I’m 23, a year out of Uni, trying to find my way in the working world and honestly, I don’t know a thing about pensions. So, I decided to talk to someone who has retired early and can teach me the first thing or two about the subject.

Here’s what George* had to say:

What is a pension and why is it important?

A pension is a form of long-term, tax-efficient saving to provide you with financial support later in life. The main benefit of a healthy pension is that it gives you options. If you reach retirement age with no pension and nothing that can act as such (like an investment property or a successful business that you can sell), you will have no option but to continue working. Even when you qualify for a State Pension, that amount will be very little to live off of, let alone enjoy life. As a result of earlier decisions that I made, I could have retired at age 55 if I wanted to, but I chose to work until 57.

Have you always been mindful of your pension?

At 18, I joined a company with a very generous pension scheme - they contributed around 20% of my salary while I contributed nothing, as I never really explored it at the time. However, when I changed careers in 2004, I had to completely reimagine my finances due to a significant pay cut, less generous pension scheme and reduced benefits. My new employer contributed 8% of my salary, so after a few years, I decided that whenever I got a pay rise, I would adjust my contribution to reflect that, so all extra income went into my pension pot.

What happens when you claim your pension?

When you decide to take out your pension, you contact your provider and they calculate what it equates to (as the value changes over time). You then have the choice to take it all through monthly payments or to take up to 25% as a tax-free lump sum and the remainder as a monthly pension.

How has the Cost of Living crisis affected your current situation?

I am concerned by recent events as, for example, our energy bill has almost tripled this year, so there are definitely uncertainties. For a number of years, things had been stable, inflation was very low, but a combination of events have led us to a point where the cost of living is rapidly increasing and assumptions made even a few years ago have to be reevaluated.

What pension advice would you give to a 20-something year old?

I would advise any young person to take a little time to really understand what a pension is and how it works. Understanding the concept of a pension and the terms of your specific scheme will be invaluable to you as it will help to inform your decisions over the next 30/40 years and, in turn, increase your options in the future.

*name changed to maintain confidentiality

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