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Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money.  If you have a question or need help, you can chat to them here.

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Saturday, 9am to 1pm.

 

What’s a pension, and why do I need one?

Q: What’s a pension?

A: It’s a way of getting more money when you’re older

A pension is a way of getting more money when you’re older. Yes, that’s right! When you’re working, and you choose to join a pension scheme, every time a percentage of your salary goes in, your employer and the government put some money into your pot, too!

Then, when you decide to work less or stop working later in life, you can use the money in your pension pot to help pay the bills or travel the world. Or other things. It’s entirely up to you..

No one has to get a pension pot. If the company you work at signs you up to theirs, you’ve got the right to opt out. But for most people having a pension pot is a good thing. In fact, it’s amazing, because it gives you free money.

Unlike most forms of savings, your pension pot’s locked away safely until you’re 55. So you can’t blow it all on a fancy car – not until you’re 55 anyway. It’s a pot of money for the future.

 

 

Q: Why do I need a pension?

A: So you don’t have to work your whole life to live your best life

When you’re older – say 55 or 60 – you might want to work less, or stop working completely. But you’ll still need money. A pension is a way of making money work for you so that in the future, when you’re ready to retire, you’ve got money to live on when you don’t want to work anymore.

Let’s say for instance you stop working at 67 and kick the bucket at 87 – that’s about average these days. So you’ll be living without work for 20 years. As well as being given a State pension (which isn’t much), you’ll want to start using your own pot of money. Here’s the minimum you might need to top up the State Pension the government gives you:

 

 Your life is…  You can afford… But you can’t afford… In today’s money, you’d need to top up your State Pension by… To do that, you’d need a pension pot of at least…
 Basic
  • To pay the bills
  • To fix the boiler
  • Free hobbies
  • To run a car
  • A dishwasher
  • To eat out
  • About £1,750 a year
  • £35,000+
 Cosy
  • Nice presents for your family
  • A holiday in the UK every year
  • Fancy holidays
  • A brand new Benz
  • About £17,750 a year
  • £355,000+
 Flashy
  • Luxury holidays
  • Rent or a mortgage
  • A nice car
  • Your own island (sigh)
  • About £30,750 a year
  • £615,000+

 

Those figures look really high, and they’re only the minimum! But you don’t need to panic. Here’s why:

  • Your employer’s going to put in a lot of this money for you
  • The government’s going to put a lot of money in, too
  • Your pension pot’s invested so it has a chance to grow

Because you’ve got a long time till you’re going to use it, your money has more time to grow – it’ll work hard for you while you’re not even looking

The State Pension is money the government gives you. At the moment, the State Pension kicks in at age 67 and pays you about £8,250 a year.

How can I find out more?

How your pension pot makes money for you when you’re not even looking

What happens to your pension money – where does it go and what does it do

Quietroom are a group of writers, trainers and strategists who help people make sense of important but complicated topics – like money, energy and healthcare. To find out what they’re up to, follow them on Twitter: @quietroomtweets

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Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money.  If you have a question or need help, you can chat to them here.

Launch Chat

Chat to the Money Advice Service
Monday to Friday, 8am to 6pm
Saturday, 9am to 1pm.