That’s why now’s a good time to start talking about pensions.
National Pension Awareness Week begins on 15 September. Pensions? That may not mean much to you yet, but this is an event that can really help you understand more about this important part of your finances. It’s a time when organisations like Aviva help people get talking about their future planning, including how pensions fit into the bigger picture.
Why would you want to think about that now? The answer’s simple. Starting to save or invest early gives your money more time to grow. Beginning your financial planning journey now, could make a big difference in the future without straining your current budget.
The power of long-term investment
With most personal and workplace pensions, your money is invested. Let’s look at an example of what might happen if:
- You put £100 into a pension now, and
- The investments within it were to grow by, say, 5% in a year.
- If this was the average annual growth over 20 years, you’d then have about £265.
This is just an example, of course, and it’s important to remember that the value of an investment can go down as well as up, and you may get back less than was invested.
Another thought: given this example, if you’d waited five years more instead of starting right away, you’d only have had around £207 at the end. Not £265. So, an early start could lead to a more comfortable retirement… or the chance to retire earlier.
Think about the difference tax relief can make
There’s another reason to think about pensions as part of your financial planning - tax savings. When you contribute to a workplace pension, you benefit from tax relief. The way you receive this will depend on what type of pension scheme you are in and what rate of income tax you pay, but this makes saving into your pension a tax-efficient way to invest in your future.
It’s also worth bearing in mind that, if your employer offers a workplace pension scheme, it may come with employer matching contributions. Some employers may also pay into your personal pension. This is essentially another way in which you could receive additional benefits at no extra cost. You pay into your pension, and your employer pays in too.
Why talk about pensions?
During Pensions Awareness Week – and the other events across October and November that make up what we call the Pensions Engagement Season – Aviva will be offering people the chance to find out more about the way pensions work, with webinars and fresh insight on this website.
We want to start conversations. Because discussing your financial goals and plans with someone you trust can provide valuable insights and support. Whether it’s a family member, friend, your employer or a financial adviser, talking now can help you make the most of what you’ve got. The people you talk with may offer different perspectives, knowledge, or even share their own experiences – especially if they’ve got to grips with the way their own pensions work.
Take a look at the full picture
You may be thinking that you’ve got more important shorter-term financial priorities than your pension... a car, deposit on a house, or even taking time out to travel. If you make a plan – with specific objectives over a timescale - and work out your budget, you’ll be better able to decide how your pension fits into the big picture.
For instance, instead of saying, “I want to save money,” you could say, “I want to save £5,000 for a car in the next three years.” This can work for your pension, too. Maybe say to yourself “I want to save £20,000 in my pension by the time I’m 30”. Setting goals can help you stay focused and committed.
Create a budget to see what you can afford
With your goals in mind, it’s time to create a budget. A budget is a financial plan that outlines your income and expenses, helping you manage your money effectively. Here’s how to get started:
- Track your income: list all sources of income, including your salary, side gigs, or any allowances.
- List your expenses: categorise your expenses into fixed (rent, utilities) and variable (entertainment, dining out) costs.
- Set spending limits: allocate a portion of your income to each category, making sure your savings and investments still get a look in.
- Review and adjust: regularly review your budget to see if you’re on track. Adjust as you need to, in line with any changes in your income or expenses.
- Allow for an emergency fund: you could aim to save three to six months’ worth of living expenses in a separate savings account. This fund could give you a financial cushion in case of unexpected events.
- Consider long-term goals: funding your future and later life doesn’t have to mean big sacrifices if you start early. Time’s on your side.
By sticking to a budget, you may find you’re able put more money towards your financial goals than you initially thought. You could then work out how much of this you could contribute to your retirement savings – always remembering the potential power of long-term investment.
Help to get the conversation started
During Pension Engagement Season, Aviva, like many other pension providers are encouraging people to learn more about their financial choices. We want to help people to discover that pensions don’t have to be confusing, scary, or just plain boring. On our Financial Wellbeing hub, you’ll find links to information and explanations to demystify pensions and their role in planning your financial future.
It’s time to start talking about pensions!
