If you can be sure that you and your wife will both die before reaching 50, then you have no need to have a pension. However, you had best take out some life assurance if you have a family.
If you think you might live to collect a pension, you need a surprisingly large amount tucked away.
For example, a 60-year old man wanting a flat (no index-linking) pension will get about 6.2% income from his pension fund for the rest of his life. So to receive £6,200 per year he would need a fund of £100,000. If he wanted to receive £31,000 a year he would need a fund of £500,000
If he wanted index linking against inflation the rates would be lower. If he wanted a pension for his surviving widow the rates would be lower (look at BBC2 Teletext page 260 onwards for more examples)
This means that to collect a good pension, you need an amazingly large amount of money tucked away.
However, if you start young, it is surprisingly achievable.
Consider tucking away £1,000 and letting it grow with compound interest for 40 years with no withdrawals. It will be worth a lot by the end. If you start contributing to a pension fund when you are young, and continue through your working life, you can build up a lot.
It is much more important to start young than to try and increase your contributions when you get old. This is because your later contributions will not have the 40 years in which to grow, so an extra year at the start is worth very much more than an extra year at the end.
A few things to bear in mind:
Annual and initial charges can eat a lot out of your fund. If you are just starting, go for a low-cost stakeholder fund. They are limited by the government in how much they can take off you. Later, when you are older and have established a big fund, you may be able to find someone who offers you even lower charges.
If you find a salesman who wants to persuade you to take out a non-stakeholder scheme, be aware that he ios probably doing it because he will make thousands of pounds commission out of you, and be aware that this commission will come out of charges taken out of your fund. Salesmen do not usually sell Stakeholder schemes because the charges are very low so there is not much money to spare for commissions. The salesman's interest and your interests are very different.
If your employer offers a scheme, take it up. The employer will usually contribute a worthwhile amount, and the charges will usually be much lower than you could get as an individual.
If you are able to make contributions greater than your employer will match, consider putting the extra into a stand-alone scheme. It has nothing to do with your employer so you can put more or less into it whenever you wish, and can draw on it earlier or later than the employers scheme. You can also keep it going when you change jobs.
You will find people (including me) who complain that the stock market crash has reduced the value of their pension funds over the last year or so.
Be aware however that if you a youngish man, then over the space of 40- years you can expect to see whatever you invest in go up, and down, and up again. There have however been very few occurrences in the history of the world where investments have not been substantially higher at the end of 40 years, or 30, or 20, than they were at the beginning. As you get nearer to your retirement age you will probably start to trickle your pension fund into low-risk investments such as cash. investments tent to group into High-Risk, High Return ones at one end, and Low-Risk, Low Return ones at the other, and as a young man you will do better to start at the High end of the continuum.
The only time when it is not worth paying into a pension, is if you expect it to be so small that you will be on income benefits during retirement, which will top up your income to about £125 per week. So if your State and Personal pensions total £100 per week you will be topped up to £125, and if you have scrimped and saved to get yourself £124, you will still be topped up to the same £125, so you might as well not have bothered. I hope you will be better off than that.
On a tangent, since Pension Contributions are non taxable (you get a rebate on whatever you put in), if you have a good year and move into the 40% tax bracket, every £1 you put into your pension costs only 60p out of your pocket. If you have your own company, you can save the NI as well, so every pound costs less than 50P. Pension payments (when you draw the income) are taxable, though, but you are less likely to be a higher rate taxpayer once you retire.
