Contributing to a pension early offers many benefits that will certainly pay off in the long run. Retirement might seem a long way off, but it’s never too early to start contributing to your pension. The sooner you start putting away some of your money for your older years, the better the benefits you will reap. Just look at these five benefits that early contribution to a pension can give you and you’ll soon see why you should start contributing.
1) The sooner you begin contributing, the less you will have to put in each month.
Taking into account the state pension and employers contributions, if you want to retire with a pension equivalent to £25,000 today, you would need to contribute £430 every month from the age of 30 to the age of 68. By contrast, if you started paying in at the age of 25, you would only need to contribute £345 a month for the same reward.
2) Your money has more time to grow
The more time your money has to generate a return on investment the more it will be worth. According to the pensions minister, every £1 that you invest at 20 could be worth 40% more on your retirement than the £1 that you invest at 40. It stands to reason that the earlier you start saving, the better your return on investment
3) Neglecting Pension contributions could be turning down salary.
Many employers offer to contribute to your pension as long as you do so also. By not contributing to a pension when young, you are basically turning down extra money from your employer. A worker on the average wage is generally given £1,400 a year in employer pension contributions if they take advantage of the schemes that are offered. You would have to be crazy to turn down free money from your employer.
4) Starting early gets you used to contribute to a pension.
By leaving pension contributions to later in life, you are in some ways setting yourself up for failure – after all, you have grown accustomed to living your life on your full salary. By contributing a percentage of your salary from the day you start work, you get used to the idea that your take-home salary is less than you would expect otherwise. It can be hard to adjust your spending habits to take account of these new pension deductions, so the earlier you get used to it, the more successful you will be.
5) A pensions scheme helps you to succeed at saving
You might decide to simply save money yourself rather than contribute to a pension scheme. However, it can be tempting to dip into those savings from time to time for emergencies, bargains, and treats. With a pension scheme, your savings are tucked away until you are in your 50s, meaning that you can’t succumb to temptation and take money out before then, undoing all your hard work and stopping your savings from growing.