Pensions guide

Pensions guideWhy is that talking about money is so hideous? Granted, I have a business that makes me want to get out of bed in the morning, allows me to pay my bills and maintain a certain lifestyle. But still, thinking, planning, damn, even talking about money fills me with dread. It’s strange though. I’ve generally always be sensible with it. ‘Overdraft’ isn’t a word that’s ever been part of my vernacular and for as long as I’ve been working, I’ve fiercely put money aside each month for a deposit on a house (see, sensible, right?). Still, the mere thought of it induces agony, but maybe it’s because, living in a city like London – absolutely everything from nights out with friends to jumping on the tube each morning – comes down to money.

For many of us, thinking about money only serves as a sharp reminder that, unlike our parents, the likelihood of actually be able to buy a home in the capital is near on impossible. Thinking about money reminds us that we should probably stop that twice daily Starbucks habit, that spending £28 a pop on spinning classes in the grand scheme of things isn’t necessarily the most sensible way of spending it; and how our failure to financially invest in our futures isn’t actually okay. It’s not necessarily that us millennials are reckless. It’s more that the future seems often seems so bleak, our only choice is to think about the here and now.

As much as I hate to admit it, thanks to Rachel Green and Carrie Bradshaw, I do still harbour a dream of life in New York, talking through life over endless cups of black coffee, catching up with girlfriends over overpriced cocktails, and doing it all in Monolos, not a financial care in the world. Both women stood as poster girls for ‘whatever mistakes you make in your 20s, fear not because come you’re the 30s, everything will be A-OK.’ Cue, dream job, adorable kid with your best friend who you’ve loved all along, not to mention the apartment on Fifth Avenue. Because of all this, we’ve all been led to believe that no matter how reckless we are with money now, things will somehow fall into place right when we need them to. That the fact that we’ve gone to university, worked hard and ticked off a few boxes makes financial, matrimonial bliss an inevitability.

If you’ve been reading the papers lately, you’ll know that shit just got real. Apparently, those of us in our thirties are “sleepwalking into poverty”. Yep, according to a report from the Institute of Fiscal Studies, a thirtysomething on an average salary will end up with a pension of just £271 month. Back in 2013, the government introduced an auto enrolment, which meant that 5.4 million employees are now signed up to a pension but the bad news is that it’s a little too late if you’re already in your thirties and weren’t saving in your twenties. The result? Well, we’re all set to have small pensions than our parents and, rather than giving up work when we’re actually entitled to retire, the likelihood is that we’ll all be clinging onto our jobs for dear life right into our old age. Scary stuff, right? And that’s why I think it’s time for us to change our whole approach to it all.

I live and die by Apple products but this month was swayed by Dell to attend a two-day workshop designed to give small businesses and sole traders the tools we need to, well, do what we do in the best, most financially savvy way possible. For Dell, it was an opportunity to celebrate the launch of their new XPS laptop, which, thanks to its high resolution touchscreen, 10-hour battery life and super powerful operating system, rather impressively gives the MacBook a run for its money. New machine aside, their mission for the event was more than that. Over the two days they hosted workshops that narrowed down on best practices as freelancers and small business owners, particularly when it comes to money and the rather daunting issue of taxes too. My biggest takeaway was that it’s all down to having the right tools (XPS included) and as always, knowledge is king. So to at least get us on the right track in terms of investing now in our financial futures, I hoped on the phone with the Minister for Pensions, Ros Altmann to break down what we should be doing now to make a difference in the long term.

“It can be tempting to spend any extra money we earn each month on the stuff we love,” she says. “But the potential loss of your hard earned financial independence in old age is a sobering prospect. Regularly putting a bit of money aside can help you to build up a pot of savings to shore up your future. Here’s how…”


Pensions guideStay enrolled in your workplace pension: One of the easiest ways to save for your future is by staying enrolled in your workplace pension. The government is making it a legal requirement for employers to provide a pension for their staff if they are over 22 and earn over £10,000 – so you will be signed up automatically. Over 6 million people have already been enrolled into a workplace pension and are newly saving or saving more. Once you’re enrolled, your boss will also contribute and you may also get tax relief from the government, so it all adds up. For more details, visit www.workplacepensions.gov.uk.

Earn interest on interest: If you can, start saving into a pension as early as possible and you will gain the most from compound interest. This is where you earn interest on your original amount, but also on your interest, even if you’re only paying in the same regular amount. Over the years, this adds up and your savings will grow faster – quite considerably in many cases. Albert Einstein even declared compound interest as the eighth wonder of the world.

Here’s an example: a person who saves £1000 each year into a pension would have around £24,000 after 20 years (if it grew at a steady 2 per cent a year). And if they continued to save for another 20 years, their money wouldn’t just double to £48,000 – it would rise to £60,000 due to the effect of compound growth. That’s 25 per cent extra without lifting a finger! Better still, the £1000 would be matched by employer contributions that could be worth an additional £600 per year. The employer contribution would also benefit from compound growth over time.

Saving after a pay rise is the perfect time: If you’re lucky enough to get an increase in your pay, you could consider putting all or part of this straight into your pension – this will mean that you can build up extra savings without noticing a difference in your take-home pay. Also, as in most cases pension contributions get tax relief from the government; you would also pay less tax on this money when you save it rather than spending it. Speak to your employer about how you might be able to do this.

Think about the lifestyle you want when you’re older: Put simply, there are two types of pension you may benefit from when you’re older – your workplace/private pension and the State Pension which is paid out by the government. The State Pension is a foundation, but for many people, relying on this alone could mean a fall in income upon retirement. Saving into a workplace pension means you will have more money to continue doing the things that you enjoy when you retire.

Hang on to your Pension: Don’t take your money out of your pension pot until you absolutely need it! Pensions are precious, so it’s the last money you should ever spend, as it keeps growing tax-free and you can pass it on free of inheritance tax.