It’s never too early to start your pension – in fact the earlier you start saving, the better. Here are ten things you should think about when planning for your retirement:

1. Make a Pension CV

List all the jobs you have ever had and list any pensions associated with them. This will give you a basic idea of where you can expect your pension to come from and how many years you need to ‘backfill’ because you did not put any money into a pension scheme.

2. Company Pensions

Most companies now provide employees with a company pension. Usually, the employer and employee will both contribute a defined amount – normally a fixed percentage of the salary. This money is put into an investment pot which should grow over time.

3. The State Pension

The current State Pension age is 65 for men and 60-65 for women. This is due to increase for women from 2010 and will reach 65 by 2020 and the government has plans to increase this even further to 68 bt 2046. The 06/07 year will see an income of £84.25 per week at most. Your entitlement depends on the number of years that you have made National Insurance contributions. For men, you must have 44 qualifying years and for women, it must be between 39 and 44 qualifying years. Your pension will not be means tested so it is not affected by any other income you may have.

4. Additional State Pensions

There are two other State Pensions you may have – the State Earnings-Related Pension Scheme (SERPS) and the State Second Pension (S2P). S2P replaced SERPS in April 2002. The amount you receive from either of these schemes depends on your earnings during your working life and your National Insurance contributions. Some people may not have either of these pensions because they have opted out in favour of a private pension.

5. Personal Pension

Personal Pensions were introduced in 1988 to allow self-employed people to save for their retirement. As with all pensions, payments into a personal pension attract tax relief at your highest tax rate. This means that if you contribute £78 and you are a basic rate tax payer, you can get 22% tax relief which actually means your contribution will be £100.

6. Stakeholder Pensions

Low-cost Stakeholder pensions were introduced in April 2001 by the governments. There are no upfront or exit charges and you can switch providers without incurring any fees. However, there will be a management fee of no more than 1.5% per annum. You can increase, decrease or stop payments to the pension whenever you want. All of this means that stakeholder pensions are usually cheaper and more flexible than personal pensions.

7. Self-invested Personal Pensions (sipps)

Self-invested personal pensions have been around since 1989. They are a form of pension where you decide where your money is invested.

8. Annuities

Once you have built up some money, you need to invest it to help it generate an income. Usually, annuities are bought. Annuities are a guaranteed income for life that is provided for by an insurance company in return for a lump sum. However, the rates on annuities have been falling recently and are currently only making about 5-6% per year on your savings. If you decide to buy an annuity, it is important to find the highest rates possible.

9. Individual Savings Accounts (ISA)

You can invest up to £7,000 per year in an ISA. ISAs are tax free savings which means any interest which accumulates will not be taxed. You can buy one ISA per year and are an excellent way to save.

10. Savings Accounts

If you have under five years before you retire, think about using a Savings account. Your money will be safe as there is no risk involved. It is important to use up your tax-free allowance first, so put £3,000 into a mini cash ISA. If you do not mind a little risk, invest £4,000 in a shares mini-ISA. Any other money, put into a high interest savings account to get the best return possible.

But how much will you need? £20,000 in current money should enable you to live a fairly decent retirement – that equates to about £1,300 per month to live on. This is however, assuming that you have no outstanding debts to pay off. Inflation must now be factored in. If we assume a rise of 2.5% per year, this means a 40 year old will probably need £37,000 a year and a 25 year old, £54,000 per year.

If you were to retire today, you would need a pot of around £400,000 to ensure you had a pension of £20,000 a year. With inflation, this figure will only increase. This means it is really important to start saving today! The standard rule of thumb is to halve your age and contribute that amount of your salary to your pension. As life expectancies increase, it may be prudent to put just that little bit extra aside each month to ensure that you really do have enough cash to last you a lifetime.

Click here to see a list of pensions providers.

Popularity: 7% [?]