Money
How To Save For A Pension During Coronavirus
"The sooner you start, the more your savings have time to grow and the easier it is to build up a good nest egg," says pensions expert Charlotte Jackson.
Retirement and pensions may not seem like pressing issues for young adults, but saving early can make a huge difference to your future finances. However, due to coronavirus, many young people are facing financial uncertainty and saving for a pension isn't exactly a high priority. If this applies to you, there are ways to save for a pension during COVID safely without worrying about losing money.
Whether you're on a pension scheme through your workplace or you have a personal pension, the money you save now "will allow you to have a comfortable standard of living when you stop working," Charlotte Jackson, Head of Pension Operations and Consumer Protection at the Money and Pension Service tells Bustle. "The sooner you start, the more your savings have time to grow and the easier it is to build up a good nest egg."
How Do I Start Saving For Retirement?
Saving for a pension mainly occurs through investments in workplace pension schemes or personal pensions, where part of your salary is automatically stashed into a pension pot. You will also receive a state pension when you're in your mid-to-late '60s, which is £175.20 per week.
However, you could also open a savings account specifically for money that you wish to put aside for retirement. By putting money aside when you can at a young age, you could end up with a comfy nest egg by the time you're in your 60s.
You can do this simply through your bank account, or you could invest in an ISA (individual savings account). An ISA offers "tax-free interest payments" per Scottish Widows, and you can either put your money into a Cash ISA or a Stocks and Shares ISA.
A Cash ISA lets you create accounts where you can access your money at any time, or ones that lock away your money for a fixed term. A Stocks and shares ISA is where "you choose to put all or some of your money into a range of investments. With a Stocks and Shares ISA, "the value of your investments can do down as well as up, so you may get back less than you originally invested" due to the stock market.
Look Into How Your Workplace Pension Scheme Works
A workplace pension, also known as an "occupational pension" per Citizens Advice, is set up by your employer and is linked to your salary while you're working. If you have a workplace pension, the government states that "a percentage of your pay is put into the pension scheme automatically every payday," as well money directly from your employer.
Many employers "are now willing to match or exceed employee contributions beyond the minimum statutory level," Jackie Leiper, Managing Director of Workplace Savings at Scottish Widows tells Bustle. "This is a great way for people to increase their contributions." With just a 2% increase matched by an employer, Leiper notes, you could boost your retirement pot exponentially.
What To Do If You're Self-Employed
If you're self-employed, you can apply for a personal pension. Per the government's advice, you can choose from a stakeholder pension or a self-invested personal pension (SIPPs). A SIPPs will allow you to "control the specific investments that make up your pension fund", gov.uk writes, whereas a stakeholder pension "must meet specific government requirements, for example limits on charges."
By joining a personal pension scheme, "you'll still be getting tax benefits" as Leiper points out, and "you are in control and can stop and start contributions to suit your earnings pattern."
What Happens If You Pause Your Pension?
As 5% of your salary goes into your pension, you may think about pausing your contribution if you're in financial difficulty. While this is an option, you need to keep in mind that your employer will also stop contributing their 3% as well as "you will be treated as having left the scheme," life insurance company Aegon writes.
And while "you can opt in or opt out of your workplace pension at any time, it's worth noting your employer has to re-enrol you every three years," Leiper says.
Should I Consolidate My Pension?
Whenever you start a new job, you'll still have a pension through previous employers. After a while, this can result in several separate pension pots which can be overwhelming. Checking whether you can consolidate these pensions into one is a good step, but you must "check you won't lose out on any benefits, guarantees or special features" of the plans you've previously been enrolled in, Leiper advises.
Shopping around and staying informed is a must, and "if you're not sure a financial adviser can help," she suggests.
What To Do If You've Been Furloughed
As your workplace will be providing part of your salary while furloughed, "your own pension contributions and employer's should continue at the same portion of your salary," per iNews. However, if you've received a reduction in pay, "your pension payments will also be reduced," the newspaper notes.
Seek Help & Advice
If you're struggling to find out who provides and stores your pension through your workplace, the Pension Tracing Service is free and "searches a database of more than 200,000 workplace and personal pension schemes" to find contact details. This service can also help you find lost pensions from previous jobs.
Getting in touch with a financial adviser is also a great place to start if you're unsure about how your pension works or where it's being invested. "You'll have to pay for this but remember this is about making sure you have enough money to sustain you for a long and happy retirement," Jackson says. "Take your time, most of us will live longer in retirement than we think."
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