Don't neglect saving up for your old age

Tough times are forcing people to turn their back on retirement saving. The Prudential says more than a third of members of pension schemes have put contributions on hold. And more than two-fifths of those do not plan to start again.

It's obvious why people are choosing to cut back on locking money away. While times are hard, there are more pressing things to spend on. And with retirement a good few years - or perhaps decades - away, it's easy to presume that things will take care of themselves in time.

But making such short-term financial decisions could be a costly mistake. The Pru says the average saver who misses a year of pension contributions totalling £2400, could see their final pension fund slashed by £7000.

That's why Michelle Mitchell, charity director of Age UK, warns that many people could regret turning their back on their pension. "Too many people are devastated when they retire as the gap between expectations and the reality of what they will actually receive for a pension is realised."

Where does that leave you? If you're not putting into a pension, you're not saving cash for the future. Bear in mind a pension is simply the name for a savings scheme that actually comes with great tax advantages. The Government contributes to your savings at the rate of £2 for every £8 you put in. If you're a higher-rate taxpayer, the Government adds £4 for every £6 you put in.

That's not even considering the advantages of a company pension scheme. If your firm has a scheme, it will be likely to match your contributions or even better them. So for every tenner you put in, your company will add the same or more. There really is no more advantageous way to save cash.

Pensions expert Tom McPhail of advisers Hargreaves Lansdown says that, rather than ignoring pensions, people should start putting in as soon as they can afford to. "The difference between starting a pension at age 22 instead of waiting until age 25 is an extra fifth in your pension pot," he points out. "By contrast, if you wait until you are 35 instead of 25, your payout will be almost less than half."

The two key factors affecting how much money you have in retirement are how much you pay in to your pension and how long you pay in for. "If you haven't paid enough in and done so for long enough, you almost certainly won't have a decent pension," McPhail warns.

Reports of pension payouts shrinking and the current generation of retirees getting much less than they anticipated shouldn't deter you from saving. You can choose where your cash is invested and switch into less risky opportunities as you get closer to retirement. The key point is that your future is in your own hands. Even saving a little now will add to your retirement pot later.

Meanwhile, the idea that you could rely on an inheritance to help get through in later life is set to disappear, according to new research from
HSBC. The bank says people aged 34 or less will inherit half as much as their parents.

"The decline of final salary schemes, the legacy of middle-aged debt, the economic slowdown and the lack of provision for long-term care all mean that for many people, anticipated inheritances will fail to materialise, leaving them to fall back on their own resources," warns McPhail. "If you haven't made your own savings, you'll be in trouble."