nearly 22 and thinking of pension any advice

dsk19s

Hi just sat down reading these forums and thinking of my retirement ( i know only 21 and thinking of it allready) any found a calculator that works out if i saved say £100 per month for 28 years on a 5% interest account my return taking into account inflation of 2% a year my return would be £73000 i would also increase the amount i save each year increasing the amount saved .The question i suppose i'm really asking is this a good idea or is a pension fund better not sure how pensions work though i have a pension with work which i pay around £570 a year to . So would the savings and the pension be enough for me to retire @ say 50 and work part time to retirement age .

Also if anyone can advise on something that would give greater return without the risk i would really appreciate it .

thanks Darren

dunstonh

The earlier the better. 18 is the perfect age to start so you are running late already

A pension is just a product with certain rules on how the maturity is paid and gets certain tax advantages. Where you invest it is a different subject. Many people get the two things mixed up and blame the product and not where they invested it. You often see people say (on here and in real life) that they stopped investing in a pension because it performed badly and have gone into an ISA instead. The daft thing is that the same funds on ISAs are available on Pensions.

So, first thing pension. It is a savings plan which gets tax relief on the contributions. It grows tax free and on maturity you can take 25% as a tax free lump sum with the remainder being used to purchase an annuity which will provide in income for the rest of your life. Pros: Tax relief on contributions is very attractive to younger people, less attractive to those closer to retirement. Cons: Currently, you are only allowed 25% tax free lump on maturity and forced to purchase an annuity with the rest. Annuity rates at age 65 are higher than current savings rates but you kiss goodbye to that 75% left over in exchange for an annuity that dies with you (or spouse if you include joint life).

Other minor advantages are that if you have children/working tax credits, then pension contributions can increase the tax credit. If you die before retirement the whole value is paid to your nominated beneficiary. The tax relief isnt paid back. Ironically, to get the most out of a pension, you need to die the day before retirement.

From 2010, you will not be able to take any pension benefits from age 50. The age is increasing to 55. If you want 50, then a pension product isnt right for you. However, you are not going to be able to retire at age 50 with £570 a year contributions. Assuming you increase the £570 a year in line with inflation to keep its real value the same, you should be able to get by with retirement at age 65. If you include the state pension. £570 isnt a lot and you ought to be looking towards 10% of your salary going into your pension, including tax relief and any employers contributions.

Risk is not a switch you turn on or off. Everything has a risk to some point and its more of a sliding scale.

dsk19s

thanks for the reply also to the £570 ayear which i pay out my pay slip i will also be looking to invest £100 amonth in my own type of pension wether it be the savings account over the years or save get lump sum invest in something else for a couple of years if at higher interest rate.The £100 is a minimum @ the moment that i can put in but due to be £150 a month better off soon as well so could increase the amount.The reason i'm looking @ this now is that i have 2 children aged 4 3 so didnot really get chance to have freedom as such which is what i intend to do when they leave home so i guess best to start straight away
thanks again

isasmurf

dsk19s wrote:

my return would be £73000

Actuaries suggest that you need a pension fund of £200,000 for every £10,000 per year you want in retirement.

dunstonh

That would be about right. Although you can get higher annuity rates at 65, working on 5% would be prudent. Especially if you want joint or an increasing income.