What I wish I’d known – lessons from the other side of 50
Post by Mearns & Company in News
Many younger people now rely on the bank of Mum and Dad to help get them on the housing ladder. But as well as being a useful source of funds, they may also have some important life lessons to impart when it comes to saving towards a more secure financial future.
Recent research among the over 50s by the insurer Aviva found that half regretted not starting a pension earlier, while almost two-thirds said they wished they had saved more into their retirement savings.
Unlike their parents, those embarking on careers today have the benefit of auto-enrolment pensions, with employer contributions, once they earn more than £10,000. The ten years since auto-enrolment started have seen greater participation in pensions from those starting their careers.
Building pension savings from the beginning of your working life can make a significant different to the size of your eventual pension pot, not least because contributions made early benefit from longer periods of investment growth.
A quarter of those surveyed had delayed starting a pension until they were in their 30s. Many parents said they had prioritised mortgage payments and shoring up family finances ahead of making contributions to a pension plan.
However, financial experts warn that parents’ advice is not always correct when it comes to how much they need to save. A quarter of those aged over 50 think that putting 5% of earnings into a pension will be enough to fund a decent retirement. Retirement experts tend to disagree, stating that minimum auto enrolment levels (currently 8% with 3% of that coming from employers) could leave people with insufficient funds for long-term retirement and social care.
The Pension and Lifetime Savings Association has argued that minimum levels should be increased to 12% of earnings, to help provide for a more comfortable retirement.
While the minimum auto-enrolment levels are unlikely to change anytime soon — particularly given the current cost of living crisis — where possible younger workers should increase savings and ensure pension contributions increase in line with any pay rise. This should help protect against the same financial regrets when they reach their parents’ age.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate auto enrolment.