• 2 in 5 millennials have no pension provision whatsoever – they’ll never be able to stop working unless they start saving.
• 1 in 5 spend 60% of their monthly income on payday – so there’s barely anything left to live on, let alone save.
• 1 in 3 could still be renting when they reach pension age – which could double their living costs.
On top of this, when it comes to how much we’re expected to squirrel away to survive our later years – on the assumption that £26,000 a year will be enough to live on – the Pension Review Service has suggested we save £1,000 a month. Yeah… Piece of cake… No wonder our reaction is to switch off and go play HD remakes of PlayStation games from a simpler time.
• The government gives you free money to add to your private pension pot – an extra 20p on top of every 80p you save.
• Your employer now has to enroll you onto a workplace pension – if you put in 3% of your monthly wages, your employer will add an extra 2%. From April it’ll be 5% and 3%.
• There’s a growing trend among some millennials – parents in particular – to sacrifice the ‘luxury’ lifestyle we’re scorned for (avocado toast, anyone?) and aim to save up to 15% of their income every month. Is there anything you could give up?
Above all, time is on your side. Pensions grow because of a thing called ‘compounding’, which is basically your snowball of investments rolling down a hill and growing exponentially. That means if you get £1 and put in a private pension today, it will be worth more when you retire than if you kept that £1 in your pocket for a year and then put it in your pension. More years = more growth.
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Don’t be put off by the unrealistic estimates that make the headlines. You’re not alone in being unable to afford £1,000 a month. However, the reality is that millennials really do need to pay more attention to their pensions. And unless aliens beam down and give us the equations for free energy, food and Netflix, that won’t change any time soon. So here’s what to do:
This really depends on how much you can afford to save, how good you want the customer service to be, and how much control you want over what your pension invests in.
AJ Bell Youinvest, a mid-range, everyday provider, was voted ‘Best Online Pension Provider’ at our Consumer Investor Awards 2018. Hargreaves Lansdown also score well on service – they’re a slightly more up-market provider. And Aviva is a decent, simple service that’s low on frills.
Take a look at our Best Buys to compare customer ratings of 23 pension providers.
Shop around and see which pension appeals the most, based on fees, track record and account options. For example, some pensions don’t charge fees if you need a ‘payment window’ to take a break from your monthly contributions – especially handy if you’re freelance or self-employed. Other pensions only invest your money in ethical companies.
Set up a standing order to pre-commit a small amount of money each month. Budget around it and get into the habit of saving. The sooner the better.
Whenever you get a pay rise or come into some money, up your pension contributions straight away. That way you won’t miss the extra money you save, because you never got used to having it.
The last thing you want to do is lock all your money away and have nothing left in an emergency, so keep a separate bundle of cash for rainy days. 3 months’ income is what’s generally recommended.
Millennials, we now outnumber all the generations who came before us. The future is in our hands. So to make sure it’s full of well-fed, well-rested pensioners instead of a knackered workforce doing shifts on their 90th birthdays, we need to start preparing for it now. No pressure!
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