Two thirds start pension planning at 50

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Leaving things to the last minute should be something we grow out of at roughly the point we stop doing our homework on the bus to school... but some of us never do. And while we may be able to get away with buying presents on Christmas Eve, there are some things that by neglecting them to the last minute we cause irreparable damage to our quality of life.

A pension is one of those things, but still a third of people only start planning in their 50s.

Leaving it too late

A survey by Skandia found that two in three people don't start making financial plans for their retirement until their 50th birthday. The most common excuse is that up until that point they assume they will be able to live on the state pension, and it's only when they hit 50 that the miserable reality of life on a state pension dawns on them. Incredibly, this is the reason given by half of all baby boomers.

Ask any expert and they'll tell you that by the age of 50 you've already missed the boat. Pension planning needs to start in your 30s, or ideally your 20s. The wonders of compounding means that leaving it later will mean you have to work more than twice as hard to get on track by retirement. Because while putting aside a couple of hundred pounds a month can make a big difference earlier in life, once you are 50 you'll need far larger sums for a comfortable retirement.

Never too late

However, that said, it's never too late to do something to improve your old age.

The process starts with a cold hard look at where you are. Look at everything you will be able to call on in retirement, including any savings, any pensions your employer may have paid into along the way, and any value in your home. Don't forget to factor in the state pension (for what it's worth). Then look at where you need to be, and the amount you'll need in order to secure a bit of comfort. Most people work to the rough rule of thumb of half their working income as a pension.

Your mission for the next couple of decades (assuming you have to bite the bullet and work into your 70s) will be to close that gap.

Pension attractions

Your planning should definitely include a pension, because all pensions attract tax relief. If you pay 20% tax you'll get your pension topped up by that amount as soon as you pay in, and if you're paying 40% you will see a huge top up to your contributions. Skandia's figures show that a pension will have time to put on some valuable growth before retirement. If you're a higher-rate taxpayer and put in £20,000 on your 50th birthday, this will be worth £73,312.64, by the age of 65 (assuming 7% growth a year), which will provide an income of £5,000 a year.

It's well worth checking out any scheme run by your employer, because in many cases they will match contributions up to a point. If you are making sizeable payments into your pension you could get up to 10% of your salary paid in by your employer for nothing, which will make a massive difference to your pension pot overall.

Talk to your employer about doing this through salary sacrifice, where you take a pay cut and are paid in pension contributions instead. This can be highly valuable because both you and your employer save national insurance on the bit of the salary you have sacrificed, and if you negotiate to have this paid into your pension instead, you could get another 12.8% of that bit of your salary in contributions.

Be selfish

Of course, you need to prioritise pension saving, and put as much as you can possibly afford into your pension. This is the tricky bit, because you might have other drains on your finances, such as children at university or asking for help getting onto the housing ladder. However, this is the time in your life where you cannot afford to be so generous. You need to concentrate on your own needs for a change, or you will simply end up as a drain on your children for the entirety of your retirement.

So what d you think? have you left retirement planning late? Are you on the case now, or are you going to have to leave it to chance? Let us know in the comments.
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