As I worked through the cold, tail-end of January – conveniently forgetting my subscription to the gym and a “dry January” attempt that lasted only into the second week – I couldn’t help my thoughts turning to holidays.
Warm days, good food, relaxation and no work.
The trouble is that when you start to add up the cost of transport, accommodation, meals and enough money for 14 days, you realise it requires considerable funds and some serious saving.
Which brings to mind the old cliche that retirement is the longest holiday most of us will have.
In fact, retiring at the age of 65, many people have an average life expectancy in excess of 15 years to fund.
Now that’s a “holiday” that requires really significant saving.
That leads me nicely to the subject of the employer’s workplace pension that we all now have in our place of work.
For many of us, our contribution will incrementally rise in April by around 2% – depending on the scheme design – as will that of our employer to meet regulatory auto-enrolment minimum levels.
The additional outlay is probably the last thing we need around Easter and, naturally, the temptation will be to consider ending our contributions and, thereby, forgoing those of our employer’s too.
After basic rate tax relief the additional cost is reduced to 1.6%, which for someone earning £20,000 per year is just over £6 a week; money which, of course, is not being spent but saved.
This is a sum of money that would not cover the average cost of two pints of beer or glasses of wine yet still has, through power of accumulation, the ability in the longer term to help you secure your retirement holiday dream.
So, if you would like to retire before the state pension age, which for many people is now 68, then the incremental contribution rise this year – and a further increase in April 2019 – are key steps in achieving this objective.
The workplace pension was introduced by the UK Government in 2012 in recognition that people’s expectations in retirement had increased and were unlikely to be satisfied by the existing flat rate state pension.
This was despite the flat rate going up in April to £164.35 a week, subject to the recipient having made 35 years’ of qualifying National Insurance contributions.
The reality is that to achieve the holiday or retirement you want, it requires a more committed approach than that of my new year’s resolutions.
