The pension problem we can’t keep ignoring

You simply can’t afford to think pensions are boring. I’m 28, and I currently have £67,298.35 in my pension.

I don’t share that to brag, I share it to be transparent. Because we don’t talk about money in this country enough, and it’s time to change that. Especially since pensions will likely decide whether we can ever stop working.

Let me clarify something else. Pensions are boring. Another line on your payslip taking money out of your take-home pay. Something for “future you” to worry about.  At least, that’s what I used to think. But here’s the truth…

Pensions are financial superpowers

Pensions can cut our tax bills, increase our incomes, and grow without us lifting a finger (more on that later).

So, £67,298.35. On the surface, that looks pretty good. Scrap that, it is pretty good. Except for one issue. Experts reckon you currently need closer to £500,000 to retire comfortably (and that’s today, not in 40 years when I’ll retire). Suddenly, that £67k has a little bit of work to do. So how did I get here?  I’ll be honest, a hell of a lot of luck.

My first employer, Barclays, automatically paid an extra allowance into my pension on top of my salary. It was 12 per cent. That was extra free money! I didn’t notice at the time, but it gave me a massive head start. Now are you ready for the slap in the face?

The average UK pension pot at retirement is just £107,000. Not even close to that £500k.

So why don’t we take pensions seriously? We’re auto-enrolled into a pension the moment we start work, and let’s be honest, you’ve probably either considered or already un-enrolled yourself just to get that extra £100 a month into your pay check.

Why? Because you’ve got no idea about their superpowers. Where’s the one hour tutorial that explains your pay check every time you start a new job? Where’s the school lesson on compounding, tax relief, and employer contributions?

Making sense of the numbers

We spend our whole lives learning skills to earn us money, but never what to do with it.

Well here’s something that might get you into gear: Put £100 a month into a pension from 18 to 68, and with average returns of 8 per cent you could end up with around £793,173. Double it to £200 a month from 18, and that’s about £1.59m.

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Wait until 30 to start (when you finally think you’ll have enough to do so), and those numbers fall to around £295,431 (£100/month) and £590,862 (£200/month).

That’s the power of compounding. The earlier you start, the less heavy lifting you have to do later.

Three tiers of growth

And pensions are one of the only places in life where you get superpowers with your money:

1. Your employer gives you free money. Legally, they have to put something in, and many will match you if you add more. That’s literally a pay rise most people never claim.

2. The government boosts everything you add. For every £100 you pay in, it might only cost you £80. Higher-rate taxpayers get even more. Where else does the government top up your savings?

3. Your money multiplies while you sleep. I mean, the numbers above tell you all you need to know about starting early!

Yes, pensions can be confusing. The rules change, the jargon is terrible, and the dashboards aren’t exactly user friendly. But ignoring them is the most expensive mistake you’ll ever make.

So let me loop back to where we started. I’ve told you my number. Now I dare you to go and find yours. Log into your account. See what’s there.

Because if the best time to start was ten years ago, the second best is today.

When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.