Pensions for young people

D_e_n_i_s_e

I have a collegue who is just 27. his wife is only 20 and there first child has only recently been born. The wife was/is still at college and he has been working for the past 5 years in a call centre for a major mobile uk mobile network. since he started work he has been tucking away 10% of his salary (Salary is 15,000 per annum) away into the company pension (the company match this with another 10% - the max the comapny will match). His idea is to retire by the time he is 50!:rolleyes: and he would like to put away more of his hard earned money into a secure stable pension fund so that he can live his life after he is 50 with his family who have emigrated to Austrailia without worrying about income.

His father worked long and hard as a school caretaker and now aged 60 has retired early with a pension of £275/wk! he too contributed the max he could from his twenties! the lad obviously sees his dads fortunate position andwants to follow suit! (cant blame him!)

Can anyone suggest a pension plan into which young thoughtful youth can put money into (without little risk or loss and that gives good returns etc)

Phoenix79_2

I'd suggest posting this in the pensions board as well Denise. I'd be interested as well as i want to retire by 40 (not much chance of that happening!)

dunstonh

His idea is to retire by the time he is 50! and he would like to put away more of his hard earned money into a secure stable pension fund so that he can live his life after he is 50 with his family who have emigrated to Austrailia without worrying about income.

Its not going to happen. From 2010, the earliest you can take a pension is age 55.

Can anyone suggest a pension plan into which young thoughtful youth can put money into (without little risk or loss and that gives good returns etc)

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The product doesnt exist (assuming you mean with little risk).

His current pension contributions are great for an age 60 retirement and the scheme with 10% matched contributions is just what you want. However, if he wants earlier than 55, then he has to forget pensions altogether and look at alternatives. Obviously we dont know what income he wants at 50 in todays terms but using 5% rate net, a £500,000 fund would produce £25k a year. So, that is what he has to be aiming for

If he is looking at nil risk options like a savings account, then the interest rate just keeps up with inflation so on that basis he would need to save £500,000 over 23 years which equates to £1811 pm he needs to put aside.

Even if he intends to match his current salary in real terms he is looking at £1086 per month needing to be put aside and that is probably more than his current net income.

Unless he looks towards medium risk investments or higher (risk is reduced a bit on monthly contributions compared to lump sum investments) he isnt going to be able to afford this.

jamesd

A better option here, if his risk tolerance allows it, is treating the company pension as the low risk piece and using a high risk tolerance ISA investment portfolio. That will grow at a faster rate and might make it possible, with difficulty, if he was to use that money as income until he could take a pension.