Pension types and how to plan for your old age

HOW DO I START A PENSION?

When you first start thinking about pensions, it’s important to find out what options are open to you. The kinds of pension available are different in each country. Some countries have national non-contributory pension schemes or social pension schemes. With these, you do not pay in money to a fund directly but your government uses taxes to provide your pension in old age. Some countries have both national social pension and national contributory pension schemes. With national contributory pension schemes, you deposit money into your pension fund and the state or your employer match your deposit. Another kind of contributory pension scheme that most people have access to through their employer is called a workplace pension. Your workplace pension may be a defined benefit scheme or a defined contribution scheme. With a defined benefit scheme, you are promised a set regular income in old age. With a defined contribution scheme, you make regular fixed contributions from your earnings into your pension fund. Your company also puts money into your pension fund. If you want more control over your pension, you can also start a personal pension scheme with a pension provider.

WHEN SHOULD I START A PENSION?

It is never too early to start thinking about saving for old age. This is because the earlier you start depositing money into your pension fund, the more money you will have in old age. Small deposits early on can build up over the course of a lifetime to make a big difference. This is because the interest you earn on the deposits into your pension pot will build up on top of previous interest earned.

HOW MUCH SHOULD I PUT INTO MY PENSION?

The more money you deposit into your pension fund on a regular basis, the bigger your fund will be in old age or after you stop working. Defined contribution workplace schemes will usually ask you to contribute a fixed amount which your employer will match. However, you may not always be in a position to deposit the same amount on a regular basis. If you are experiencing financial difficulties, then you can decrease the regular amount you deposit. If your earnings are increasing, then you can increase your deposits into your pension fund. The important thing to think about is how much money you will need in old age to guarantee yourself a secure and regular income. This will differ based on when you decide to stop working and how long you live but you can always make a rough estimate. Most people underestimate how long they’re likely to live. Remember that your pension fund needs to last as long as you will.

WHAT WILL I USE MY PENSION MONEY FOR?

You will spend your money on different things in old age to what you spend money on now. And because you’re not earning money on a regular basis in old age, you will have less money to live on. So even though you will spend less on things related to employment like travel, you may spend more on things like healthcare. You may also have debts to pay off.

HOW TO PREPARE

Planning is key. Consider your different pension scheme options early on. Try and budget so that you can regularly deposit money into your pension fund. Think about what you will spend more and less money on in old age. When you’re young, old age seems like a long time away. But a pension is a safety net. It is the best way of making sure you have a regular income in a time of financial uncertainty.

ADAM MAZARELO

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