Should I start a pension?
I'm a 22-year-old student with a part-time job as a customer assistant at Tesco. I'm saving some money each month but am not sure where to put it.
I have used my 2012/13 ISA allowance and also save £25 a month with my bank.
Should I start a pension?
We are often told to start saving for a pension early but there are more immediate needs for your spare money. Much will depend on your financial objectives but the following may help.
The first thing to do is to save up a rainy day pot. This is important at any time of life, and the amount may vary according to your circumstances, but generally a sum equivalent to six months' net income is enough. You may already have this in your ISA.
You then need to consider other possible shorter-term needs.
Will you, for instance, want to buy a property at some stage? In which case you will need funds for a deposit.
Only once these shorter-term needs are catered for should you begin to look at longerterm investments. If you are prepared to accept more risk on your money, you could begin by using your stocks and shares ISA allowance (I'm assuming the one you mention is a cash ISA).
Choose a good global growth investment trust for the underlying fund, such as Bankers Trust or Scottish Mortgage.
This way you will still be building a fund that could be used in future for retirement but, in the meantime, you retain access to the money should you need it.
This could be important during the next 10 years or so, which can often be a time of major change.
Assuming the Tesco job is not your ultimate career, I would leave pension contributions until you have a settled and permanent job.
From October, your employer will automatically enrol you into a National Employment Savings Trust (NEST), which will be a good opportunity to start your retirement savings if you are keen to do so.
What is NEST?
The National Employment Savings Trust is a government scheme designed to make more people save for retirement.
From October, employers must enrol their workers into a qualifying workplace pension scheme if they are not already in one (for smaller employers this will happen later).
However, employees will be able to opt out. Auto-enrolment is designed to make it easier for people to save for retirement.
Your employer can match your contributions and should you move job, your pot will move with you so you won’t end up with numerous pots.
The government is also hoping to keep charges low with NEST so that more of your money goes towards your retirement rather than being lost in fees.
You can find out more about the scheme at nestpensions.org.uk.
is principal of Klonowski & Co in Leeds.