Even when you finally hit your 30s it can feel like retirement is a million miles away, but the sooner you start to get a grip of your pension situation the better.
The government and many experts are becoming incredibly worried that we are not saving enough for your retirement. I was late to jump on the bandwagon myself at 34, very late!
However, if tomorrow’s pensioners don’t start making plans they could really struggle to make ends meet when the time comes.
It’s not all doom and gloom though, you can get a grip on your pension plans and get saving towards a much more comfortable retirement.
If you have found yourself making the following six mistakes, here is how you can go about fixing them.
Delaying starting your pension
If you want to lead a comfortable retirement you need to start saving for your pension as soon as you possibly can.
The later you start, the bigger the contributions you’ll have to find if you have any aspirations on a reasonable retirement income.
If you start saving from age 30 and you make contributions of 15% on a £30,000 salary, your pension fund would be around the £196,000 mark.
If you left it until you were 45 and contributed the same from the same annual salary, your pot would only be around £109,500.
No matter how far away retirement seems to be in your 30s, it’s not as far as you think and it most certainly pays to start saving now. After one month you won’t even notice the difference.
Opting out of your company’s pension scheme
The recent change in government legislation means that companies must now automatically enrol their employees into a workplace pension scheme. Making the decision to opt out can be seriously costly.
The new auto enroll-rules means your employer is obliged to contribute towards your pension, so long as you’re paying into the company scheme.
Currently, the minimum your employer is compelled to contribute is 1% of your annual salary, some employers even offer a ‘contribution matching’, which means they increase their contributions if you increase yours.
By opting out of your company scheme you’re basically turning down free money. If you saw £20 on the floor you’d pick it up right? You shouldn’t see this as any different.
If you have already opted out of your company pension scheme, contact your HR department and get yourself enrolled again.
Relying on property as you sole source of retirement income
Now, although it’s certainly beneficial to have a few properties in your portfolio, putting all your eggs into one basket comes with its own risks.
Firstly, you are totally reliant on the property market, which as we know historically can often become unstable.
Secondly, homes are costly due to the constant upkeep and maintenance required, and you can only realise the capital in the property when the time comes to sell.
A decent pension fund allows you to spread your assets across a range of funds, meaning your money is invested into a combination of categories such as shares, cash, bonds and property.
By spreading your assets it means your investments are diversified.
If you put all your money into property and pass up on the chance to top up your pension pot, you’re missing out on all the extra money that could be added to your pension pot.
Not only does your employer contribute to your workplace scheme, but the government also adds money in the form of tax relief.
Or in plain English, if you contribute £8,000 into your pension this year, the government will top up your pot with another £2,000 of tax relief – no brainer!
Property can be a great investment, but having a pension plan is vital too.
Leaving your pension to languish
When you hear the term ‘pension pot’ it can conjure up the vision of one giant pot where all your saved retirement money goes.
However, many people have several pension funds due to changing employer a few times. It is easy to forget about them, or simply push them to the back of your mind. This can have a serious impact on your retirement savings.
It’s hard to know just how much it is costing you until you start to track down your old pensions and going through your paperwork.
You money could be sat in a dreadfully performing fund, alternatively you could be getting stung by extortionate fees.
Track them down your old pensions using a reputable company such as Pension Expert Claims. Just provide some simple information online and once they have found your pensions they can combine them into one plan.
Fees are eating your pension fund
Most people are fully aware that your pension provider charges a management fee, however lesser known is the other fees that they could also be taking from your pension fund.
Just with anything financial you need to read the small-print. Often hidden inside there crafty pension providers have sneaked extra added fees such as a contribution fee, an inactivity fee or an exit fee.
A recent survey conducted by YouGov revealed a staggering 89% of us have very little idea what they’re paying in fees.
Those fees add up and can take a huge chunk of your savings over the years. 2% may not seem a huge sum, but when added up over the course of 30-40 years saving, it certainly doesn’t appear to be such a paltry sum after all.
Find a great value plan with lower fees, making sure you have been made fully aware of any added extras in the background you may not have been aware of.
Pension providers are bound by FCA principles and should be making all fees clear to you so you are able to make an informed decision about your choice of provider.
Ignoring your pension
How often do you honestly bother to check your pension? Nowhere near as much as you check bank balance probably.
It’s imperative to keep a check on your retirement savings in your pension fund so you’re confident you are on track to have a big enough pot when the time comes to retire.
You must check to see how your funds are performing so you know whether you need to make any adjustments, otherwise you could be losing out when you retire.
You should be checking your pension at least a couple of times a year at the very least. You should also assess each time your personal circumstances change.
Choose a plan that gives you 24/7 access to your pension online, that way you can easily see how much is in your pension pot, how your funds have been performing, and most importantly, how much you’re likely to receive upon your retirement.
Have you ended up with multiple pension pots? Have you added property to your portfolio to boost your retirement income? I’d love to hear your thoughts!
He is also a contributor to Clear Debt, ICOUNT Money and M1 Debt Advice blogs discussing all things personal finance.