Spend It Today or Save for Tomorrow? MoneyMail HOW Do You Solve a Problem like Your Pension? Young Workers Can Have a Mountain of University Debt, Yet with Secure Company Pensions Fast Becoming a Thing of the Past, They Face an Impoverished Old Age Unless They Start to Save Early. Here, JAMES CONEY Explains How and When to Start Planning for Your Retirement

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Byline: JAMES CONEY

WHEN SHOULD I START?

GENERALLY, the sooner you start saving, the greater your retirement income will be.

To get an income of [pounds sterling]20,000 when you retire, you will need to save [pounds sterling]162.50 a month from the age of 20.

If you wait ten years and start when you are 30, then you will need to put aside [pounds sterling]262.50, according to Prudential.

You'll get a tax top-up to boost the money going into your pension.

A pension is essentially a very long-term investment designed to give you an income when you retire.

Your contributions get tax relief, meaning if you put in 78p as a basic rate taxpayer the taxman will top up your contribution to [pounds sterling]1. Higher rate taxpayers get extra tax relief.

By contributing to a pension, you're cutting your tax bill and getting free money from the Government.

When you come to retire, you can take a quarter of your pension as a tax-free lump sum and the rest must be used to provide a regular income.

IS IT WORTH IT?

IF YOU do not have a private pension to fall back on when you retire, you will get just [pounds sterling]84.25 a week with the basic state pension - and if you're under 28, you won't get it until you're 68.

The basic state pension rises each year in line with prices, so it will be worth about the same in 40 years time as it is now.

According to HSBC, two in five 25 to 34-year- olds, and one in three 35 to 44-yearolds are not paying into a pension at all.

But the sooner you start, the bigger your pension will be and the less you'll have to pay in when you're older.

Given that the typical student walks in to a job with a salary of [pounds sterling]18,600 and take-home monthly pay of [pounds sterling]1,189, this seems like a massive chunk of income.

Add to this the average [pounds sterling]1,329 owed on an overdraft, [pounds sterling]850 on credit cards, [pounds sterling]200 in personal loans and a whopping [pounds sterling]6,739 to the Student Loans Company, and the task can seem impossible.

But it's better to save a little than nothing at all.

One thing to remember is once you invest money into your pension you cannot get to it again until you retire, so be sure you know what you're doing before you tie it up.

COMPANY PENSIONS

IF YOUR company offers a pension scheme to which it contributes, then you should sign up. After all, this is even more free money on top of the tax relief.

With occupational schemes, your pension contributions go directly from your salary with tax relief included. So for every [pounds sterling]1 you pay into your pension, your take-home pay drops by just 78p, or by 60p if you're a top-rate taxpayer.

There are two main types of occupational pension. The best are final salary schemes.

These are based on your salary when you retire and the number of years you have worked. But they are becoming rarer outside the public sector. Some versions now base your pension on your average salary.

The second type is known as 'defined contribution'.

With these, your contributions and those of your employer are invested in the stock market. Your pension will depend on how well the investments perform.

Other benefits can vary between schemes. They will normally include some or all of the following: * A TAX-FREE lump sum paid to you when you retire.

* THE pension will increase with inflation every year once you are receiving it. But the maximum increase will be capped.

* THE possibility of retiring early on a reduced pension.

* A PENSION if you retire early due to ill health.

* PENSIONS for your dependants if you die.

The amount you and your employer will put in to the pension will differ.

The best company pensions are those that run a final salary scheme and do not require you to make any contribution. …