‘I have very little in my pension pot - but I’m not that worried about it’

Unattainable goals deter young people from even trying, writes Sophie Morris

I can’t say that I wasn’t warned. When I was in my twenties, my parents often brought up the “P” word . I’m not surprised they were worried about my financial acuity - or lack of it - because they enjoyed what today seems a strange, antiquated relic of the past - a job for life.

The cherry on the cake of these stable careers? A public sector pension. Whereas I, as a journalist and sometime university lecturer who has been self-employed for the majority of my 20-odd working years, have very little saved to feather my retirement bed.

I am angry about this, but I’m not worried. The anger comes from the poor advice I believe I was given, and so many workers in their twenties are still being given, about saving for later life.

The line was that you needed to save a specific percentage of your salary in order to have “enough” for your non-working years.

For example, HSBC recommends basing the amount you save on your age when you start saving. The bank advises: “Halve your age. Then use that number as the percentage of your salary that you should aim to save each year.”

In my twenties - before autoenrolment in workplace pensions - there was never a moment during which I felt that I could put away 10 to 15 per cent of my earnings.

I was self-employed for the first few years, then employed for five or six years, and every time I went back to the possibility of a pension, the amount that I was told that I had to save to make it worthwhile seemed impossible.

If only someone had said that something was better than nothing, and that any small amount would be worth a great deal more 45 years down the line. Instead, each time I spoke to an adviser or spent time on one of the pension calculators, I came back with a figure that I could see no way to put away.

From October 2012, employees earning more than £10,000 were automatically enrolled into workplace pensions, but my time in employment was over by then, apart from a modest teaching gig at a university, which I am pleased to report will pay out £550 a year if I retire at 68.

“The key to saving is simply to start,” says William Stevens, the head of financial planning at Killik & Co. “Saving little and often is the most powerful way to get started, whether you are at the ‘right’ percentage or not.”

Given that pay rates in my industry have not gone up in two decades yet the cost of living has soared, I am sure those starting out today feel in a similar straitjacket. I wish I’d heard this advice at the beginning of my career.

Throughout my thirties, I continued to bury my head in the sand. I was busy paying down credit card debt, saving for a wedding, taking maternity leave and funding childcare. There’s always something, isn’t there?

Now I am no longer pretending that my future will never arrive. Instead, I have started to focus on alternative ways to save for later life.

Given that I have a portfolio career, I’ve realised that I need a portfolio pension as well. The “old” advice follows the model that we all have jobs for life with salaries that go up, when really we need flexible pension planning that is sturdy enough to coexist with rollercoaster earnings.

Liz Colfer, a financial adviser at Five Wealth, says: “The ‘old’

model of staying in one job does not seem to be the norm any more, and so it makes sense to question whether the ‘old’ advice is still the most relevant.

“I would encourage people to think of their retirement provision as a diversified pot rather than seeing the only route as a pension.

“Those who have planned the most successfully for retirement are not necessarily those with the largest pots, but those who have built up a portfolio which can provide them with the flexibility to alter income levels based on their circumstances.”

Ideally, I want a pension pot of £600,000 to give me £30,000 a year for 20 years. This is based on the assumption that my mortgage will be paid off and I want some level of comfort, while understanding that £30,000 may well be worth tuppence by the time I retire.

I realise that saving this amount is optimistic, but so is the idea that I will live to 88. Will a traditional pension even pay out come 2068?

Robert Maxwell’s pension raid was one of the earliest news stories that I remember, so I have an in-built distrust of workplace pensions anyway.

A few years ago, I decided to start saving into a Nest pension. While it will not nearly be enough to live off, the calculator tells me that it will provide me with between £144,000 or £7,710 a year when I retire.

At the same time, I moved my stagnant cash Individual Savings Account (ISA) funds into a stocks and shares ISA, which in 25 years’ time should bring me £250,000, or £12,500 annually, for 20 years.

I will also get the full state pension, currently £11,500 a year. The rest I expect to come from increased contributions before I retire, some shares, downsizing and some inheritance.

“Pensions are extremely tax efficient and I would always advocate both staying enrolled in an auto-enrolment scheme and making the most of employer contributions,” says Colfer.

“That being said, I don’t think that pensions should be the be-all and end-all when planning for retirement. Instead, look to build up a portfolio which contains different types of investments.

“Alongside a pension you should really think about setting up an ISA (looking for a stocks and shares ISA rather than a cash Isa, which will be eroded by inflation).

“While the ISA may not attract the tax relief that pension contributions do, it can be accessed tax-free at any time.”

I’m pleased to discover that I have already taken some of the steps Colfer recommends. And I can live with the unknown elements of my shortfall, given that so much of my future is unknown. As a writer, my retirement will happen slowly; I will write until I can no longer sit at a computer.

It’s easy to say that I wish I had started to save earlier, but I don’t regret how I spent my twenties and thirties. I would hate to think that younger people are waking up with pension anxiety instead of an appetite for life.