Following Pension Awareness Week, which is taking place on 13-17 September, IronmongeryDirect has partnered with Fabian Taylor, a senior associate and chartered financial planner in Nelsons’ wealth management team, and George Stainton, senior wealth manager at Hoxton Capital Management, to advise tradespeople on how to prepare for retirement.
The advice comes after research by IronmongeryDirect has found that one in eight (13%) tradespeople approaching retirement age do not have any financial preparations for retirement.
Below is the advice the experts gave:
It’s never too late to start
Fabian said: “Contributions to a pension attract tax relief from the government. So, for every £80 you contribute, tax relief of £20 is added, making the total contribution £100.
“As a general rule of thumb, you should try to save half the age at which you started as a percentage of your salary. For example, if you start saving at age 20, then you should contribute 10%, but if you start at aged 30, you should aim to save 15%.”
Saving early makes things easier
Many young people can use workplace pension schemes, but for those who opt out, are ineligible, or are planning on saving additional funds, starting early has major benefits.
George said: “If younger people are not contributing to a pension scheme, then they should make sure they have some sort of structured savings in place. Getting into the habit of saving for retirement earlier in your career will make life much more comfortable as you get closer to retirement.
“For example, if someone needs to have a retirement pot of £500,000 at the age of 55, they will need to save £441 per month if they start at the age of 25 and see a 7% return on their investment each year. If they start saving at 35, this figure increases to £1,016 per month and dramatically increases to £2,783 per month if they start at 45 years old.”
Take advantage of workplace schemes
For tradespeople who work on an employed basis, they should look to enrol in their workplace pension scheme, if they have not already done so. This means that they will be saving throughout their career, with additional top-ups from their employer, and while tradespeople should still aim to set up a private pension, a workplace scheme provides a safety net in the meantime.
Fabian said: “If you are 22-years-old or older, earning over £10,000 and employed by a company, you will be automatically enrolled into your company’s workplace scheme. Through this, a minimum of 8% of your earnings, split between yourself and your employer, between £6,240 and £50,000, will be invested into your pension. If it is affordable, you should consider increasing contributions. If you opt out of this workplace pension, you are missing out on money from your employer.”
George added: “Thankfully, with the help of auto-enrolment, younger people are better equipped than ever to start saving for their retirement early. As most of the young working population will be contributing to some kind of workplace pension, they are able to benefit from the effect of long-term saving and compounded growth.”
Remember to plan and save if you’re self-employed
Those working on a self-employed basis, unfortunately, do not have the same auto-enrolment to a workplace pension scheme that employed people do. Therefore, it’s important that you make your own preparations and plan ahead for your retirement.
Fabian said: “Draw up a budget to see what you can afford to contribute each month, and do some research into the best place for you to put it that allows for investment growth and tax relief. Even if it is a small amount, every little helps.
“Assuming a growth rate of 5%, if you were to contribute £50 per month to a pension at age 25, the pension could be worth £76,301 by the age of 65. However, if you don’t start saving until the age of 35, the pension could be worth £41,612 by the age of 65. The longer you wait to save in a pension, the more you may have to pay in later in life to save enough to meet your needs in retirement.”