Never too young for a pension plan

The old-age pension will be means-tested by the time today's 40- year-olds come to retire

FORTUNATELY for its ratings, the cast of the TV series Thirtysomething spent too much time in bed with each other to ever get round to talking about their pensions. But few people in their 30s and 40s can afford to adopt the same nonchalant approach to their retirement.

Relying on the state pension alone will in future guarantee, at best, a very sharp fall in living standards and, at worst, real financial hardship when you come to retire. The flat-rate old-age pension will almost certainly be means-tested by the time today's 40-year-olds retire, if not earlier.

What's more, the benefits paid under the earnings-related state scheme (Serps) have already been reduced and are set to be cut more in future.

There is a growing realisation of this trend. But it is one thing to be aware of the need to cover yourself; another to act on it effectively. While most people have made some additional provision - either via an employers' scheme or a personal pension plan - surveys indicate that in many cases the actual retirement income that people are set to get will fall far short of their expectations.

Pension planning is critical in closing this gap, and the longer you delay the more expensive it gets. The contributions needed for a man to achieve the same retirement income can more than double as a proportion of salary if you start paying them at the age of 50 rather than 30. For women who take a career break to have children, it is even more critical to start paying extra as soon as you can afford to.

Key points to consider are:

q Should I be contracted in or out? The idea behind contracting out of Serps is a relatively simple one - you get a rebate on your and your employer's National Insurance contributions, which you then put into a personal pension, in the hope that it will be worth more when you come to retire than the Serps you have given up. But the question of whether to contract out and how long to stay out is complex. The older you get, the more likely you are to be best advised to stay in, or rejoin, Serps. "You've really got to look hard at whether you should stay contracted out if you're over 35. And it's worth checking once you're over 30," advises Craig Foreman at independent adviser Touche Ross. Irrespective of age, most experts also advise anyone earning less than pounds 10,000 to stay contracted in.

q What pension am I currently likely to get? To check this, contact the Department of Social Security and ask how much state basic pension and Serps you are currently entitled to receive.

If you have contracted out of Serps, you should have been credited with National Insurance rebates from the date you did so. Check with the DSS that this has actually been happening.

If you are currently in a company scheme or have a personal pension, check the annual statement of projected benefits.

If you are married, check wheth- er your partner's pension will provide you with any benefits.

q How much do I need? The answer to this will lie, at least in part, in how much extra you can afford to save, either as a lump sum or on a regular basis.

Fewer than 1 per cent of company pension scheme members retire on the maximum benefits allowed by the Inland Revenue. If you are in a company scheme, you can contribute up to 15 per cent of your salary to pension arrangements. To top up the basic deal, you can take out an additional voluntary contributions plan from your employer or from a pensions company.

If you have a personal pension, you can increase the contributions you make to the plan up to limits set by the Revenue (currently between 17.5 and 40 per cent of earnings, depending on your age.)

One final caveat - the rules governing pension choices are horrendously complex, and good quality independent advice is indispensable.

q Next week, Your Money will include the first of a new series on Everything you need to know about pensions, starting with the basic state pension.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Sport
Louis van Gaal
football
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
music
Arts and Entertainment
Festival-goers soak up the atmosphere at Glastonbury
music
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own