How much money do I need to save for my pension?

How much do you need to save for retirement? Let's look at what you need to consider

The amount you can save for a pension ultimately depends on what you can afford, but the more you leave, the more you have to save.

Research shows regularly that we set ambitious goals for our expected retirement income and then underestimate how much we need to set aside to achieve that.

So, how much should I save?

We take a look at what you might want to retire and how to get there.

How much do you need to save for retirement? Let's look at what you need to consider

How much do you need to save for retirement? Let's look at what you need to consider

First … a quick pension guide

There are two main types of pension plans that are found through work, defined contribution and defined benefit, which are often referred to as final salary schemes.

The crucial difference is that with a defined benefit plan, your employer is committed to giving you an income in retirement and is responsible for doing so.

Most likely you have to contribute each month as well, putting the required amount that your employer specifies.

On the other hand, if you have a defined contribution plan, save on this and get contributions from your employer as well. The money is invested to build a well, which will then finance your retirement.

With a defined benefit pension, the simple answer to how much to save is simple: enter everything your employer requests to obtain the pension it promises.

With a defined contribution scheme, the answer is more complicated, because it is up to you to deliver the money you need in retirement, so the more you save, the more you will get.

When you reach retirement you can keep your pension invested and withdraw money as income, or buy a regular income until you die in the form of a financial product called an annuity.

If you save on a personal pension, this will be a defined contribution type plan. You pay money, invest it and accumulate a boat.

How much do you need in retirement?

There are a couple of essential things to consider when thinking about how much you would need in retirement.

The first is that your expenses are probably lower. A general rule used in the financial industry is that a 40-year-old would need approximately 50% of his current income to have the same standard of living in retirement.

This works on the basis that by the time they retire they will be free of mortgages, they will not support the children and they will not spend as much on things as going to work daily and other costs involved in going to work.

The second thing to consider is the state pension. Under the new fixed-rate state pension plan, this is £ 155.65 per week, which is £ 8,094 per year.

By allowing a full state pension, someone who addresses the retirement income of £ 23,000 would need another pension income of about £ 16,000.

The pension well needed to deliver that income based on taking 4 percent of the income from funds that were invested in retirement would be £ 400,000.

Legal & General has an annuity calculator that shows the amount of income you can expect from a pension boat with an annuity.

How much should I save?

Obviously, the amount you need to save each month depends on the amount of pension you want.

But it also depends on your age.

For example, you can get a decent level of retirement income if you start at age 20 paying 12 percent of your salary, but if you leave it until you are over 40, then you may have to pay closer to 20 percent. cent to get the same level of retirement income.

Jamie Jenkins, pension expert at Standard Life, says: "While 15 percent is a good target to target, many people will start paying less than this and increase their contributions gradually."

The good news is that the money that goes into your pension does not just depend on you. Your employer will also contribute and many offer more generous contributions than the minimum specified by self-enrollment pensions.

You also get a tax deduction on your contributions to a pension plan, which means that you actually save from your untaxed income.

There are some general rules for calculating what percentage of your salary should go towards a pension, in terms of your contributions and those of your employer.

The most common is half his age since he started saving, so if he starts at age 30 it could be 15 percent, while if he starts at age 40 it is 20 percent.

A more accurate view can be delivered by the wealth of pension calculators there. Many allow you to enter your age, salary, required pension income and any current pension or boat contributions. Then you can play with the numbers.

Calculators to help you calculate your pension savings

The following pension calculator with Fidelity technology allows you to enter your details and calculate how much you can have in terms of a total well and future income, and compare them with what you expect.

Investment returns are calculated using the investment specialist's projections and show what could be expected under the average market yield and poor market performance (it's worth noting that you can be lucky and get above average performance).

The projections of future income are adjusted to inflation, which allows you to make a direct comparison between your current income and potential future income expressed in today's terms.

Here are links to some of the best we have found:

> Pension calculator Aviva

(Shows potential pot and compares the reduction and annuity)

> Money Advice Service pension calculator

(It works in your personal scenario)

> Standard life pension calculator

(Fast and simple to use)

The key is to see what your projected income will be when you reach retirement and then try to determine if this will be appropriate.

However, be careful, it can be confusing and demoralizing to find out how your savings today will translate into income when you retire.

The reality is that when you start saving for retirement, you may not be able to pay as much as you want. However, it is important to remember that payments can be increased at any time and the sooner you start, the greater the chances of creating a larger well.


Aviva's pension calculator suggests that a 35-year-old man currently with £ 35,000 who saved 10 percent of his salary with his employer by adding 5 percent for the rest of his career would accumulate a pot of £ 283,000 for his retirement age state 68

It is predicted that they will receive a state pension of around £ 8,000.

If they used the reduced income for retirement, they could have an income of £ 21,000 per year between 68 and 94 years, when their pension boat would run out. After this, your income would go down to the state pension.

Alternatively, an annuity would generate an income of £ 16,915 for the rest of his life.

Investing for retirement does not have to be a pension

It makes sense to make the most of any offer to match the contributions made by your employer.

For example, if you match up to 5 percent of what you enter, then putting that maximum 5 percent means you get the most out of your employer's plan.

Above this level, you will still benefit from tax relief on contributions, but you will not get any additional boost from your work plan.

That means that due to the restrictions surrounding pension savings, mainly that you can not access them until at least 55 years old, some people choose to invest additional sums in other places.

So, for example, you could put an additional 5 percent of your salary in an Isa investment, where you do not get any tax relief on contributions, but any income you eventually get from it should be tax free.

How to balance a pension with other investments, like an Isa, is reduced to a personal choice.

Top of the stack: the sooner you start saving for retirement, the better.

