In this week's millennial money episode, Damien and I discuss how to save for a pension if you're in your twenties.
1. Auto enrol in your workplace pension scheme
Firstly, make sure that you auto-enrol through your employer's pension scheme. You need to be over the age of twenty-two, employed and earn at least £10,000 a year in order to qualify. It is important that you auto-enrol because your employer will contribute to your pension as well as you, which is essentially free money being added to your pension pot.
2. Start saving early
The best thing to do is start saving for your pension as early as you can. This allows you to take advantage of compounding. Compounding is one of the wonders of the world. If you want to understand what it means then imagine a chessboard where you put one grain of rice on the first square, then you double the amount on the next and so on and so forth until you reach the 64th square. By the time you reach the end, there will be18 million trillion (18,446,730,560,000,000,000 to be exact!) grains of rice on the 64th square alone. The earlier you start investing in a pension the more you can take advantage of the power of compounding.
3. Save into an ISA
You can also save into a cash or Stocks and Shares ISA and this will allow you to access the money before the age of 55.
4. Educate yourself
Try and read around pensions and learn a bit about how they work as well as investing in general, this will enable you to understand where the money in your pension is actually being invested. Find out what fund you are in; are you in a default fund? There is plenty of advice out there, also listen to Damien's Midweek Markets for a more in-depth analysis of investment markets.
5. Open a SIPP if you are self-employed
A SIPP (Self Invested Personal Pension) allows you to deposit lump sums or monthly amounts and you can choose where your money is invested. For more information on SIPPs or pension options for the self-employed take a look at the following articles:
- The best & cheapest SIPPs
- A complete guide to self-employed pensions
- What is the best pension if you're self-employed?
6. Consider opening a Lifetime ISA
Lifetime ISAs can be used to save towards a pension, as well as for first-time buyers purchasing a property. You can open a Lifetime ISA from the age of 18 up until your 40th birthday and contribute into the Lifetime ISA until the age of 50. The money cannot then be touched until you are 60, but it will continue to earn interest until that time.
For more information on Lifetime ISAs read our complete guide - Lifetime ISAs explained.
7. Don't worry about how much you can pay in
When you are young and paying into a pension, don't worry too much about the risk levels. The quickest way to grow your pension pot is to pay more in, rather than focusing on risk.
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