A beginner's guide to pensions - what you need to know

Saving for retirement is an issue that affects all adults - yet the topic can be overwhelming if you are not sure how it works.
For those just getting into the working world, there will be plenty of new systems and processes to comprehend, but it is not just very young employees who may need to contact payroll services to find out more about their saving options; statistics show that a significant proportion of the world's workforce simply do not have any pension in place.
It may be that their financial circumstances make long-term saving difficult or that they have chosen a different route to fund their retirement - either way, it may help to learn a little bit more about pensions.

Long-term savings

The whole idea behind a pension is that you are putting away a little money each month in the hope that when you reach retirement you will have a pot large enough to live comfortably on. The amount you get out at the end logically relates to how much you have put in over the course of your life. The first thing to notice about this is that it will be easier to save a large amount if you start early.
For example, looking at saving on a micro scale, if you wanted to save £120 over the course of a year, then you would only need to put aside £10 each month if you started at the beginning of the year, whereas if you did not put anything aside until halfway through the year, then you would need to save £20 per month for the final six months.
Similarly, if you wait until half way through your career to start saving, then you will need to put aside a lot more each month to reach an equivalent amount. It is not an exact parallel, as your savings pot will also be influenced by factors such as management fees, growth rates (relating to the amount of investment risk you take on) and how much your company contributes.

Pensions
As with other financial products, there is a seemingly endless variety of options available to people from a range of providers - the best thing a confused worker can do is speak to a trained professional, whether from their own payroll division or an independent financial advisor.
The makeup of the pensions industry is currently in a state of flux, as old and unworkable forms of pensions fade away (defined benefit schemes are largely closed to new members) while experts attempt to come up with a solution that encourages people to save while also ensuring that overly-generous pension arrangements do not bankrupt providers.
For the average worker, the most basic advice is to start early, not take on much risk and seize on any opportunities to get your firm to contribute to your pension pot.

Government assistance
Another system in transition is the state pension, which offers people a small amount of money for everyone on retirement, but it is by no means a lot of cash, so workers should make sure they have alternative funds to build up their finances.
The government provides a range of other benefits for retirees (for example, welfare payments) and there are also tax breaks for those that put a certain proportion of their earnings into pension schemes.