It’s a big question, and in pensions they generally don’t come much bigger! So, is there a magic number you should be aiming to save? Each person’s retirement is different, so how much you are going to need in your pension savings, and therefore how much you should be saving now, depends entirely on what you personally plan to do once you are retired.Unfortunately, there’s no special calculation or formula to make deciding how much you should be saving easier. The simple solution to ensuring you have enough in your pot when you need it is to pay in as much as you can afford to now, whatever your age. And to start saving into your pension as soon as you can.
If you’re already paying into a pension, that’s great! Go straight to the next section.
If you’re not paying into a pension, never fear. You could be enrolled into your workplace pension scheme. Providing you are over 22, earn over £10,000 a year and regularly work in the UK, by law your employer must enrol you into a pension. And the great news is your employer must contribute a minimum of 3% of the value of your salary each year into your workplace pension. Coupled with your own contributions and tax relief from the government (equalling 5%), your pension pot will be building nicely during your employed years.
There is of course, the option for self-employed people to pay into a personal pension instead. Whatever job you do, speaking with a regulated financial adviser is worth its weight in gold to make sure you are making the right decision for your future.
Have a plan
Back to the magic number. The cost of living, inflation, life expectancy and your own personal plans are going to affect how much you need in retirement. You could set a target pension income and work backwards using an online pension calculator or help from an adviser to decide roughly how much you need to save now to achieve that figure. It’s not an exact science but thinking about whether you see yourself just getting by or have grander plans and need the money to fulfil these is helpful.
Free pension information guide
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Top up your pension contributions
Could giving up one posh coffee a week and paying that money into a pension really make that much difference to your pot size? Yes – and we’re talking possibly thousands!
Just a little more…
Let’s take a look at what could happen if Sarah, a 30-year-old office worker, gave up one posh coffee, costing £3.33, a week and instead paid that money into her pension.
Sarah is a member of her workplace pension scheme and pays in 5% of her salary, whilst her employer pays in 4%. If she plans to retire at 65, her pension pot could be worth £112,000.
However, if she decides to increase her pension payment by 1%, an extra cost of just £3.33 per week; her pension pot could be worth £125,000. So, the cost of one weekly coffee could boost her pension pot by £13,000! By nudging her contributions up again a few years later and paying in the occasional small, lump sum from her bonuses, Sarah boosted her pension pot even more!
Other important factors
There is always so much to pay out for now, be aware of your other commitments, especially unpaid debts, don’t over commit to your pension then give up. With auto enrolment you don’t even need to think about saving it comes straight out your pay.
Got a defined benefit scheme?
There also known as a final salary scheme and provide you with a valuable guaranteed retirement income. Typically, you’ll be asked to contribute to the scheme and it’s possible to increase the level of pension you receive. You could even target early retirement by paying more.