Pensions Saving Levels

Pensions Saving Levels

How much should you save?

Most people say they hope to retire on two thirds of what their salary is at retirement.

To achieve this depends not only on how much you save but also on how well your fund managers perform, as you will see from the Savings calculator.

But, regardless, the sooner you start saving the better. The later you leave it the higher your contributions would have to be (see the cost of delaying and table 2).

Consider realistically how much money you would need in retirement. Your mortgage might be paid off but you’d probably be able to do less DIY as you get older. Then there’s domestic help and, even later on, nursing care. (Feeling depressed? cheer up daytime TV might have improved by then).

The point that is constantly stressed is that it’s never too late to start saving – see it’s never too late to start a pension.

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How much are you allowed to save?

The Inland Revenue only allows you to pay / contribute a certain amount of your earnings for which they’ll add on their tax break.

(See Contribution limits for personal pensions / occupational pensions / stakeholder pensions).

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Cost of delaying your pension

We all think we’ll never get old. “Die young stay pretty” as the song went. But it may help you to remember your O Levels/ GCSEs. The chances are that the same amount of time ahead is going to see you well on your way to retirement.

If you leave things till then it will be that much more expensive to get a reasonable retirement income.

Take a pair of twins, Jack and Jill. They save the same amount monthly but Jack started saving at 20. Jill left it till she was 30.

As a result she will probably only get half of Jack’s eventual retirement pension. To catch up she’ll have to start saving much more than Jack.

Research by investment specialists Flemings showed that a 25 year old starting a pension and investing £100 a month until 65 would eventually have a fund big enough to finance a pension of £25,000 a year.

However if s/he waited until the age of 30 to start saving, at the same rate, their pension would be worth just £15,400 a year.

Perhaps these are bad examples because if you’re reading this you may be thirty something and feel it’s too late. But you’d be wrong – as you’ll see in it’s never too late to start a pension.

Don’t forget that thirtysomething is a much better place to start than fortysomething and so on.

In other words START AS SOON AS YOU CAN.

We all put it off. But the longer you wait the more it will cost you to get the same pension. It’s never too late so do it now.

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What you need to save to achieve a pension income equivalent to half your salary

(Estimated Gross salary (i.e. incl. tax break)

Table 2:

Age Man Woman
30 13% 14%
35 16% 17%
40 19% 20%

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The cost of waiting a year

This example from Norwich Union shows the cost to your eventual pension fund if you wait a year to start your pension.

Table 3:

Age now Pension fund at 65 Age Pension fund at 65 Difference
24 £216,000 25 £201,000 (£15,000)
34 £105,000 35 £97,000 (£7,200)
44 £47,500 45 £43,500 (£4,000)

(Assuming gross savings at £100/month and a growth rate of 7% pa)

Check out the Savings Calculator to see the difference to your eventual pension fund if you’d started saving a year ago.

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