A pension plan is one of the most important investments you are likely to make in your lifetime.
A pension plan is a long-term savings plan, where regular amounts and/or once-off lump sums are built up into a fund for retirement. The amounts saved into a pension are called ‘contributions’.
The importance of having a Pension Plan
Have you ever wondered what you might do when you stop working? Let’s face it we all have!
The reality is that the majority of us will need to save a significant amount just to maintain our existing standard of living in retirement. With advances in modern medicine and improved standards of living, people are generally living longer and can look forward to 20 or 30 years in retirement. This is a long time in which to enjoy the finer aspects of life. Work priorities can be replaced with relaxing, enjoying new hobbies and spending more time with family and friends.
Whatever your goals, one thing is for certain, you will wish to maintain the standard of lifestyle that you enjoyed while you were working.
Nobody wants to feel restricted or impoverished in retirement but this may be the reality for many people if they do not take the time and make an effort to adequately plan for their retirement.
The importance of saving the right amount for retirement
It’s important that you take the time to calculate how much you realistically need to save – so you can afford the lifestyle you are looking forward to when you retire.
Many people think that saving a small percentage of their salary into their pension plan will be enough to fund a 25- or 30- year retirement but the reality is that although some expenses may decrease in retirement others, such as electricity bills, heating bills and medical expenses, many actually increase as you get older.
The earlier a pension plan is started, the more time the fund has to accumulate and the better off you will be in retirement.
Ask yourself what percentage of your current salary you would need to live comfortably in retirement? It is even more important now to provide for your retirement, considering that the age from which the State Pension becomes payable is increasing over the next few years.
State Pension payable:
From age 66 from 1st January 2014
From age 67 from 1st January 2021
From age 68 from 1st January 2028
The savings you make now will provide you with a pension income from the age you retire from the scheme and also bridge any years between your scheme retirement age and the age from when you will receive the State Pension.
To see an overview of the level of savings you need to make to your pension plan to achieve a pension of approximately 33% or 50% salary, check out our Defined Contribution pension plan guide.
Preparing for retirement – means start saving now!
If you are in your 20s or 30s, the easiest way to establish your pension plan is to start small and build your fund gradually. So, whenever you get a pay rise, commit to putting part of the increase into your pension plan, before you get used to spending it.
If you are in your 40s or 50s when you begin saving into your pension plan, you will naturally have more ground to make up, so you should commit yourself to saving a higher amount and you may decide to do this by making Additional Voluntary Contributions (AVCs) towards your retirement.
If you want to find out more, download our guides:
For any queries please contact your financial advisor.