Top of the stack: the sooner you start saving for retirement, the better.

Top of the stack: the sooner you start saving for retirement, the better.

Basic aspects of the pension: the things you need to know

Defined contribution vs defined benefit

There are two main types of pension schemes: defined benefit schemes and defined benefit schemes (also called final salaries).

A defined-contribution pension will generally allow members to decide how much of their salary they want to pay and these payments will be matched by their employers, at least up to a certain level.

The money is saved in a pension and then invested in funds with the vision that it will grow over the years to deliver a retirement boat.

You can track investments, measure their performance and change them if you wish.

However, it is up to you to accumulate the pot needed for retirement, so it is important to keep up payments once you start and re-evaluate how much you can pay every few years.

With a defined benefit pension plan, your employer will generally pay a certain amount of your final salary when you retire and they will be responsible for the financing.

There are other types of defined benefit schemes, such as career-adjusted schemes in which you will be paid a proportion of your average earnings during your employment.

Different pension providers will execute the schemes in different ways, so it's worth consulting with your provider to get all the details.

However, defined benefit pension plans have proven to be very expensive for companies and, as a result, they have become rare in private companies and, in general, they are only offered in the public sector.

Most people with some years of work will no longer depend on a defined contribution pension for a large part of their retirement income.

Types of work pension

Defined contribution pension

A worker agrees to pay a fixed amount in his defined contribution pension plan, for example, 5 percent of his earnings.

Your employer can match this, so that 10 percent of your total earnings go to the pension each month (5% + 5%).

The money is invested in funds of the stock market and the pot grows over the years. When retiring, the saver must take his boat and buy an income with him or resort to him for one.

Defined benefit pension

A worker agrees to pay a certain amount per month in his final salary, say 8 percent of his earnings.

In return, your employer will pay you a fixed part of your final salary for each year you worked there, in this case, one sixteenth.

Someone who has worked in the company and been a member of a pension plan for 40 years would retire with two thirds of his final salary (40/60).

What is the automatic pension registration?

Many people have been paying a pension with work for many years, but not all companies had schemes and this means that millions were losing savings for retirement.

As a result, the government commissioned The Pensions Regulator to ensure that employers implement a plan that is considered vital to ensure that people have more retirement income to complete state pension payments.

The rules mean that if you are an employee, then your employer must offer you a pension plan.

These rules if you are at least 22 years old and are employed with a salary of at least £ 10,000 per year.

You have the option to say & # 39; no & # 39; to automatic enrollment if you do not want to join, but if you do nothing, it will be registered automatically.

By 2018, all employers, by law, must contribute to their employees' pensions, but to begin with, only the largest companies have to offer this.

More than 5 million people have been automatically enrolled since it began in October 2012, and fewer than 1 in 10 have opted not to participate, according to government figures.

The law states that a minimum percentage of your "qualifying earnings" must be paid. In your workplace plan, this means the amount you earn before taxes between £ 5,824 and £ 42,385 a year, or all your wages or wages before taxes. It depends on how your employer chooses to calculate the qualified earnings.

At the moment, minimum rates are low, with about 1 percent of your salary and 1 percent of your employer. That will increase to 4 percent of you and 3 percent of your employer by 2018.

In practice, the minimum amounts may be higher for you or your employer, due to the rules of the individual schemes.

The minimum you pay The minimum your employer pays The government pays
0.8% of your qualified earnings & # 39; will increase to 4% by 2018 1% of your qualified earnings; rising to 3% by 2018 0.2% of your qualifying earnings & # 39; will increase to 1% by 2018

Tax relief on contributions to your pension boat

The tax relief on contributions to your pension pots means that a part of the money that would have passed as income tax goes to your pension.

If you pay money in a pension or if your employer takes your salary, you will automatically get a 20 percent discount.

For example, you are a tax payer at a lower rate and put £ 80 of your house tax payment on your pension. He would have earned £ 100 before applying the income tax, so he would get a tax deduction of £ 20.

It gets a little more complicated if you are a 40 percent higher taxpayer, since you can claim relief at the additional 20 percent, but you may have to do it yourself, while the higher taxpayers can claim up to 45 percent. percent tax rate.

How taxpayers with higher rates get their tax relief depends on their pension plan. Some will do it automatically for them, others will have to write to HMRC or claim it through the self-assessment. Ask your employer what you should do.

Tax relief on pensions is limited. You are limited to 100 percent of your earnings in a year, or to the annual subsidy of £ 40,000. A lifetime subsidy of £ 1 million is also applied to the size of a pension boat, which includes money paid and what also grows, above this it is no longer tax efficient to save on a pension.

Personal pensions

If you are self-employed or interested in increasing your pension pot, you can establish your own personal pension, in addition to, or instead of, your work pension and invest through that as well.

You can opt for a simple stakeholder pension or a more flexible personal pension invested, known as Sipp.

You also get a tax deduction on your personal pen pension contributions, as explained above.

Do not forget the state pension

In addition to your personal or work pension, those who have enough years eligible for National Insurance payments will receive a basic state pension payment provided by the Government, which is now £ 155.65 per week for a single person under the new system of flat rate.

The state's retirement age will increase in the coming years, you can use the HMRC state pension calculator to see when you will be eligible.

For a man of 35 years today, the age of the state pension will be 68.

Although it may not seem like a large amount, it is a good foundation on which to build your retirement income.


This is How Money Works is our section that explains the basics of what people need to know about their finances and how to make more of them.

We believe that financial education is important, whatever your age, and our goal is to create a library of guides, tips and answers to questions about common money.

You can find here the section Here is how the money works, with more articles coming soon.


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