What to do if you don't have a pension

At some point, everybody wakes up to the fact that they absolutely have to start saving for retirement. If you are lucky, the realisation will strike when you are 25, which means you have 40 years to build up a big enough pension. For too many, it comes much later…

Building a nest egg is the work of a lifetime, and the sooner you start, the better. If you did start when you were 25, congratulations. The money you invest when you are young has far longer to benefit from the magic of compound growth.

If you invested £250 a month when you were 25, and it grows at 7% a year on average, you will have a block busting £640,829 by age 65. However, at 50 your £250 a month only has 15 years to grow, which would give you £80,664, assuming the same 7% annual growth. If you wait another five years to age 55, then your £250 a month will turn into just £44,351.

Although you should actually start by paying off any expensive short-term debt, such as a credit card, store card or overdraft, as these can charge APRs of 20% or 30% a year. No investment can safely achieve that kind of return—and you should avoid anything that claims it can.

Your next step is to build a pot of cash for a rainy day, to cover emergencies such as a burst boiler, car breakdown, or illness. Only then you should start investing for the longer term.

If you belong to a company pension scheme, do not opt out. This is the very best way to save, because you get tax relief on your contributions, plus a contribution from your employer.

You could then supplement this by investing a Stock and Shares ISA, where your money grows free of all income tax and capital gains tax. A host of investment platforms offer these, with AJ Bell, Hargreaves Lansdown and Interactive Investor particularly popular, but do your research online to find the best one for you.

If saving for the long term, a cash ISA will not cut it, as the best only pay around 1.5% on its access. Stock markets are volatile in the shorter term, but typically more rewarding in the long run. Only invest money you will not need for at least five years, giving you time to overcome any market correction.

Individual stocks are too risky for most people, so look for investment funds that will spread your risk across scores of different companies. There are thousands to choose from, your investment platform will have plenty of ideas, match for your attitude to risk. 

If stuck, you could start with a simple index tracker such as the low-cost iShares Core FTSE 100 ETF. You could supplement this with a global fund such as the Vanguard All-World UCITS ETF, which you a spread of 3,000 companies worldwide.

Now get going, you can't afford to waste any more time…

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