Investing through the ages

Zoe Dagless from Vanguard outlines why your 30s and 40s is a good time to take stock of your long-term finances, if you are able to.

Business Finance


You’ve probably been paying into a pension for quite some time now – whether that’s a company pension, personal pension such as a self-invested personal pension (SIPP) or a combination of the two. You may even have several pension pots out there.

Your late 30s and 40s are a time for taking stock of your long-term finances and considering what your eventual retirement might look like…

Visualise your retirement

Your transitional 40s may be a busy time and include their fair share of stress, but things will look very different a decade or two from now.

There are some key questions every 40-something should be asking: What is it I want from retirement? What kind of retirement can I afford? When will it start?

It might be helpful to identify (perhaps with the aid of a pension calculator or financial adviser or by looking at your various pension statements) just how much retirement income you’re on course to generate for yourself.

Bolstering what you already have

Unlike your 20s and 30s, you may find that the time-rich, cash-poor formula is turned on its head. Your earnings may be moving towards their peak as your career matures, allowing you to save more. Your mortgage may also be getting smaller. Within a decade or so, your children may also start becoming less dependent on you*. Or perhaps there are some lifestyle sacrifices you could make to enable you to pay more into your pension?

Remember, you can also carry forward pension allowances from previous tax years – up to three. In theory, you may be able pay up to £160,000 in a SIPP in any one year to make up for any shortfalls.

But don’t panic if you find yourself falling short! You still have plenty of time to double-down on your efforts or even change course. Even small amounts can make a sizeable difference through the power of compounding – and more so when you consider the tax-relief you can earn on your contributions.

Remember, don’t just rely on your employer! The bigger your pension pot, the better your retirement will be.

Consolidate to accumulate better

Another way to reinforce this effect is by lowering your investment costs. The annual cost of keeping money in a workplace pension can range from 0.28% a year to as much as 0.68%, according to the Department for Work & Pensions, depending on scheme type and size. So, if you have several pension pots scattered about the place, now may be an opportune time to consider consolidating them within a low-cost SIPP to save money. A SIPP is like a workplace pension scheme insofar as you don’t pay tax on the money you pay in nor on what is earned when it is invested.

By the age of 40, it’s highly likely that many of us will have several pots sitting in different investment products, some of which may have long been forgotten. One recent survey suggested nearly a quarter of UK adults aged under 55 have lost track of old pensions worth an estimated £37 billion in total.

Consolidating these products within a low-cost SIPP can help make these pension savings last longer. It can also help you take greater control by enabling you to see all your pension investments in one place, so you can find out what’s working (or not) and whether too many of your investments are concentrated in one area. It can help you focus more on your retirement goals and cut down on the admin too.

Statistically, your 60s are a happier time than your 40s. Make sure you have the pension income to enjoy them!

*Based on the average age of mothers and fathers in England and Wales in 2020 – 30.7 years and 33.7 years, respectively.

**Zoe Dagless is senior financial planner at investment advisor Vanguard, Europe.

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