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What do young people need to know about pensions?

Journalist: Samantha Downes, Freelance and Pumpkin Pensions

ended 03. October 2023

I'm writing the second piece for my substack Pumpkin Pensions - I want to engage younger people in their pension.

So why should they invest?

What about ethical pensions?

How much do they need to put in?

Any interest facts and info please, and I can link directly to adviser businesses!

7 responses from the Newspage community

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Stephen Perkins
Managing Director at Yellow Brick Mortgages
The biggest thing young people need to understand about pensions is the cumulative compound gains and how much of an impact this can have on their final pension pot value based on how young they start saving into their pension, even if only with a very small amount. I think the amount initially is irrelevant, it is creating the habit of them seeing value in pension saving and having one set up, you can then work on the next challenge of encouraging them to save a sufficient amount.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Pensions are a great way for young people to save for their retirement. For some (those caught in the "60% tax trap"), for each £1 they earn, they face the prospect of 38p in their pocket now after tax and national insurance, or the full £1 in their pension. This is without even factoring in contributions from their employer.

However, deciding how much to put in, and the timing of doing it, is something that's different for everybody. For younger people looking to get on the housing ladder, it can sometimes be a case of considering temporarily reducing or even stopping pension contributions in order to maximise the amount saved towards a deposit. Naturally, this will have an impact on how much is in their pension pot, but someone in their mid-20s has at least 30 years until they can touch their pension, so it's important to take a balanced view and look at what their priorities really are.
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Elliott Benson
Owner at Sett Mortgages
Wow, absolutely, young people are woefully underinformed about financial topics. I wish I had been told about pensions, mortgages and taxes and so on, not only would it have been interesting it would have helped me more than learning about algebra or melting things with a bunsen burner.

We should be shown what a pension is, when we need it and the benefits of actually putting money into it. I wish I had started years before I did but no one tells you!
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David Robinson
Co-Founder at Wildcat Law
Starting to save into a pension at the start of your career is probably one of the easiest and most beneficial times to do it.
Why?
This is the time you will be getting new jobs, promotions and hopefully more pay! When you get these instead of taking the full amount as income, pay some into a pension and savings. This is money you did not have previously so it won't be "missed". If like most people, you live to your means, this is a great way to ensure you build up savings for the future.
Not only will starting early get you into great habits for the future, it also means you will benefit from compound growth. The sooner you start, the sooner you receive growth on your savings, then growth on that growth...
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Jamie Flook
MD & Certified Financial Planner at Lab Financial Planning
Four key reasons younger people should feel motivated to engage with their pension.

1) "Compounding is the 8th wonder of the world, those who learn it, earn it. Those who don't, pay it."

It really makes a massive difference how much you put in and how young.

2) Free money from your employer. Generally, your employer will put more in as you do, there is normally a 'cap' point at which they won't. See how much extra would go in if both you and your employer put a bit more in.

3) It's money that goes into savings before tax. And it grows tax-free within a pension.

4) You can literally help change the world. You'll have options in your pension with how to invest and there will be ethical and impact options. You just have to take the time to understand them.

Upload a picture of yourself up to a face-age app and tell that person that you didn't put.

And if you need any more convincing, download a face-aging app and tell that person why you didn't put enough in your pension!
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Gary Bush
Financial Adviser at MortgageShop.com
It's clear the younger you invest in pensions the better placed you will be in the future and the contributions will be much more affordable monthly. We are seeing a lot of younger people however skipping out the fund managers and investing directly in properties of all shapes and sizes and from north to south of the UK, they see this as a more flexible approach to handling their future wealth. We hear a lot of talk from the younger age groups on their interest in ethical investments, however, they don't appear as interested when they see that the potential results often don't stack up to standard investments.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
The earlier you start to put money aside for your future the better. Albert Einstein once said: “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't pays it.” Warren Buffet started earning as a young boy and has earnt 99% of his wealth after the age of 65, because time is the secret weapon of the investor.