Save today, thank
yourself tomorrow

First of all, I should say that I most definitely am not a
financial advisor, a pension planner or in any way officially qualified to tell
you what to do with your hard-earned money. But as someone who is probably
closer to retirement than most of you (at the ripe old age of 54), and who is a
mother working in the veterinary sector, like most of you, I’ve been thinking a
lot about pensions and retirement of late. It’s not exactly imminent – I intend
to keep working and bothering the great and the good for many years to come –
but as of next year it seems that I have control of my pension pot. Which is
all well and good if you a) have a pension pot and b) have the first clue what
you should do with it!

Experts seem to agree that somebody on the average UK salary
of £27,600 needs a pension pot of £300,000 put away if they are to maintain
their standard of living into retirement. They also agree that most won’t actually
have anywhere near that amount (estimates range from £50,000 to £100,000). As
it stands currently, the state pension is £125.95 per week and is paid to those
over 66 (rising to 67 in 2027). All of which paints a rather gloomy picture for
the prospects of a carefree retirement for those who haven’t done any pension
planning. I know, it’s boring. I know it seems a long time away, but trust me
retirement will come sooner than you think.

The parental leave / part-time penalty

According to absolutely no evidence other than common sense,
I feel fairly confident saying that the problem is likely to be worse for women,
and specifically mothers. Having children requires at least some time out of
the workplace, and for vets returning to part-time hours or locum work the
number of pension-eligible years is likely to be lower than for a man working
in an office his whole career. At the other end of the scale, having elderly
parents can also require time away from work for carers. Similarly if you are
relying on a partner or an inheritance to fund your future plans, then please
just be aware that things can change. Much as we hope they won’t, separations
happen, unexpected tax bills arrive and suddenly life can take a bit of a
swerve. At least make sure that your current and future financial position is
based on an active choice and understanding of possible outcomes, not founded
on passive reliance and lack of awareness.

Proactive pension pot management

Buying added years, putting money into ISAs and paying into
a managed pension scheme rather than solely relying on employer contributions
are all ways in which you can increase your retirement fund. But like I said at
the start, I don’t know nearly enough about these and everybody’s circumstances
will differ, so it’s vital to seek advice from an Independent Financial Advisor
who can help you decide what’s best for you and plan for the inevitable.

(And by the way, denial, hope, crossed fingers or lottery
tickets don’t count as pension planning!)

Pensions work on a very basic principle of compound interest
– the pot gets bigger every year and the new, bigger pot is then re-invested to
get even bigger the next year. The more years you do it, the better the return
on your original input. Of course, when it comes to financial planning it’s
always best to start early, but that’s not much use if you’re already well into
your thirties! Start anyway, right now.

Work out what you can afford to put away each month and set
up a regular direct debit into your pension plan / ISA / whatever so it happens
automatically. To quote Warren Buffet:

“Do not save
what is left after spending; instead spend what is left after saving”

Things to do now:

  • Take a look at Martin Lewis’ excellent website
  • Look at your regular incomings and outgoings and
    work out where you can make changes to generate some extra money. Which you can
    then invest. For example, a Costa cappuccino costs £2.25 and you have one every
    day on the way to work. That’s £11.25 a week, £45 a month, £540 a year. Gym
    membership that you never have time to use? Sky subscriptions, mobile phone
    tariffs and insurance policies that renew automatically – work out what you can
    scrap and what you can reduce by shopping around and you could quite feasibly
    free up £100 a month to invest for your future.

Boring maybe, but trust me – future you will thank you!

Alison Lambert, OnSwitch