Basic pension products - including types of private and employer pensions - may make it easier to build a nest egg.
Box it up - and don't touch it
This video tutorial on basic pension products suggests a simple way to visualise a pension is to think of it as a box. The box is filled over the years from a range of sources - such as personal investments, employer pension contributions and government tax relief. It "cannot" be opened until retirement.
The do-it-yourself approach
Savers who opt for a private pension can chose a managed product or select investments themselves in a "do-it-yourself" approach. Pension providers (of which there are a large number) offer a range of products, each with a variety of investments and risk profiles. But such providers charge management fees, so it can pay to shop around to compare conditions and fees. A second option is to fill the pension box with savings and investments selected by the investor. Be aware that the investor is responsible for managing investments and managing the risk retirement savings goals are not met. Investors without the time, confidence or expertise might end up better off with a managed pension fund. Independent financial advice can help with the choices.
If you can, save through your employer
One of the best ways to fill a pension box is with the help of an employer.
People who work for one of the many companies that operate pension saving plans should seriously consider joining one of the schemes, as it can make good financial sense. A company may offer a pension plan for which better conditions (such as lower fees) have been negotiated. Alternatively, a company may offer a defined contribution (DC) or defined benefit (DB) pension scheme that it pays money into.
There is such a thing as a free lunch
A big advantage of joining an employer-run pension scheme is that it can simplify administration. It is also common for employers to make financial contributions into the pension fund. Often, employers will match the amount saved by the employee up to a certain percentage of their monthly wage. This video tutorial stresses that if an employer offers a pension "you should almost always grab it while you can".
Essentially, it is like free money. If possible, take advantage of the maximum matching amount - not doing so can be like throwing away money.
Time to unlock the box?
Ideally the pension box contents should grow to such a size that a steady stream of income in retirement is possible. To work out if the box is full enough, calculate how much money will be needed each year in retirement (for your desired lifestyle). Don't forget to take inflation into account, as it pushes up living costs. An inflation-linked annuity, set up to protect again rising prices, may help.
By starting to save for retirement early and by seizing advantages offered, opening the pension box will likely reveal a nest egg of such a size that it lasts throughout a comfortable retirement.