It’s a good idea to start a pension as soon as you can, so that you’ll have as long as possible to save for retirement.
In line with governments around the world, the States of Guernsey is reforming the way retirement income is provided, as the traditional state pension become less affordable for them to provide. In Guernsey the state retirement age is already age 70 for anyone under the age of 43 and further reforms are likely to be made in the future.
Therefore, it is essential that individuals make their own provision, so it is a good idea to start contributing to a pension as soon as you can, to give yourself as much time as possible to save for retirement. One of the biggest hurdles to overcome is starting to save early. Our advice is to start small, choose an amount that is relatively easy to afford and then increase it over time in manageable increments, perhaps every time your pay increases. Even if you can only afford small personal contributions into your pension at the start, it is important to get into the habit of saving regularly.
Starting to save into a pension early really can have a big impact towards how much your pension pot is worth when you reach retirement. For example, an individual who starts saving into a pension from age 25, putting in a monthly contribution of £166, assuming an estimated 5% rate of return, could end up with a pension pot of £255,680 by the time they retire at age 65. If that same person commenced their pension contributions at age 35 and all other factors were the same, their pension pot could be £141,522*. Over that 40-year period the 25-year-old generates an 80% greater return that the person starting at age 35.
As you can see that extra 10 years saving could potentially make a huge difference in the value of your pension pot when you reach retirement. As an additional tip, it is also essential to increase your contributions at least in line with inflation, annually so your savings can match the increase in prices.
In summary, it is important to start your own pension because there will be less provision from government in the future. To that end, make sure you do three things regarding pension savings:
Start
Make contributions affordable
Increase contributions annually.
*It is important to note that these figures are provided for indicative purposes only and cannot be guaranteed. You could get back less from your pension than the amount that you put in.
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