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Pensions - starting out If you don't sort your own pension out, by 2012 the Government will force you to take one of theirs. That's the brutal truth - and like other Government schemes it probably won't offer much in the way of choice or performance. Another truth is this: that if you do something inexpensive early enough in life, compounding earnings over the years can help produce quite a sizeable sum of money to help out when you retire. If you have an Employer's Superannuation scheme available, then you should join it if only to get the benefit of the employer's contribution; even so, you might want to look at ways of setting more money aside. Pensions are a long term game and delay is expensive. For instance, if a 22 year old earning £20,000 p.a. (£385 a week) starts paying 5% of his pay into a pension, and the employer pays 3%, then at 65 he'll have a pension fund of £434,541 which could give a pension in retirement of £18,934 a year. If our 22 year old waits until 27 to start making payments of the same amount, his fund will be £307,040 with a possible pension in retirement of £13,378 a year - a reduction of £107 per week! In reality all these figures may vary wildly through the years and the value of an annual check into your pension's performance can't be overstated because as you get older and your invested funds grow in value, it makes sense to rebalance your investments to protect your gains and take advantage of new opportunities. Orkney IFA offers no-cost reviews of your pension as part of our long-term commitment to clients. Come in, see us and make the first moves towards securing your later life. It really isn't ever too soon. Assumptions made in the examples above: Retirement age 65, pension policy charges 1% p.a., contributions increase 2.5% p.a., inflation 2.5% p.a., average fund growth 7% p.a., tax free cash taken at retirement, nil; no allowance made for tax reliefs which may reduce the amount paid by the employee but which are not guaranteed and which depend on an individual's own circumstances and relevant Government legislation.
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