The 2021 Scottish Widows Retirement Report shows that 61 per cent of people are now saving adequately for retirement, putting away the recommended minimum 12 per cent into their pensions.
While this success is encouraging, it is becoming increasingly clear that the rate of progress has been slowing for some time and is at risk of plateauing, with 19 per cent of people still saving nothing at all.
With Pension Awareness Day just around the corner, Robert Cochran, Retirement Expert at Scottish Widows, shares his top tips to help savers take control of their long-term savings:
There’s never a ‘perfect’ time to start saving – now is better than never
The golden age for pension saving is in your twenties to give your pot as long as possible to grow, but the sooner you can start saving the better. Savers shouldn’t underestimate the power of compound interest: for example, assuming you make the same level of pension payments, you could receive a pension that is 29 per cent higher if you started paying in at 25 rather than 30, and incredibly that pension fund could be 69 per cent higher if you started paying in at 25 rather than 35.
Even six months of additional contributions now could have a sizeable impact on your pot at the point of retirement. If you want to see just how big a difference starting early makes to your pension try this simple calculator: Cost of Pension Delay Calculator – Scottish Widows. But remember if you haven’t started saving for your retirement yet then the very best day to start is today.
Don’t miss out on your ‘free pay rise’
For the majority of savers, auto-enrolment is a great platform to kickstart pension savings, but they need to ensure they’re making the most of employer contributions. With many employers now offering to match or exceed the contributions made by employees it’s important to make sure you are getting the maximum payment into your plan that your employer offers.
Not taking advantage of these additional employer contributions is like turning down a free pay rise.
Make the most of tax advantages
Many people don’t recognise the tax advantages that come from paying into a pension. For every 80p that you pay into a group or individual pension, your provider will top this up with a further 20p claimed on your behalf in tax relief, to a total of £1. This, added to employer contributions, could make a big difference to your total pension pot.
And it doesn’t stop there – if you pay a higher rate of tax you can claim more back – so if you pay 40 per cent tax it will only cost you 60p to pay in £1 – but you may need to claim the extra amount back through your tax return.
Check in with your future self
Don’t be afraid to take control of your pension. You can set yourself up for success by having a clear understanding of knowing how much you have currently in your pension pot and thinking about the type of retirement you want.
Our Meet Your Future Self tool easily illustrates the age at which you will be able to retire based on the income you want and different contribution levels.
Take time for a financial health check
Take the time to carry out financial health checks. People who change jobs frequently may have built up several different pension pots. Our research found that over 3.6 million Britons have no idea how many pensions they have and risk paying more in fees than necessary.
It’s important to know where your pensions are and consider consolidating where this makes financial sense. It can also help you get much closer to your money, by increasing the sense of ownership and control. Learn to love your pension – it’s your money and your future – and it’s in your hands.