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<p>Your 20s is the decade when you get to do many things for the first time – getting your first decent job, buying your first car, getting on the property ladder and many more. For many<strong>, </strong>the 20s is also the time when you have fewer responsibilities and get to have enough money on your hands to be able to afford treats like regular meals out and travel. <br></p><p>Having reached financial independence, planning for your later life may not be at the forefront of your mind right now. You may be paying off a student loan and you want to enjoy your money. But here’s the thing about pensions: the earlier you start saving, the better. There are a number of reasons for this, let’s see what they are. </p><p><strong>&nbsp;</strong></p><h3>Time is on your side<br></h3><p>One of the most valuable benefits of your 20s is time. You have time to save enough to be able to afford an enjoyable life when your working days are over and you come to retire. You also have time to experiment with saving and to build good saving habits. For example, you may find that you don’t want to be saving an awful lot from the get go. You can start with a small sum you are comfortable giving up in the beginning and then build it up in the future. Or you might decide to go all in and to save as much as you can towards your pension while you’re young and don’t have a family to care for. Whatever your approach, starting early means you have time to build a larger fund over your working life that’d help set you up for a brighter future. </p><p>&nbsp;</p><h3>The power of compounding<br></h3><p>Have you heard of compounding? It’s a good one to know when it comes to pensions. It’s a term used to describe the process of achieving growth not just on the money you’ve paid in or invested initially but on the growth of it as well. <br></p><p>You are probably aware of the concept of investing - the longer we keep our money invested, the more time it has to grow. Ideally it can grow and then grow on the initial growth and build upon itself over time. <br></p><p>Here’s a simple example of compounding:<br></p><p>Let’s say you invest £1,000 towards your pension that earns 5% interest per year. For the first year your investment will have grown by £50 (5% of £1,000) which means you now have £1,050. However, the following year you’ll gain 5% of what you’ve achieved already £1,050, not on the original invested sum of £1,000. So, your investment will grow by £52.50. The more time you give your money to compound and grow, the more you’ll have to live in retirement.&nbsp; <br></p><p>Dubbed by Einstein as the eighth wonder of the world, compounding can be especially powerful the longer time you have to invest your money.</p><p>&nbsp;</p><h3>Your pension benefits help you save more efficiently</h3><p>If you pay into a workplace pension, you can tap into lots of additional benefits that come as part of it. </p><p>&nbsp;</p><h4>You’re not saving alone<br></h4><p>One of the most valuable benefit is the fact that you’re not saving alone. Your pension with the Railways Pension Scheme is classed as a workplace pension, so both you and your employer pay into it. Think of your employer’s contributions as ‘free’ money for you!<br></p><h4>Tax relief is your side-kick<br></h4><p>Tax relief is one of the reasons why saving for retirement, as with the Railways Pension Scheme, is such a fantastic opportunity. It means you don’t pay any tax on the money you put in, which makes your money go further in the long run.<br></p><p>The amount of tax relief you get depends on the rate of income tax you pay. Basic-rate taxpayers (who pay 20% income tax) get tax relief at the same rate. If you’re a higher-rate taxpayer you get 40% tax relief, and additional-rate taxpayers get 45%.<br></p><p>So, if you’re a basic-rate taxpayer and want to put in £100, all that money will end up in your pension as you won’t get charged any tax on it. Otherwise, you would’ve been left with £80 as the taxman would’ve taken £20 off you.<br></p><h4>Saving extra towards your pension is tax-free</h4><p>With the RPS, you can boost your pension savings tax-free by paying in Additional Voluntary Contributions (AVCs). AVCs are a great way to save extra towards your pension either by making regular or one off payments into it. So, if you get a bonus or a monetary gift and want to spend it wisely, why not consider paying it towards your pension? And you’d get tax relief from the government too. This could be a great way to make the most of your current pension Annual Allowance before this tax year comes to end in April 2024. </p><h3>&nbsp;</h3><h3>Be wise and savvy with your money</h3><p>Making sound financial decisions that work in your favour is something you learn over time. However, there are ways to ensure you’re making the most of your money even if you don’t have much financial or pension knowledge right now. Keep track of your money! <br></p><p>If you are in your 20s, you may be part of Generation Z*. Being a Gen Z-er, you’re probably striving to be as paperless as you can be but that doesn’t mean you can’t keep a comprehensive record of you<strong>r</strong> income vs spending. There are a number of mobile applications, spreadsheets and other online tools to help you keep a record of your spending. Having a clear view of your finances could help you identify where you can reduce your spending, so you have some more money to put towards your pension, like opting for homemade lunch and coffee for example. </p><h3>&nbsp;</h3><p>*Generation Z – people born between 1997 and 2012</p>

