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Im 24 and going to set up a pension. I don't know how much to contribute. Can anyone give any advice on how much they think I should contribute?

My employer doesn't offer any pension benefits and I'm living in the UK. My employer is small (less than 50 employees) and so doesn't have to offer a pensions scheme yet - it will do in 2017.

Thanks for your advice in advance.

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    Location is important for retirement questions. It determines what options are available, and what state default retirement programs exit. – mhoran_psprep Oct 11 '14 at 18:14
  • Standard advice is that, due to interest compounding, the earlier you can begin saving the more you will have at the end... to the point where saving X dollars a year in your first ten years of employment may have as much impact as saving the same amount every month for the rest of your career. Obviously you need money to live on, and you deserve to be comfortable, but anything you can make yourself save now will help you retire more comfortably and earlier. – keshlam Oct 12 '14 at 3:36
  • which country are you in? and what does your employer offer? – Pepone Oct 12 '14 at 10:53
  • I'm living in the UK and my employer doesn't offer anything – joshlk Oct 12 '14 at 19:54
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    My employer is small (less than 50 employees) and so doesn't have to offer a pensions scheme yet - it will do in 2017. – joshlk Oct 14 '14 at 10:16
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The rule of thumb is your age at the start of the pension divided by two, so 12%.

From The Telegraph article How to make sure you save enough for retirement:

As a rule of thumb, you should be contributing a percentage of your salary each month equivalent to half your age when you started a pension. So if you were 30 when you started a pension, you need to be saving around 15pc of your salary. If you were 20, it only needs to be 10pc, but those in their forties need to be putting away around 20pc. The percentage includes any employer contribution.

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    +1 for a new rule of thumb, or at least one I'd never heard of. – JoeTaxpayer Oct 13 '14 at 15:28
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Read this article: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ It changed my way of thinking about pensions. I now think of everything as 'future planning' as I may wish to retire long before I can access my pension.

My situation was not dissimilar to yours ten years ago. I base my response to you on what I should have done, not what I did.

So were I in your shoes, I'd think along these lines:

1) Work out what percentage of gross income to save - say 15%. 2) Contribute the minimum necessary to get employer matching - say, 5%. 3) Put the remaining amount (here, 10%) into an Investment NISA. Do not use this money for anything other than 'future planning'. 4) Both would be invested in long-term growth potential instruments ie. equity-heavy.

(This takes advantage of the 'free money' from an employer and the tax-deferred protection of a pension as well as the future tax-free nature of NISAs. The potential downside is the accessibility of NISAs versus the pensions locked-away-till 55 status.)

Learn to sacrifice your salary for 'good behaviour' items early on in life and it'll be a lesson well learnt. Save heavy when you are young too as you can then take your foot off when you enter the expensive part of your life (mortgage, young kids, marriage) and let compounding do most of the work for you.

I've written around this subject on my website should you want to read it: http://www.sspf.co.uk/blog/008/.

Best of luck and well done for being financially mature enough to think of these things. If only all 24 year olds did!

  • Can you explain why you favour a NISA over a pension? You don't get immediate tax relief in a NISA. – Brendon Nov 3 '14 at 7:19
  • I prefer the NISA for a few reasons: 1) It is more free of possible Government interference whereas pension income is taxed by the legislation of the era. 2) NISA growth and income is tax-free so you may put less in but it will be easily accessible when you wish to take it. 3) A NISA isn't age-limited. If you wish to retire early or career change, you could access the money. A pension would be age 55 minimum - and then may incur charges. – Chris Nov 7 '14 at 14:00
  • Remember NISA/pension amounts should net off roughly the same in many instances - tax now vs tax later. This is an interesting read from The Telegraph: tinyurl.com/kx4h6qh – Chris Nov 7 '14 at 14:06

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