MONEY MATTERS

 

The earlier you begin to build that nest-egg, the greater your peace of mind when it comes to planning your retirement, writes Neil Clark

 

Most people are very good at finding an excuse to put off doing until tomorrow what they should be doing today.

And given serial recent waves of uncertainty – beginning with the Covid-19 pandemic via a European war, a disastrous mini-Budget last year and a worrying new banking crisis this month it’s hardly surprising that some of us have put financial planning on the back burner.

Unsurprising yes … but also unwise, says Laura Crowe, Regional Manager and Chartered Financial Planner at Acumen Financial Planning, which last month won the New Model Adviser award (Scotland and Northern Ireland) for an unprecedented fifth time.

Acumen, part of the Financial Planning Group, was founded in 2002 to provide comprehensive financial planning services with a particular focus on pensions and retirement planning and Laura, who heads the firm’s Glasgow team, strongly endorses the importance of starting to save for retirement at the earliest possible opportunity. 

The Herald:

Laura Crowe, Regional Manager and Chartered Financial Planner at Acumen Financial Planning

 

“It’s entirely understandable that many younger people are keener on spending money than on saving it,” she says, while also stressing that saving even a little now can result in significant changes to their positive prospects when they retire.

“Unfortunately, with relatively few current responsibilities, young people don’t always grasp how vital it is to begin saving early. The good news is that the earlier we begin to save, the more of a lifelong practice it’s likely to become. 

“As time goes on and perhaps family obligations such as your children and mortgage increase, you’re unlikely to find that extra money to invest for your future later in life.”

Plus, in a world in which interest rates and the cost of living has become notoriously volatile, saving from an early age can reduce the need to borrow and ensure a debt-free later life. 

She gives an example, of two people in a Nest pension (the online pension scheme that was set up by the Government for auto enrolment in 2008). If both had monthly contributions including employer payments and tax relief totalling £200 paid into their Nest pots for 10 years, it would total £24,000 each.

However, assuming one made his contributions between the ages of 22 and 32 while the other made hers between 32 and 42 and that the money invested grew by five per cent every year until the age of 60, the first would realise almost £125,000 because of the extra 10 years it was invested – with the other only around £77,000. *

The pensions landscape has altered dramatically in recent years. While legislative changes have resulted in us having more pension options than ever before, the volume of information surrounding these products and the accompanying layers of complex language and documentation can seem daunting. The relative security of a final salary scheme once enjoyed by the older generation, Laura points out, is largely no longer available.

“Previously people tended to work with the same company for many if not throughout all their years of employment and at the end they expected to retire with a ‘gold-plated’ pension. 

“For many reasons, including the fact that final salary schemes are very expensive for employers, young people simply don’t have that option now so they must start saving as soon as possible if they want to have the quality of life and period of relaxation they aspire to during retirement.”

It’s a message that Acumen is actively promoting from its offices across Scotland in Aberdeen, Edinburgh, Elgin and Glasgow – and one that’s reinforced by the need for self-discipline. 

“Admittedly it’s not always easy but I advise younger clients, that while it can feel as if they’re giving up part of their earnings – and in their eyes fun – they don’t have to earn or save a huge amount to make a major difference when it counts later, even if that means putting only £50 or so aside every month at this stage,” she says.

Given the cost of retirement when younger people eventually do retire, it means starting now. 

“I speak to people who are hoping to have the equivalent of their current annual salary in retirement, so the time to begin speaking to an advisor, setting your goals and saving for them is as soon as possible – quite possibly sooner than you thought you might,” says Laura.

Acumen is also keen to highlight financial education to young people, including at school age – explaining interest rates, income tax and mortgages and how to understand the basics of their personal finances. 

Encouragingly, she says, young clients are more open to discussing money, its consequences and even their salaries in a way their parents’ generation were less responsive to. 

“Because of that they have a better understanding of the implications of saving,” she says. That new transparency, though, must be accompanied by a sense of urgency.

“Find someone that you trust to help guide you and arm yourself with all the facts you need regarding your pension.” 

In short, you owe it to yourself. 
 

www.acumenfp.com
 

* Source www.nestpensions.org.uk