Age to start paying into a pension?

Nine_Lives

I'm 28 & as i've not paid into one so far i know i'm already late, very late. I'm asking for my brother actually - who's almost 19.

Thing is, i remember discussing the topic of pensions with my dad a year or so ago who used to be the pension rep for the company he worked for. He retired a good few years ago & things have likely changed since (am guessing).

Anyway, he's not available to ask, but i recall him saying something about pensions working on a set time frame such as (picks a figure:) 40 years. When my brother left school at 16 & mentioned paying into a pension, my dad advised not at that age based on what i just said.

Now, take the above with a huge pot of salt as my memory is like a sieve.

Basically at what point should he start paying in to one? Right this minute, or would it be more beneficial to start paying into one from [insert age here] ?

I know nothing about pensions, so i need to read into them myself too actually, but even though i know nothing, i know that i'm late myself.

somethingcorporate

The sooner the better but no specific age - it depends on a whole host of factors.

dunstonh

The earlier the better. Every 7 years you leave it, you have to double your starting contribution that you would have done (or get back half the pension in retirement if you dont)

Nine_Lives

dunstonh wrote: »

The earlier the better. Every 7 years you leave it, you have to double your starting contribution that you would have done (or get back half the pension in retirement if you dont)

The every 7 years thing - is this from the age of 18 i'm assuming? I don't know why i picked that age, probably as it's the age of an adult, but people can leave school at 16, so would it be from then?

dunstonh

K_P83 wrote: »

The every 7 years thing - is this from the age of 18 i'm assuming? I don't know why i picked that age, probably as it's the age of an adult, but people can leave school at 16, so would it be from then?

No, its a generalisation on the cost of delay. If you start with a monthly premium and never increase it then the final income will be half what it was had you started 7 years earlier. If you increase annually after setting it up the cost of delay is not so bad but still hits your pocket when you do eventually start.

Someone starting £100 with annual indexation of 3% at age 18 can expect around £12000 p.a. in retirement (in todays terms).

If a 21 year starts at £100pm then their projected income on same basis would be £10,617.
24 would be £9,189.
28 would be £7,538

For a 28 year old to get around £12k, they would need to pay £159 pm compared to the 18 year old who started at £100.

The older you are, the greater the cost of delaying your start is. So, in your 20s, a years delay will cost you around £7 extra per year past 18. Get into your 30s and its around £11 per year extra. (age 32 is the age that you have to pay double what an 18 year old could pay).

Once you get to your mid 30s, the cost of delay gets increasingly steep. Age 34 is £216 (compared to that £100 at 18) but 38 will cost you £271. With increases per year getting close to £20 for every year delayed.

Age 40 is the point where you need to start paying £300 to get that £12k. Its three times more expensive now than starting at 18.

The steepness of the increases now shows as it only takes to age 44 to require you to pay £400pm and just over 47 to require £500.

Nine_Lives

Thanks for explaining further.

So basically i'm late, but not silly late (at 28)

Unlike my mother, who is nearly 50 & has no pension. I think when my dad dies, she gets half his pension (not sure whether this is lump sum or half his monthly/annual payments) but other than this she has nothing. The house is paid off, but still.
I take it that at this point in her life, she's up the creek with no paddle?

Loughton_Monkey

There is absolutely no benefit in delaying it. In fact you can do worse than start a pension for your new born baby.......

It's really a matter of starting from the minute you earn money. Your brother is destined to earn a certain amount over the next 40/50 years of his career. Nobody knows what it will be. But the point is, this money he earns has got to last him not just the 40+ years of working, but another 25+ years after that. The 'strongest' £ invested is the 'earliest' £ invested.

gadgetmind

Loughton_Monkey wrote: »

In fact you can do worse than start a pension for your new born baby.......

I started one for my daughter a few months ago and wish I'd done it a decade earlier.

CAN1976

gadgetmind wrote: »

I started one for my daughter a few months ago and wish I'd done it a decade earlier.

Can you point me somewhere where I can read up on this? Didn't know this was even possible.

gadgetmind

CAN1976 wrote: »

Can you point me somewhere where I can read up on this? Didn't know this was even possible.

Anyone can put £2880 per year into a pension, even those not earning anything, which includes children. You can also contribute this much into a pension for someone else and it counts as part of their allowance and not yours. The government then adds 25% on top, so £2880 turns into £3600.

Of course, you can put in less - I'm putting in less than £50pcm for my daughter. For a sum this small, a stakeholder pension is usually the best option, and I went with Aviva via Cavendish Online. There is a £45 fee up front but after that the charges are pretty low at 0.55% per annum.

dunstonh

CAN1976 wrote: »

Can you point me somewhere where I can read up on this? Didn't know this was even possible.

everyone has a £3600 a year pension contribution allowance (even non earners and those born yesterday). As long as they are UK resident.

That's all there is to read about it. Everything else is the same.