If, like a lot of people around the UK, you are feeling all kind of financial pressures, Theresa May has coined the phrase “just about managing” or ‘Jams’ – you can still save about £50,000 to help with your retirement, without too much hassle. This plan involves pinpointing the times in your life where you can afford to start saving, or to bump the amount that you are already saving. These have been named “moments of truth” or MoT’s by Royal London – the pension provider. A couple of examples of this could be when paying those costly childcare bills finally draws to a close, the cash being spent on the nursery or childminder could be used instead for clothes, holidays or treating yourself to eating out – or, more economically, some of it could be stored away into a pension.
If you make this something you’re committed to achieving (putting all, or even just a small portion of your disposable income into your pension pot) you could drastically improve your chances for a happy and comfortable retirement.
Research by Royal London, the results of which have been shown exclusively to Money, identified four key MoTs: reducing or repaying your mortgage; childcare costs coming to an end; personal loans or credit cards being paid off; and finance agreements, such as for car payments, coming to an end.
Sir Steve Webb, former pensions minister and now director of policy at Royal London who was knighted in the new year honours list, said: “Some of the growth in older people working is among those who work because they have to rather than because they want to.
As relatively generous final salary pensions become increasingly rare, more people are now reaching state pension age dependent on relatively modest pension pots to fund an increasingly long retirement.”
To demonstrate how the savings MoTs work, we took the example of someone aged 35 earning £40,000 a year.
MoT 1: Reducing or repaying the mortgage: save £45,200
On average, a person in this age bracket who took part in Royal London’s survey, of more than 2,000 people, had 20 years left to go on the mortgage. They were paying an average of £513 a month. Their mortgage would be paid off by the age of 55, at which point they hoped to be able to save £285 of this amount every month.
This saving — boosted by the tax relief that pension contributions attract — could build a fund of £45,200 by the time they are 65. This assumes 2.5% growth plus inflation and a 1% annual management charge.
MoT 2: Childcare costs come to an end: save £21,760
Royal London found that someone aged 35 and earning £40,000 a year had, on average, nine years of full-time childcare costs of £245 a month left to go. Many people’s childcare bills are much higher than this, particularly when their children are very young, but the costs usually drop as the children get older — that is, when they just need to be picked up from school and looked after for a few hours before their parents get back from work.
Of the monthly £245 figure, the researchers found people would put aside £60 that could go into pension saving when the childcare burden finally came to an end. This could result in a fund worth £21,760 if the savings were maintained for the remaining 21 years until retirement at 65.
MoT 3: Personal loan/credit card debt repaid: save £44,400
People in this age group were found to be paying, on average, £242 a month towards personal loans and credit cards, with a further six years to go before they would be completely repaid. Most of those surveyed thought they could divert £105 of this into long-term savings once that time was up, which would result in a fund worth £44,400 being saved over the remaining 24 years until the age of 65.
MoT 4: Finance agreements coming to an end: save £21,760
On average, people in this group were spending £207 a month on finance agreements, typically for the purchase of a car.
This group said they would be able to divert £60 a month of this sum once the payments came to an end after nine years, which could boost retirement savings by £21,760 by the age of 65 — the same figure as the childcare saving.
Putting money away for retirement is so important for so many reasons, so the sooner you can begin doing so, the better off you and your family will be in your twilight years. It might sound boring (I know, buying less clothes?! What is this madness?!) But, you know it makes sense! Happy saving!