<p>Now you’re past the decade of the firsts, your 20s, you’re probably more settled and have an idea of how you want to live your life and what your priorities are for the foreseeable future. </p><p>In your 30s, you’ve probably changed a couple of jobs and moved up the career ladder but you also probably have a family to care for, childcare costs to pay, holidays to fund and many more financial demands to meet. This, understandably, may see your money stretched and may make you look at where you could cut back on your spending. And, even though a temporary pause on your pension payments may look like a good way to give your bank account a bit of a breather, it’s important you think long and hard before you make the decision.</p><p>Here’s why staying focused on your retirement goal and trusting your saving journey even in a time of a significant financial strain is the best thing you can do for your and for your loved ones’ future. </p><p>&nbsp;</p><h3>You’re not saving alone</h3><p>One of the most valuable benefits of saving for the future with the Railways Pension Scheme (RPS) is the fact that you’re not saving alone. Your employer puts money in too. If you’re a Defined Benefit member, your employer will pay in at least 60% of the money you put in (normally 1.5 times the contribution you make). For example, if you earn £25,000 a year and you pay in £3,000 towards your pension, your employer will top that amount up by £4,500 for free. </p><p>What is more, you get free money from the government too for saving into a workplace pension. The support comes in the form of tax relief on your pension contributions. The money you pay in is taken from your salary before you pay any tax on it, which helps you save more towards your pension. So, if you are a basic rate taxpayer and want to save £100 into your pension, because of the way tax relief works it will actually only cost you £80. The other £20 comes from the tax relief.</p><p>So, it’s important you think carefully before making any decisions about reducing or stopping your pension payments as this means you’ll lose a fair amount of money. </p><p>&nbsp;</p><h3>Will your State Pension be enough to give you a good life in retirement?</h3><p>As much as we’d like to think of retirement as the golden time of our lives when for once we don’t have to worry about work and have the freedom to travel, take up new hobbies and enjoy life, we know that in reality the lifestyle we have in later life will largely depend on what income or savings we have. If you are only relying on the State Pension, will this give you the lifestyle you want at retirement? It’s great we have it, but the current State Pension is around &nbsp;£10,000 a year, will that be enough? That’s around £10,000 less than what you would get paid if you were working 40 hours a week on the National Minimum Wage. And, based on current legislation it won’t be available until your late 60s. </p><p>But still if we play our cards right now and save towards our future while we are in work, we are much more likely to have the retirement we hope for.</p><p>&nbsp;</p><h3>Don’t interrupt the art of compounding</h3><p>Your pension gets invested to give you an income when your working days are over. And the longer you keep it invested, the more chance it has to grow. Sometimes, it’d benefit not only from investment growth, but further growth on it too. This process is known as compounding and we explain it in more detail our <a href="https://member.railwayspensions.co.uk/knowledge-hub/news-and-views/blog/rps-blog/2023/06/19/pension-planning-your-20s---making-the-most-of-a-pension-plan-when-you're-young" data-sf-ec-immutable="">‘Pension planning in your 20s’ article</a>. </p><p>Interrupting the investment process by stopping your pension payments would throw a massive spanner in the works. This is because it would affect the compounding that happens while you’re regularly investing into your pension. This on its turn means that you could potentially miss out on significant sums of money in the long run – after 20, 30 years.</p><p>The compounding effect only applies to members who have some or all of their pension money invested such as members of the Industry-Wide Defined Contribution (IWDC) section and members who pay in Additional Voluntary Contributions (AVCs) such as BRASS. Compounding has no impact on Defined Benefit (DB) only members but if you stop paying into your DB pension that will impact what you have to live on when your working days are over. What is more, you may not be able to re-join the DB section in the future.</p><p>&nbsp;</p><h3>Once you’ve stopped paying in, you may not start again</h3><p>Humans are creatures of habit and routine. It can be hard to go back to saving after you’ve had a flavour of having that extra bit of money in your pocket every month. </p><p>And as pointed above, if you leave the RPS, you may not be able to re-join again.</p><p>Think of your pension as one of your last options not your first when looking at where you can cut costs. To help our members think about their broader financial wellness we have introduced a simple planning tool called Moneyfit which you can access when you log into your <a href="https://member.railwayspensions.co.uk/my-rps" data-sf-ec-immutable="">myRPS account</a>.</p><p>Moneyfit is designed to give you some simple hints and tips to help you manage your money. It’s totally anonymous, and takes around 5-10 minutes to use.</p><p>&nbsp;</p><h3>Have a plan! If you don’t have one, make one! </h3><p>By failing to prepare, you are preparing to fail as the saying goes. The same goes for retirement planning.</p><p>Even if you’re not left with any other option but to cut back on your pension saving this may not mean leaving the Scheme completely but pausing your Additional Voluntary Contributions (AVCs) for a little while. </p><p>So as an example you may choose to pause your £50 monthly BRASS contributions for a while. This might be a good option for you if it means you can stay in the Scheme and can continue to save towards your pension. Or if you feel you have to leave pension saving behind for the time being, it’s always worth getting back to it when you’re more financially stable and can afford to save for later life.