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AD. When I was in my 20s my money never seemed to go far enough. I was always wanting to buy something, achieve something new or travel. Couple those things with job changes, renting a home with my husband for the first time and my pension never felt particularly important. As I reached my late 20s I started to have more available money, and think more long term about my finances.
Now, as I start my 30s, I take my pension, and other savings, very seriously. I want to have money to retire and still enjoy my life. Like a lot of 30 somethings, I am looking forward to growing my family, buying our first home together and making changes to my career.
I am self-employed, which means I need to make my own pension arrangements, however, I want to talk to you today about automatic enrolment, and what changes are coming this month.
I know that pension arrangements are something that can fall to the wayside, particularly for my female friends. In the fog of new parenthood and all of the responsibilities that come with that, I found myself feeling less enthusiastic about saving and more interested in anything that could help Daisy sleep better or make me feel more alert!
However, your age right now is the perfect age to start to save more, and from this month the minimum contribution into your workplace pension is changing, from 5% to 8%. Your employer and the Government will make up some of this 8% too, effectively you’ll pay around half (4%). This is known as the automatic enrolment step up.
What does the change mean in real terms?
For someone earning £27,000 per annum the change from 5% to 8% means an extra £36 going into your pension pot per month. This sounds like quite a small amount of money but for a 25-year-old this should mean an additional £55,100 going into their pension pot by the age of 65.
When you look at the numbers over the long term this is staggering! A 35-year-old should have an extra £36,200 in their pension pot by 65. The % increase isn’t just funded by you. Your employer and the taxman also add to your pension pot too. You pay more AND your employer and the taxman contribute more too.
You can find out exactly what the change means for you, and your income, with the Scottish Widow’s pension contribution calculator.
Plan for your future
If you take just one thing away from reading this post it should be make sure you have a plan for your future. I know a change to your monthly income can feel huge, but perhaps you could make some simple changes to your household budget.
When looking at your finances can you make any changes to your outgoings? Perhaps you can negotiate a lower deal on your broadband & phone. Maybe you don’t need a TV licence anymore? Even meal planning is a fantastic way to save some money.
Only 1/3 of young women are actually planning adequately for their retirement. This is compared to almost 1/2 of men (46% to be exact). The difference is quite staggering, especially considering women typically live longer and earn less than men!
Now is the time for women to make a change, and to start planning for our financial future. I know it is hard, with household bills and family life, but even small changes to your pension can make a huge difference when it is time to retire.
It is never too late to start planning for your financial future
While it can feel like it, when you hear others talking about their savings, pension funds and other investments, but there is never a better time to start planning for your financial future than right now. By saving into your pension you can stay in control of your own finances – regardless of your age.
The Scottish Widows Retirement Report from 2018 shows that 55% of UK adults are saving adequately for their retirement now. This is up from just 46% in 2012, before automatic enrolment.
If you’re already enrolled into a workplace pension your employer, and the taxman, will also pay into your pension pot. If you are someone who has opted out of auto-enrolment or hasn’t previously qualified then now is a fantastic time to think about enrolling, it could make a big difference to your future.
You can visit the Scottish Widows website to find out more about pension contribution changes. The website has lots of useful infographics, explanations and a calculator to help you see the real cost to you from these changes and more.
This is a paid partnership with Scottish Widows. Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits, which isn’t guaranteed, and can go down as well as up. The value of your plan could fall below the amount(s) paid in.