PENSIONS!total newbie needs advice!please

lauren1983

HI everyone,

I wonder if anyone out there can help.

Im 23 and self employed. I dont and never have paid into a pension.

I have heard so many pros and cons about pensions and savings i just wondered what would be the best for me!
I cant realy afford to pay into anything but know i must do asap.

Just like to hear anyones views

Thank you

Lauren

dunstonh

As you are self employed, you only get the basic state pension and not the second state pension. This means you are looking at £4381p.a. in retirement.

So, unless you think you can afford to live on that a year, then you need to be doing something.

I have heard so many pros and cons about pensions and savings i just wondered what would be the best for me!

Most things written about pensions have actually very little to do with modern retirement planning and indeed, nothing to do with plans available to the self employed. The area of retirement planning has so much misinformation, hype and sensationalist news that its almost worth totally disregarding what you read in the media.

To make this as clear as possible, you will not hit state retirement age until age 68 and in todays money you will be looking at £4381 income a year (in todays terms).

Could you live on £4381 a year? If not, you need to start saving. If you know how much income you need to live on then a quick rule of thumb is to build up a lump sum value that if invested at 5% would equal that income. So, for example, if you wanted £20,000 a year income, that would be £400,000 (x5% = 20,000).

Of course, every year inflation increases the figure required so its important to start as early as possible to keep it affordable and to keep the figure you are paying index linked (increasing annually) to keep up with inflation. (in 40 years time £1 million will be the equivalent roughly of £400k today)