New takes on retirement planning

At what age did you (or will you) start actively planning for your retirement?

The answer is now 36 years old according to research undertaken by a major pension provider. That’s over three decades before a 36-year-old’s current State Pension Age (SPA) of 68 (which could change in the future).

For today’s retirees, the starting age for planning was on average 49. Over half of that group now wishes that they had begun planning earlier.

The pros of early planning

There are some good arguments why a retirement focus now begins in the mid-30s:

National Statistics data show that the average age of buying a first home and getting married are now both around 34, so for many at 36 life should have gained a settled pattern.

• The research also showed that by age 36, nearly two thirds of respondents were confident in their abilities to make financial decisions.
• Up until 2016, state pension provision for employees had both a flat rate and earnings-related elements. Since 2016 there has only been a flat rate component (currently providing up to £203.85 a week).
• The retirement landscape of the 2050s will look very different from that facing today’s retirees who will have been members of final salary pension schemes at some stage in their working lives – or possibly all of it. Such generous (and costly) employer pension schemes have now largely disappeared from the private sector and, where they remain in the public sector, have
  often been pared back to career average schemes.

Auto-enrolment benefits

One element common to today’s retirees and the 36-year-olds is that for the last 11 years both groups have lived in the world of automatic enrolment (AE) into workplace pensions. By the 2050s, the pensions built up by auto-enrolment will be a much greater proportion of retirement benefits than they are today.

Apart from the longer timeframe, auto-enrolment will also become more significant because of legislation that was passed in September 2023. This paves the way for the government to:

• Make the 8% minimum contribution level cover all earnings (currently it’s up to a maximum of £50,270) and excludes the first £6,240; and
• Reduce the minimum age for automatic enrolment from the current 22 to 18.

Better for longer

You may also have noticed that the new enrolment age of 18 is precisely half of 36. One simple yet significant element of retirement planning is all too frequently ignored: the sooner pension contributions begin, the better. A contribution made at age 18 will enjoy about half a century of investment returns before it starts to be drawn on. One made at 36 is invested for less than two thirds of that timescale.

The truth is that whatever your age, your retirement planning should be a primary focus.

The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.

Occupational pension schemes are regulated by The Pensions Regulator