What if I told you that you might not be able to afford to retire.
As the pension age rises and the cost of living makes every pound feel accounted for, we are seeing a distinct lack of urgency among young people about saving for retirement. And it’s easy to see why – saving money is hard and retirement doesn’t feel like a priority when you’re just starting your career.
Moreover, according to research from JP Morgan, 40 per cent of 18 to 34-year-olds still think the state will be equally or even more generous when they retire compared to today. But this is wishful thinking – with an ageing population and limited public finances, a generous state pension is less likely to exist when this cohort wants to retire. So, we need an urgent rethink.
A pension is an investment. It’s money you put away now that gets invested in things like shares and bonds, and it grows over time thanks to something called compound interest, which essentially means your money makes money and then that money makes money and so on. The longer you leave it, the harder it works for you, which is exactly why starting young matters so much, even if the amounts feel tiny right now.
Almost a quarter of people aged 18 to 34 have no plans to even think about retirement yet, and more than half of those said that was simply because it feels too early.
It is not.
The good news is that from the age of 22, if you earn more than £10,000 a year, you are automatically enrolled into your workplace pension. The standard setup is that you contribute 5 per cent of your salary and your employer adds in 3 per cent. Free money, essentially. But the minimum contributions are unlikely to give you the retirement you are imagining unless you increase them over time.
So, what can you actually do right now?
Let me share what I would do. Auto-enrolment is the floor, not the ceiling. The first thing I did was go into my workplace pension and increase my contribution to match what my employer is willing to contribute. Even going from five per cent to seven per cent makes an enormous difference over decades, thanks to that compound interest we talked about. Always check whether your employer will match higher contributions because many will and that is one of the best financial decisions you can make.
Beyond that, I invest separately through a stocks and shares ISA. You can put up to £20,000 a year into an ISA and any growth is completely tax-free. You do not need to invest thousands; even £25 or £50 a month is a brilliant start. I use apps that make this really simple and accessible – you do not need a financial advisor to get going.
If you are self-employed or do any freelance work, a SIPP, which stands for self-invested personal pension, is worth looking into. You essentially build your own pension pot and get tax relief on your contributions, which means the Government is topping up what you put in.
And finally, if your employer offers any kind of share scheme or bonus, or you are given some money, think carefully before spending it. Funnelling even some of that into your pension or ISA in the years you can afford to is the kind of decision your future self will thank you for.
You often get to choose where your pension is invested, too. This is called ESG investing, which stands for Environmental, Social and Governance, and it means you can actively choose to have your pension invested in companies that align with your values. Care about climate change? You can avoid fossil fuel companies. Care about ethical supply chains? You can choose funds that screen for that. Your pension is not just a savings pot; it is a statement about the kind of future you want to fund.
The bottom line is this: your future self is depending on the decisions you make right now. You do not need to have it all figured out but you do need to make a start. Even just knowing where your pension is and what it is invested in puts you ahead of most people your age. And that is exactly the problem we need to fix.
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