I’ve decided that paying extra into my pension could be a game-changer for me. Take a look at why an increase in contributions will mean an earlier retirement.
Let’s be honest, none of us are getting any younger. Actually, there are a few celebrities that look like they’re getting younger but that’s more by design than nature. For the rest of us, it kind of creeps on you and then… BAM! You look in the mirror and think “crap”.
And as I look into that mirror I can see myself turning into my dad. And if that doesn’t depress me enough (sorry dad), I start to think about retirement.
Now, like me, I’m sure many of you were delighted to hear the news that we now have to retire later. For me, that means that I can now hang up my work boots at 68, instead of the 65 I had hoped.
And do you know what? That fills me with dread. I work shifts and already struggle working nights and I haven’t even hit 40. Although I’m very close…
Can I see myself at 67 getting out of bed on a cold winter’s morning at 5 o’clock? No, I can’t! In all fairness, doing it at 64 doesn’t really appeal but I’m sure it would be easier than 67.
But recently, I had a presentation made to me by my pension provider. It was quite an eye-opener and convinced me to start increasing my contributions. Yes, it will mean that I will be taking home less per month but the benefits far outweigh the costs.
What are the benefits?
Some of the benefits I receive may not be applicable to you, as pensions vary depending on your provider.
However, there are a few plus points that we can all take from our pension.
Firstly, we don’t pay tax on money we pay into our pension. So, let’s say you work for a large company and wanted to save £2000 per year into an ISA. Before that money reaches you, you will need to pay tax and NI contributions. Although the amount we pay depends on how much you earn, for many of us that is roughly 30%. That will mean that you only have around £1400 to put into savings.
If that money was paid straight into my pension, the full £2000 would go in.
But not only that, but my employer also has to contribute towards my pension too. At the moment, the minimum is 3%, although some employers will contribute more. With employer contributions, that means that a total of £2060 would go into my pension.
This £2060 will then be invested with the hope that it will increase in value and provide me with a lovely sum when it comes to retirement.
As I said earlier, different pension provides different perks. However, I found out that if I increased my contributions, the age I could claim my work pension could be reduced to 65. Ok, so I still can’t claim my state pension until 68, but as it isn’t a huge amount, I’m sure I could live without it for 3 years.
The downside is that I need to pay £110 extra per month.
Although this is a sizeable amount, it’s something I’m willing to do. And don’t forget I already pay tax and NI on this money. So by the time it reaches me, it’s only worth around £80.
£80 per month for an earlier retirement? Yes please.
Should you pay extra?
Generally, a pension is the best option for most of us when it comes to retirement. The more you can invest the better.
Many pension companies will provide calculators so you can check what an increase in contributions will do for you. If you have no idea about your pension, speak to your HR or Payroll department who should be able to provide some contact details.
However, usually you cannot access any of that money until you reach 55. It’s important to weigh up how important the money is to you now compared to when you reach your 60’s.
But the sooner you start saving into a pension, the more likely it is that you will have a larger sum when you come to retire.
Please note that I am not a financial advisor and none of the above should be taken as advice. I strongly recommend speaking to a professional adviser if you need help planning for your retirement.