The futures bright

Financial incentives encourage the young to save

The number of younger people taking advantage of the generous financial incentives surrounding pensions in general and Self-Invested Personal Pensions (SIPPs) in particular is rising rapidly.

According to new research by Fidelity Funds Network there are more than 234,000 people aged between 25 and 34 that are currently saving enough to become millionaires by the time they retire. It found that 3 per cent of younger workers are setting aside at least £600 each month for their pension.

Time is one of the saver’s greatest allies and the earlier you start, the less you have to set aside to reach your goal and the long-term growth potential of equities should not be under-estimated.

Many financial commentators believe that starting a pension is as important as buying your first home and it needs to be high up on the list of financial priorities. The reality is that today’s young people will spend almost as many years in retirement as they do working and the impact of not starting a pension is that they will be faced with a future where they can’t afford to stop working at retirement age, if at all.

With no retirement provision many people may have no option but to rely on whatever the government has to offer in terms of a state pension, which is likely to lead to a considerable drop in lifestyle.

A good guide to follow is to aim to pay in about half your age as a percentage of your income. For example, if someone is starting their pension at the age of 20, 10 per cent, including any employer contribution, is a good starting point.

Regardless of age, everyone should have some sort of retirement plan that they can change and grow with age and as their circumstances alter. The main thing to remember is the sooner you start saving for your future, the easier and more affordable it will be, and the more security you will have for a comfortable retirement, even if that seems a long way off at the moment.