Pension Issues And Starting A Pension

When should you start a pension? That is a question many are asking themselves

, especially as increasing numbers of young people have failed to do so.

Ideally you should start paying into your pension as soon as you begin work, or at least when you start working full time. Many have failed to do this with some ignoring the issue of investing in their retirement into their 40s or even 50s.

There are a number of reasons why people are failing to start a pension. Many have simply ignored it and not thought about it. When you are twenty-five retirement is still over forty years away, so to many it is not a priority. Others feel that investing in a pension is unaffordable. With food and fuel prices increasing at a faster rate than the average salary a pension is seen as less of a priority compared with other, more pressing costs. The quality of pensions has also been a problem. Quality pension schemes can be hard to come by and many employers dont offer pensions, or dont offer pensions that are as favourable as they may have been in the past.

The general issue of pensions is an increasing problem. The population is getting older, with more people of retirement age and, relatively speaking, fewer people paying taxes to fund retirement. This problem has often been referred to as a ticking time bomb.

Paying into a pension early is advisable. The later you leave it the more you will have to pay in to achieve the same standard of living. One model is that you should halve your age when you start paying into a pension and invest that percentage of your salary towards it. So if you start paying into a pension at age twenty you should invest 10% of your salary for the rest of your working life. This should be 15% if starting aged thirty and 20% if starting aged forty. The actual amount being invested would therefore increase as your earnings increased. It could be argued that these are higher than necessary percentages and that investments should depend on what you want to achieve; how much pension you want to be able to withdraw once you retire. The above model does, though, illustrate the importance of starting as early as possible. The later you leave it the more of your earnings will have to go towards your retirement.

Fewer people owning their home is another issue that could impact people upon retirement. In the past people have had the idea that they will have their mortgage paid off by the time they retire, or at least close to being paid off. This is becoming less common, a trend that appears likely to continue. People are getting onto the housing ladder later in life (in their late thirties on average) meaning they are less likely to have paid off their mortgage by retirement. There are predictions that an increasing number will never buy a home meaning they will have to rent for the entirety of their retirement. This may mean requiring a more significant pension for the same quality of life compared to having no mortgage or rent to pay.

There are currently many issues surrounding pensions and people are, on average, starting to invest in their pension later in life. This is a problem, and although not always easy to do, people should begin to pay into a pension as soon as they can.

Andrew Marshall

by: amnorge

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