When you have a low income, pension can be the last thing on your mind especially when you’re struggling to pay the bills. But securing your future is important and can be more accessible than you might think.
For many, high living costs and low income make saving money a monthly struggle. And with so little cash left over at the end of the month, saving for a pension might seem like a far-off dream to many people. But even if you’re scraping by, there are ways to set aside some funds for your retirement.
Here are 6 ways you can save for your pension, even when money is tight:
Conquer Your Budget
The first step in starting your savings fund is to free up some money, which means tackling your budget. Create a budget planner – it can be as simple as a few columns showing your income and expenses – to help you track your spending. Once you know where your money is going, you can identify areas in which you can cut costs.
Did You Know:
One area you could save in is utilities. Look for better-priced mobile and internet providers, or for a bank that charges fewer fees – this change can often be made in a few clicks online. Food shopping is another area you could be saving on: Planning meals carefully can reduce the amount you spend on groceries. Small adjustments across your expenses can make a big difference when added up.
Access Available Government Support
Check if you qualify for government support programmes. These could include housing benefits, working tax credits, council tax reduction, child tax credit or income support. These programmes could help you free us some cash – for instance, working tax credit offers a maximum of £1,960 annually, depending on our circumstances1.
Government or Employers Pension Contributions
The amount you contribute to your pension fund could be bolstered by contributions from your employer and the government.
What This Means for You
You may need to contribute to your pension fund less than you initially thought.
You are entitled to a 25% tax top-up or a pension tax relief from the government. And your employer must contribute to your pension fund according to the new auto-enrolment rules. If you are aged between 22 and state pension age, while earning more than £10,000 a year, you qualify for auto-enrolment2.
If you earn a wage of around £24,000, you only need to pay in £145.41 annually (or £12.12 every month) to have a total contribution of £363.52 to your pension annually.
Start Saving as Sooner Rather Than Later, For Any Amount
The earlier you start saving for your pension, the more you will be able to save in the long run. Starting a pension fund early gives you not only more time to save but also gives your investment more time to grow from compound interest.
Start developing the habit of saving as soon as you can, even if it is only for a small amount.
If Your Salary Increases, Add the Increase to Your Savings
A pay raise usually signals an adjustment of your lifestyle to match your new wage. Instead of changing your lifestyle, invest the difference in your salaries into your pension. This will let you save more without having to make any cutbacks.
Most pension providers will allow you to deposit a lump sum into your fund, alongside regular contributions, so you can easily invest any bonuses or extra money you may have.
Keep Reviewing Your Savings Plan
You may only have nothing, or only a small amount available, to pay into your pension fund at the moment, but this could change with a work promotion or inheritance. Keep reviewing your finances as often as possible, to see if you can free up cash for your retirement. Should your income change or your expenses decrease, grab the opportunity to increase your pension fund.
A Few Common Questions
A pension will help you live comfortably after you stop working by providing you with an income during your retirement. This fund could also be used to supplement your income in the case of unforeseen costs.
When it comes to retirement, you’ll want to save as much as you possibly can. Some suggest saving between 10% and 15% of your annual salary if you can. However, if this is not possible, look towards saving enough to meet your needs (between 70% and 90% of your income) during retirement – either through monthly instalments or lump sum deposits.
There are many ways to maximise your pension pot. Increasing your contributions will naturally give you more money to retire with, but you can also increase your pension by adding lump sums and ensuring it is invested wisely.
The sooner you start your pension fund, the more money you’ll have to retire on. You’ll have more time to contribute towards the fund, and your pension will grow due to the interest your fund earns when invested.
If you’re not earning a high wage, you may feel your income limits the amount you can save towards your retirement. However, even putting aside a small amount is better than putting off starting your fund.