Planning for retirement is all too easy to put off. Perhaps it feels too distant, or the idea of slowing down just isn’t attractive. Maybe your current pension situation seems bewilderingly complicated. Or perhaps saving more simply feels unaffordable.
The statistics bear this challenging situation out: research (pdf) for the savings and investment company M&G found that only 13% of men and 8% of women who are not retired had a comprehensive financial plan that would allow them to lead the life they wanted in retirement, and more than a third (35%) of 45- to 54-year-olds surveyed hadn’t even started planning.
M&G wants to see pension checkups introduced at key financial life stages, such as when you change jobs, get promoted, or buy a house. A simple interactive tool would let people see where they stand, and show the impact of different savings choices on their pension pot at retirement, as well as when they could access it. It would also ensure that younger adults were engaged with future-planning from an early stage.
“We all go to the GP for checkups, we have eye tests regularly, but we don’t care about our financial health in the same way, and we should,” says M&G’s managing director of individual life and pensions, Anusha Mittal.
So while M&G champions broader change to empower people, what steps can you take to feel more confident about your own pension planning? Here, Mittal shares her expert views on how to move forward with purpose, even when it feels daunting.
Work out what you really want from retirement
Our willingness to plan for the future is hindered by the outdated depiction of retirement as a slow-paced world of activities such as gardening and reading, says Mittal.
Also, downbeat language like “old age pensioner” doesn’t help. “It’s just uninspiring and not aspirational, and that is the problem,” she says. “Retirement isn’t a point in time – it really is a new chapter. Make time to think about what it actually means to you. This is not about old age, this is about the ‘future you’ speaking to yourself. It’s about financial freedom aged 55 (when you can first access your private pension, 57 from 2028), and what you want to achieve.”
That could be anything from learning something new to exercising more, or even a career change.
Take simple steps to fine-tune your savings engine
Get into the habit of regularly reviewing your retirement plans, hopes and pension provision. But where do you start?
Mittal describes saving small amounts over a long period of time as like creating a “personal growth engine” – and that engine needs fine-tuning to run as well as it can.
“If you’re saving in a workplace pension, employer-matched contributions are effectively free money, so make sure you’re capitalising on that,” she says. “If you’re saving in a default fund, check it’s the right fund for your appetite and age profile. Seek help and guidance if you need it.”
And don’t make the mistake of keeping too much money in cash savings for the long term, as inflation means it simply won’t hold its value – especially when interest rates are low. The Financial Conduct Authority’s recently released Financial Lives survey (pdf) found that 61% of people with more than £10,000 in investible assets held at least three-quarters of it in cash, rather than investments.*
“If you’d put as little as £100 a month into something like an equity tracker over the last 20 years, you would have almost £50,000 today,”** says Mittal.
Don’t worry that you’ve left it too late – you haven’t
If you feel like you’ve already messed up, it’s easy for the fear of confronting that to stop you taking any action. But it’s never too late to get support, Mittal says, and doing nothing isn’t an option. “Once you finally do tackle it you’ll get an immediate sense of relief – it’s like a burden being lifted.”
The government-backed MoneyHelper site is a good place to start for free, impartial help on the basics and includes a Money Midlife MOT tool. And while getting more bespoke, paid-for advice from an independent financial adviser can feel like a big step, Mittal says it may be worth considering. “When you get to a stage where you think you’ve left it too late, having a financial adviser might be quite helpful to really set out your options,” she says.
But cost can be an issue, and M&G is calling for better access to affordable financial advice.
If saving feels unaffordable, don’t be afraid to start small
Mittal acknowledges that fears around affordability are a huge barrier to pension saving. “It’s got to be reframed as not being about how much you can save, but the habit of saving,” she says.
For younger people, for whom saving for later life may feel particularly out of reach, better financial education, and in particular teaching the value of compounding – the fact that you grow your money not just on the amount you’ve saved, but also on the growth it generates – is key.
“The starting small concept is really important,” Mittal says. “Let the power of compounding do the rest for you over a long period of time.”
If saving feels difficult, she advises looking for trade-offs you can make now to save for the future. “For someone who streams a lot of channels, or buys takeaways, one takeaway or a couple of streaming channels fewer a week could be converted into a pot of money that could lead to a decent amount of savings over the longer term.”
Find out how M&G can help you turn the freedom of retirement into a new lease of life
*The value of your investment can go down as well as up and you might not get back the amount you put in.
**We can’t predict the future. Past performance isn’t a guide to future performance.
