Saving for a pension in your 20s and 30s

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Published  20 June 2022
   6 min read

Enjoying a comfortable life once you hit retirement age is an aspiration for many of us. One of the ways you can plan for this is to start saving for a pension. 

There are real benefits to starting the process early - and earlier than you might imagine. Starting a pension early gives your retirement savings the best opportunity to grow - hopefully resulting in enough savings for the retirement you planned. You'll need to keep an eye on things though - paying in regular contributions, perhaps increasing them from time to time, and checking regularly that you're still on track.

Pensions are a long-term investment where the value can go down as well as up - which means you could get back less than you invested. We'd expect to see some market shocks and short-term volatility over the lifetime of a pension. Historically, these fluctuations have evened out over the longer term - although there's no guarantee.

Saving for a pension can be daunting when you're a millennial (those born from the early 1980s to the early 2000s) perhaps because retirement can seem to be such a long way away.

Some might question how it’s possible to build up a large enough sum of money to support you in later life. As this is gradually done over several decades, starting a pension early could allow you to save enough money to cover both your day-to-day costs and to let you keep doing the things you love when you’re older.

 

Why do I need a pension?

The maximum amount you could receive when you retire from the State Pension – probably won’t be enough to cover your needs. It’s currently just £185.15 per week –equivalent to £9,627.80 per year[i] - that might be a lot less than your current salary.

Having another pension plan in place – whether that’s a personal pension or a workplace pension – is one of the best ways to save enough money for a comfortable retirement. But, starting this process early is important. The longer you have your money invested, and the amount you pay, in all affect how comfortable you'll be in retirement.

 

When do you start saving for a pension?

Ideally, you should start saving for a pension as soon as you start working. If you’re in full-time employment, you’ll be enrolled in a workplace pension where your employer will also make contributions to your pension pot.

Those who are self-employed will need to choose their own pension. There are lots of different options, although personal pensions are typically some of the most popular. They allow you to decide how much you want to contribute each month and to increase/decrease this whenever you like.

Want to make your pension savings work as hard as they can? We’ve come up with a simple rule of thumb – do your SUMS:

  • S – Start saving as soon as you can, no matter how small the amount
  • U – Up your pension contributions whenever you’re given a pay rise
  • M – Max out any employment pension contributions available to you
  • S – Speak to a financial adviser to help with your pension planning

 

How much should I have in my pension at 30?

Let's be honest: the value of your pension by the time you hit 30 won’t be huge. That’s because, at best, you'll have only been paying into it since you were 18 years old. And it’s likely your contributions won’t have been very high either.

But how much your pension's worth throughout your career will depend on several things, from the age you initially started paying into it, to what you choose to contribute each month. It can also depend on the choices you make about where your funds are invested.

There are different investment options available that you can match to your your personal attitude to risk. Each option is set up to encourage your money grow, but with a different level of risk attached. As we've said before, the value of investments can go down as well as up. So, as well as encouraging your money to grow more, the more risky options could also see greater losses.

You might also want to make sure your pension is responsibly invested. Royal London acknowledges the potential for investments to impact wider society. Climate change, and our approach to it, is a fundamental part of our thinking and analysis.

 

The value of pensions advice

If you're unsure about your pension savings, it's always a good idea to speak to a financial adviser. They’ll be able to help you with your pension planning and show you how to get the most out of your pension savings.

While you might not see the benefits of financial advice right now, it could really pay off in the future and help you to maximise your pension savings and any other financial assets.

Saving for a pension isn’t the only way to safeguard money for the future. Why not read our personal finance blog to discover all the different ways you can financially prepare yourself for later life?



[i]  Gov.uk, What you'll get

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