We all know the phrase “you’d need to be Einstein to figure this out!” We say it when we think only a genius could understand something.
We know from speaking to our clients, that many people think pensions are tricky to understand. Even Andy Haldane, Chief Economist for the Bank of England confessed to “not being able to make the remotest sense of pensions”.
The truth is you don’t need to be a genius to save for your future. But you do need to focus on what’s important, tune out the noise, and take the right action.
This can be easier said than done. Luckily, some nuggets of wisdom from Einstein himself can help set you on the right track for the future.
Keep in mind that this article is not personal advice. If you’re unsure if an investment is right for you, ask about advice.
“Compound interest is the eighth wonder of the world”
Compounding is a ‘snowball effect’. The money you pay into your pension is invested, meaning it can grow in value.
Suppose you invest £100 and it grows by 10% each year. At the start you have £100. The next year you have £110 and the year after that £121. Your 10% growth is 10% of a larger amount every year. Compounding means that any growth on your investment can itself grow in value. You get growth – on growth. Over time, this is a powerful boost to your pension.
Investments go down as well as up in value. Investing for the long-term means your money has time to iron out the ups and downs, but there are no guarantees. You might get back less than you put in.
See for yourself using our online pension calculator. Put different contribution levels in and see how saving a little bit more can really add up, given enough time. Get compounding to start working for you.
Try our online pension calculator »
“I never worry about the future, it comes soon enough”
Remember when you were young, the summer holidays seemed to last forever? But now you’re older, summer is over in a flash and it’s Christmas before you know it.
It’s true: time flies. What’s interesting is the older you get, the faster time seems to go. You might not worry about your pension because retirement is years away – there’s ‘still time’. But actually, ‘later’ might arrive much sooner than you expect.
If your pension isn’t ready, you might not be able to stop working when you want to. Or you might find yourself scrimping and worrying about money.
Einstein is right, it’s no fun worrying about the future.
So that means one thing: the more you put into your pension and the earlier you do it, the better.
Don’t make the mistake of thinking you can wait till you’re closer to retirement or you’re earning more. It’s much easier to start putting a little bit more into your pension now than a lot more later.
You can put more in by talking to your HR team and asking them to increase your pension contributions. Just remember that when you pay money into your pension, you won’t usually be able to take it out again until age 55 (57 from 2028).
“Everything should be made as simple as possible, but not simpler”
Geniuses can take complex ideas and make them easy to understand. But as Einstein says, you can go too far and oversimplify.
There’s no point learning about something important, like pensions, if the information is too advanced to understand or too basic to be useful.
Try reading our plain-English guides about pensions, investing and retirement. We’ll tell you what you need to know – just the facts without the jargon (and no equations!). But we don’t shy away from getting into the nitty gritty, where it’s useful. That way, you can learn what you need to save and invest with confidence. And if you have any questions, call us on 0117 314 795 or email us.
And while we’ll never know for certain what Einstein really thought of pensions, he did say “the hardest thing in the world to understand is the Income Tax.”