The latest report on consumer savings and debt from True Potential Investor suggests that between 29% and 45% of people in the UK are not contributing regularly to a pension.
The report, which studied date from 2016-2017, provided statistics on UK pensions which also revealed that a third (33%) of people worry daily about their finances. On average, pension contributions vary between £203 and £566, and women are more likely than men not to set aside monthly additions to a pension. But in the third quarter of 2017, almost half (49%) of people surveyed for the report failed to add to their pension pot, suggesting that many are struggling to prioritise pension contributions on a regular basis.
According to the report, Brits spend an average of £4.70 daily on unnecessary purchases such as food, clothing, alcohol and social activities. If this small amount was instead put towards a pension, over 35 years it would accrue £189,607, highlighting the fact that even small contributions can add up over the long term.
Budgeting for a pension is often low on the priority list but it’s important to think about how you’re going to provide for future retirement and every contribution counts. Money Guru suggests the average annual retired spend for UK residents is £21,000, but current statistics show that 40% of 22-55-year-olds are not saving enough for retirement and 28% of under 30s are not saving or investing at all.
Starting early is the best way to ensure that you have enough to live on in retirement, but you can begin to contribute to a pension fund at any time. In order to save a £20k pension, you would need to set aside around £250 per month if you began saving at the age of 25. However, this figure jumps to £400 if you begin contributions at 35, and £820 if you wait until you’re 45 or more.
There are three types of UK pension:
- State pension: £155.60 per week, requiring 35 years of NI contributions
- Company pension: comprising employer and employee contributions, with government tax benefits
- Private pension: comprising personal contributions with potential for employer contributions and government benefits
Investments, such as property, are another option for providing for retirement, though these require initial outlay and ongoing attention and maintenance to ensure they pay off in the long term. ISAs and other saving accounts are a low-cost alternative to saving for retirement, allowing you to accrue up to £20,000 tax-free.
There are an increasing number of flexible pension options available, which can be added to regularly or via lump sums. No matter what kind of pension you choose, or how much you contribute to it, it’s vital to incorporate these savings into your overall monthly budget in order to make sure you have a safety net for retirement. The best way to get started with pension savings is to make a detailed assessment of your outgoings and incomings, and look at where you can cut back on ‘unnecessary’ spending, funnelling extraneous income into a regular savings plan.
You should also factor your pension situation into your will, prenuptial agreements, cohabitation agreements and divorce negotiations, as any pension contributions will be considered as assets and will therefore be subject to financial settlements and probate issues.
The following infographic from Money Guru offers some interesting statistics and advice on managing your pension:
How to Budget for Your Pension, courtesy of Moneyguru.com
To speak to a solicitor about incorporating your pension pot into your will, dealing with property law, or how to deal with pension assets during divorce and separation, get in touch with our expert family lawyers at Frances Lindsay & Co.