Once you hit 22 years of age, if you’re currently employed, you might start receiving notifications from your employer about being enrolled on their automatic pension scheme. This automatic enrolment can be opted out of, but your employer is legally required to enrol you if you don’t respond. You suddenly have a decision to face. You can open a pension with absolutely any pension company, but it’s usually easier to let yourself be automatically enrolled onto your current workplace’s scheme; unless, of course, you won’t be with the company much longer.
If that’s the case, and you feel like now is a good time to get your pension started, you should start shopping around to find the best pension package for you. This quick guide will encompass a few need-to-knows that every 20-something should know before getting started.
A pension is a tax-free amount that you and your employer pay into as a solution to having to work once you reach retirement age. You’ll find yourself paying in automatically every month on your payslip, though the amount will be miniscule compared to what you’re being paid. You’ll be able to access your pension from the time your turn 55, though you don’t have to retire until your 65th birthday. If you do choose to access your pension earlier, you can withdraw as much or as little as you’d like.
Before you start a pension, make sure you have enough to pay for any essentials, and it’s advisable to be pay off any debts you have. It can be difficult to pay multiple allowances at once, so be as debt-free as possible before you start putting more money where you can’t reach it.
If you are starting a pension, there is a good rule of thumb for young adults: Put as much money into your pension as possible, as early as you can. Take the age that you start your pension and halve it. This number is the percentage of your yearly salary, before tax, that you should be putting aside for your pension. For example, if you’re 22, you should put away 11% of your earnings that year.
Obviously that amount will increase every year, and you may not always be able to put so much money aside. However, having this set amount to aim to put into your pension each year will keep you organised, while ensuring that you can retire on a decent amount of money without worrying about making ends meet at retirement age. If you can’t afford the payments using the trick above, then work out what percentage of your earnings you can put away and do this instead. Even putting away £20 a month means that you’ll have an extra £240 in your pension that year. Think about what you will have, rather than what you don’t have.
There are different types of pension and you should keep in mind that this is just a basic guide. The next step is for you to do some research and ensure that you’re getting the best pension you can.