Retirement is the last thing you think about when you are young. But that is a dangerously short sighted point of view. The sooner you sort out your pension, the longer your investment has to accrue and the more comfortable you’ll be in older age. Admittedly there is a lot to think about as there are so many options but AEON is happy to help with the decision making process.
Put simply, you can divide your life into three phases:
So, in reality you are earning for 45 years in order to fund about 20 years of retirement, which logically means that you need about 30% of your lifetime earnings for a comfortable retirement. Fortunately, most people are happy to have a lower income in retirement because they have fewer liabilities. This, coupled with the fact that the pension fund grows tax effectively, contributions attract tax relief, and more generous income tax allowances in retirement means that you don’t need to contribute 30% of your income. Even so, providing for retirement requires serious financial commitment.
A lot of people don’t rely solely on their pension for their retirement income but combine it with other investments, with business assets and sometimes property investments. You should plan to get the right mix so that you can enjoy your retirement while you are still young enough to do so.
People may be put off investing in pensions for various reasons, such as:
Pension legislation has changed significantly over the past 30 years. In 2006 the Government attempted to simplify the whole pension structure with the introduction of ‘Pensions Simplification’. To some extent this worked, but the legislation was still complex. Since then there have been a series of amendments and legislative changes that have complicated rather than simplified pensions.
The most important things to note are:
The common factor between all of these schemes is that there is an element of employer contribution which makes them much more attractive. Your future pension pot is aided by various tax breaks and your employer pays into your savings plan. Who wouldn’t sign up to such a scheme?
In isolation these schemes may not be sufficient to meet your retirement needs, so you should also consider additional pension provision or other investments.
If you’d like advice on your pension and retirement planning, please contact AEON to arrange a free, no obligation meeting with one of our advisers.