what pension do you have?

[juicychops]

i am 26 and am in the stakeholder pension. I don't understand it at all.

Will i even benefit from having this (or any other) pension by the time i do retire? by the time i retire the retirement age will prob be about 80!!

I only pay the minimum, and my work also pay into it so it amounts to about £20 per month. im wary about increasing my payments in the future as i am unclear what this money will actually be worth in about 50 years time.

Please someone explain pensions to me and what i should and shouldn't be doing

What you've probably got (but check with your pension provider) is a 'money purchase' pension. The £20/month paid in by you and your employer is added to by the government. For every £80 going in the government tops it up to £100 in tax relief - that's one of the main advantages of a pension i.e. 25% free money. And the sooner you start contributing, the bigger the pot at the end. If you hold off until you're 45 before you start a pension, it's a hell of a job to catch up with 20+ years of contributions.

Your money is invested, after a fee goes to your pension provider, in stocks and shares. The idea being that, over 30, 40 or 50 years, these usually end up higher than where they started if your pension provider has been doing a good job. It's not guaranteed and no pension provider can give you an exact amount that you'll get back at the end, but it's a long-term calculated risk.

A feature of stakeholder pensions is that they are portable. Meaning that if/when you move job you can take it with you and another employer could contribute to it. Or you can increase or decrease (or stop all together) contributions depending on what you can afford at the time. So if you were to be unemployed for a time, you could suspend payments.

When you reach the agreed retirement age - and this can be set to be earlier than the state pension age if you wish - then you get all the money back and can then either take a lump sum or buy an annuity or a combination of both.

There are other ways of providing for old age, of course. You could buy property or some other investment. You could put your money into long-term savings like bonds or tax-free savings like ISAs. The best plan, if you're still in the dark, is to take some advice from an independent financial advisor. Most people end up doing a little of everything... covering the bases and spreading the risk.

HTH

thats brilliant Cogito thanks a lot. I was thinking about the house buying option earlier but as i haven't even bought my first house it may be a while until i can buy a second as an investment. i think as i get older i may do a few different things.

im just worried that all the money i end up putting into a pension that i could be doing with in the mean time will be worthless or gone at the end

i understand it a bit better now. I have a while until i need to start worrying about a pension return, but like you said, the longer i add to it the more therer will (hopefully) be at the end

Wanted to add.... an annuity is a financial product you can buy with a lump sum of money (saved up in your pension fund) which then pays you an income to top up whatever you get from a state pension.

Ultimately it's about understandng risk (in the financial sense) and spreading that risk so that you're not relying on just one thing to be your sole source of income. At 26 you can afford to be a little more adventurous with your choices in pursuit of a good return on your money because you have 39+ years of working life ahead. At 46 I have rather less time than you to make up any shortfall if I make poor decisions, so my retirement planning will look slightly different. A 60 year-old is going to be looking for very, very safe options - even if the returns aren't so good.

its all so complicated

It sounds like a good deal as your employers are also contributing so you are getting some money for nothing!

Stick with it, try to pay in as much as you can comfortably afford but even the smallest amount is better than nothing especially as your employers and paying into it as well.