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Question of the week: Where to start with pensions?
MSE_Jenny
Posts: 1,321 MSE Staff
Q. I'm 24 and thinking about starting a pension. I don’t earn loads, but I’d like to use it wisely. My sister suggested buying bonds, but I think investing in a pension would be better? Where do I start? Eimear by email
Martin's A. By the time you retire, those relying on the state pension, may need to get used to eating cold baked beans. So well done for considering this early.
Do understand a private pension isn't a product, it's a tax-free wrapper that allows you to lock away money for retirement from your PRE-TAX income. So investing £100 as a basic rate taxpayer costs less than £80 from your pay packet.
Your sister suggested bonds, yet that's not an 'either or' situation with a pension. Depending on which type, it's possible you could get those within your pension anyway, and get the tax benefit.
A very rough rule of thumb to work out how much to put in is take the age you start your pension and halve it. That's the percentage of salary you should put in for the rest of your life to retire on 2/3 of your final salary. As you're 24, that means 12% of what you earn, hence why earlier is better.
For more info, see the Pensions MoneySaving and State Pensions guides. If you’re unsure consider getting a Financial Adviser.
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Martin's A. By the time you retire, those relying on the state pension, may need to get used to eating cold baked beans. So well done for considering this early.
Do understand a private pension isn't a product, it's a tax-free wrapper that allows you to lock away money for retirement from your PRE-TAX income. So investing £100 as a basic rate taxpayer costs less than £80 from your pay packet.
Your sister suggested bonds, yet that's not an 'either or' situation with a pension. Depending on which type, it's possible you could get those within your pension anyway, and get the tax benefit.
A very rough rule of thumb to work out how much to put in is take the age you start your pension and halve it. That's the percentage of salary you should put in for the rest of your life to retire on 2/3 of your final salary. As you're 24, that means 12% of what you earn, hence why earlier is better.
For more info, see the Pensions MoneySaving and State Pensions guides. If you’re unsure consider getting a Financial Adviser.
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Comments
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I started my pension with Norwich Union at the age of 22. I went through in Independent Fianacial Advisor.
When I lost my job, I stopped paying into it and only just recently started paying back into it, aged 26. So not bad really.
I pay around £26 a month, though because of the tax thingy, around £28 goes into it each month instead.
Just got my annual statement and if I was 65 today, I would be getting around £95 a month from it.
Imagine when I am really 65 what I would be getting out of it.
If you are young, you should definately go for it0 -
A very rough rule of thumb to work out how much to put in is take the age you start your pension and halve it. That's the percentage of salary you should put in for the rest of your life to retire on 2/3 of your final salary.
Is it just me or does this seem hopelessly optimistic? I'd suggest you'd be lucky if it provided around 1/2 final salary. (Of course the state pensions would be on top of this and you'd recieve tax relief on contributions)0
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