look forward to.”