Cash advice
‘How much money do I need to retire?’ is the most important question you should ask yourself, yet one in three Brits don’t know how big a pension pot they’ll need, and one in five don’t know how much they have*. In Pensions Awareness Week, money expert Rob Gardner says decide when and how you want to retire and work backwards to plan how much to save, which you can do in five steps...
1 CHECK YOUR PAY SLIP
Good long-term financial planning starts with an awareness of what you have now, so begin with your pay slip. Here, along with your gross pay, you’ll spot your monthly tax and NI contributions. You pay NI contributions when you earn over a minimum of £184 a week (2021 to 2022), which goes towards your State Pension. If you don’t pay enough NI, you may risk your State Pension, so it’s worth making sure the payments are correct.
2
AM I SAVING ENOUGH?
The average man runs out of money 10 years before he dies, and woman 12.5 years** so you need to regularly check how much is in your pension.
A good rule of thumb is to have a pot worth 10 times your annual salary by the time you retire, which sounds like a lot, but is achievable by starting early. In your 40s, your savings goal should be six times your annual salary by the time you turn 50.
Earnings often peak in this decade, giving you the opportunity to make bigger strides towards your retirement target.
3
HOW MUCH AM I SAVING? Pension contributions normally come from three sources: the government (your State Pension), your employer and yourself.
For a comfortable retirement, your contributions need to be between 15 and 20 per cent of your salary. Your workplace pension is set up by your employer and a portion of your salary is paid into it each month. It’s important to check both yours and your employer’s contributions to your pension to make sure you’re saving enough for retirement.
4
MAKE A LATTE DIFFERENCE One way to boost that 15-20 per cent target is by swapping what you’d spend on a latte every morning and investing it in your pension. Contributing £100 every month to your pension, including NI, equates to an annual personal pension contribution of £1,320 – that’s £13,200 over a decade, or £20,000 if invested with the long-term in mind. If you’re a high-rate taxpayer, the benefit is even greater.
Keep this up over a 40-year career and through the magic of compound interest and tax relief, that £20,000 could grow to over £300,000.
5
HOW CAN
I MAKE MY PENSION GO FURTHER?
Did you know that investing your pension in a sustainable and responsible way is 27 times more impactful for the environment than flying less, eating less red meat or cycling to work? So, for a comfortable retirement in a world worth living in, ask your HR department how your pension provider invests your money, and if they’re not, ask that they invest it responsibly.