In its simplest terms, retirement is a stage of life and is one that many of us look forward to after years of having a 9 to 5. This isn’t surprising, as it’s a time when you can stop work, spend time with your family, go on extended holidays, or even take up a new hobby you’ve always wanted to pursue. Basically, when you retire, you can do whatever you want - right?
Well, sort of.
All of the above is possible. And, after many years of hard work, you deserve to retire in a way that is perfect for you! But without a job you don’t have an income - and without an income, you may not have the funds to turn your dream retirement into a reality.
So, what is a pension?
A pension is a pot of money that you have set aside to fund your chosen lifestyle once you have reached the retirement age.
Most of us have a workplace pension and don’t really think too much about it, but few people realise that by having a pension, you are already an investor because a pension is an investment product. Yes, that’s right – the money in your pension is invested in companies in the stock market.
This is why people say that it’s important to start a pension as soon as you can, since investing for a long period of time could help to ride out any bumps in the stock market (which can go up and down like a roller-coaster and be unpredictable). There’s also plenty of evidence to show that taking a long-term approach to investing can pay off in the long run. If you invested in the FTSE 100 for any 10-year period between 1986 and 2022, you would have had an 88% chance of making a positive return.1 Of course, past performance is not a reliable indicator of future results, and the value of your Plan can go down as well as up, meaning you could get back less than you invested.
This long-term investment approach is exactly why pensions are so popular and why workplace pensions are now required by law for most employees (we’ll go into more detail on this later).
What is a workplace pension?
Workplace pensions first became a thing back in 2012 when large companies were required to provide a workplace pension for all eligible staff. In order to be enrolled into a workplace pension scheme, they had to be over 22 years of age and earn at least £10,000 per year – and this is still the case for any employees being automatically enrolled in workplace pension schemes in 2023/24.
This was then rolled out to all employers, regardless of size, and by 2018, it was mandatory for all companies to automatically enrol their eligible staff into a pension programme. Both the company and the employee would have to contribute to the employee’s pension, and this was topped up with a little tax relief from the government.
Again, there were rules around this, and the tax relief you receive as an employee can be higher or lower depending on your circumstances. Basically, it’s all to do with how much you earn! Learn more in our pensions guide.
But is a workplace pension enough?
Sometimes it can be. But everyone is different. The lifestyle you lead now may not necessarily be the one you want to live when you get older. When it’s time for you to retire, you could be in a completely different financial situation to the one you’re in now
This is because you may have paid off a mortgage by the time you retire, as well as any loans or car finance you have now - and if you find your nest empty when the kids move out, this could save you a bit of money too (hopefully, at least – or perhaps maybe not).
But despite this, it’s important to remember that things like your financial situation can always change, so you should bear this in mind when planning how much you need for your retirement. In a similar vein, it’s also important to remember that although many people spend less when they retire due to the reasons listed above, this won’t necessarily be the case for everyone.
Today’s young adults are being dubbed ‘Generation Rent’ as people are buying homes later due to the rising price of not only buying property but renting it too - and some may never buy their own home at all because of this. With that in mind, you could still be paying these costs when you leave the working world, and you’ll have to account for this when you plan for your retirement.
So, we hear you ask. How can I make sure I have enough money for when I retire?
We’re glad you asked!
A personal pension or a Self-Invested Personal Pension (SIPP) is a pension pot that you can set-up and pay into yourself either through monthly instalments or one-off payments when it suits you. It’s a straightforward way for you to have more control over your retirement and allows you to top-up the funds you would get from your State Pension or any workplace pensions you already have.
In fact, if you choose a Wealthify Personal Pension, you can decide when and how much to pay into your pension as it’s flexible to your needs - which is the way we think it should be.
And not only can you start a personal pension from as little as £50 with Wealthify, but you can consolidate your previous workplace pensions into one easy to manage Plan – and you can keep track of exactly how much you have saved for your future and keep an eye on how your investment is performing at any time.
Once you can see how much you have in your retirement pot, it can really help you to see your progress and keep you focused on your retirement goals.
So, if you click ‘close’ on your browser tab, throw out leaflets you get through the door, or switch off whenever you see anything about building a pension, you could be missing out.
Ready to start working towards your dream retirement? You can find out more about pensions by visiting our blog page on our website or via the app.
- Data from Bloomberg
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not offer financial advice. Please seek financial advice if you're unsure about investing.