Analysis: Start saving as much you can and begin now

THE report by PwC makes for rather chilling reading. It would certainly appear a grim prospect to have to wait, as children born today will do, until they are 77 before being able to claim a state pension.

The key to a comfortable retirement will be the same as it is for people today, which is to get saving early.

It is crucial for a person not to rely on the state and have their own savings in place in order to allow them to retire at an earlier age. Having their own funds “topped” up by the state is far preferable than being dependent on the state.

The answer to the question “how should this be done?” is rather simple, if, that is, it is available. If you have the opportunity to join a company-sponsored scheme then make sure you join it immediately and if you then have the scope to make additional voluntary contributions – (so if the company is putting in six per cent of your salary and you can afford to pay an extra six per cent) – then make sure you do so.

The vast majority of people don’t put away anywhere near the maximum level, so that is a good way to start. Put away the maximum you can afford a regular monthly basis or do an exercise where you sweep up extra funds at the end of each year and put in a single premium. But do not take your eye off the ball. Start the pension as early as you can and do not let it stagnate. Make sure that every year you try and increase what you are putting away as long as it is affordable.

Pensions are still the most tax efficient way to accrue and save capital. If you have a non-working partner, make sure you are maximising his, or more likely, her pension contributions, even if she is non-working you can put money away for her and the government will still grant tax relief on it. If you have a non-working wife you can make a contribution on her behalf of up to £3,600 per annum gross, but you pay the net equivalent. So you pay the netted down equivalent of £3,600 and the government adds in the tax relief so it is a very tax-efficient way for spouses to build up a pension, because many spouses who take a break to raise kids have a fractured employment history and so a fractured pension.

Build up your ISA fund. You have an annual allowance for an individual saving allowance and part of that can go into savings or stocks and shares. If you can afford to you should utilise your ISA allowance each year, again husband and wife have two sets of allowances.

• Alan Mackie is director of Campbell Mackie Limited, independent financial advisers.