</p><p>The important thing is that you plan ahead, understand what you might need in retirement and ensure you are saving enough, without putting your broader financial wellness at risk. </p><p>Leaving the Scheme rather than pausing any extra payments you’re currently making could significantly impact your lifestyle in the future. It means you’ll have less to live on when your working days are over. For some, this also means they won’t be able to afford to retire when they want to and will be pushed to continue to work for longer. </p><p>To get an idea of how much income you might need to enjoy the lifestyle you hope for, give our <a href="/knowledge-hub/help-and-support/retirement-budgeting-calculator">Retirement Budgeting Calculator</a> a go. It’s a quick and easy tool to help you estimate if you’re saving enough for later life.</p>

<p>If that’s the case for you, now may be the time to up your saving game and to prioritise your pension over all other things your money could be going towards.</p><p>Here are a few thoughts around pension saving in your 40s that could help you stay focused on your journey and make the most out of perhaps the most financially rewarding time of your career.</p><p>&nbsp;</p><h3>Prioritising saving for later life</h3><p>A recent research by Standard Life* which sampled UK adults aged 18 to 80 found that 72% of people surveyed do little or no retirement planning while 78% hope for certainty of income in retirement. There’s a clear disproportion between carrying overly optimistic expectations about retirement and doing very little or no preparation at all now in order to be able to meet those expectations. Don’t be the statistic and act now to be able to afford the retirement you hope for.</p><p>Now you’ve got a few financial milestones behind your back and have a bit more freedom to fund your own wants and needs, why not think about your future self and make the most of the saving opportunities you have. It may be tempting to spend your disposable income on exotic holidays or investing in property, but is this going to help you have a decent life in retirement? </p><p>You can’t borrow for retirement and you can’t make more of time so it’s important to focus on saving for later life now you can afford to invest more in your pension. Do it now and you’ll thank yourself later when your working days are over and you’re living an enjoyable life thanks to the sacrifice you’ve made previously.</p><p>With the Railways Pension Scheme, you can save extra towards your pension if you want to. You could do this by paying in Additional Voluntary Contributions (AVCs). AVCs are a great way to save tax-free either by giving your pension a one off boost or making regular additional payments towards it. </p><p><a href="/pension-essentials/saving-more">More on AVCs is available on our website.</a></p><p>&nbsp;</p><h3>Compounding is still a key factor</h3><p>Compounding – the effect of money invested achieving growth on the growth they’ve achieved initially, not just on the original sum invested - continues to be a great helper when it comes to saving for later life. It’s a very powerful positive of having your money invested for a long period of time as the longer it’s been invested, the longer it has to grow.</p><p>If you’ve started saving for later life in your 20s, you’ve probably managed to build up a sizeable nest egg by now. Thanks to compounding, you’ll probably continue to benefit from further growth on your savings, not just from the money you keep paying in but from the compounding effect on it as well.</p><p>Read more about compounding in our previous blogs in the pension planning series below.<br></p><p>&nbsp;</p><h3>Have you accumulated a few different pension pots over the years? </h3><p>You’ve probably been saving for retirement for a couple of decades now and it’s likely you’ve built up a few pension pots over the years. While in your 40s, you’re in the middle of your saving journey and now might be the perfect time to take stock of what you have. &nbsp;</p><p>If you think you've lost track of a pension, you may want to turn to the&nbsp;<a href="https://www.pensiontracingservice.com/" target="_blank" data-sf-ec-immutable="">Pension Tracing Service</a>&nbsp;for help. It's a free, impartial service to help find your lost pensions and then offer guidance on what to do with them.</p><p>You may also want to consider starting a pension planner and keeping track of how your different pots are performing. You may also benefit from seeking independent financial advice. Go to&nbsp;<a href="https://www.unbiased.co.uk/" data-sf-ec-immutable="">https://www.unbiased.co.uk/</a>&nbsp;to find an independent adviser from a trusted source.&nbsp; </p><p>If you’ve previously worked for another employer within the rail industry and were a member of that Section of the RPS, you may be able to transfer those benefits into your new employer’s Section of the RPS. </p><p>However if you’ve built up pension benefits in another pension scheme, you may not be able to transfer these into the RPS. This will depend on your employer’s policy, so you may need to discuss with them.</p><p>More on transferring is available in your Member Guide, which is available in ‘My Library’ when you log into your <a href="/my-rps">myRPS account</a>.</p><p>If you haven’t really given retirement a thought yet, there’s still time to start saving and make a big difference to your financial future.</p><p>---</p><p>*Retirement Voice 2022, Exploring how retirement attitudes and experiences are changing by Standard Life&nbsp;</p>