Knowing how much you should be saving is tricky. It’s hard to imagine what you might need in retirement, and even harder to predict what is going to happen in your life between now and then!
There are a few things you can do to take stock of your situation and make a plan for the future. It’s a good idea to have a think about the standard of living you want to maintain when you start to reduce or stop working.
You can use the government service to log in to your National Insurance Contribution history and see if you’re eligible and how much you’ll get and when.
Next, look at the pension or other savings you’ve put aside for retirement. You can get up-to-date pension statements from your workplace or personal pension providers.
You can add this information into a calculator, including details of any contributions you’re currently paying to predict what savings you will have in retirement and what kind of income this will provide. You can adjust the contributions to see how this impacts the savings you’ll have at your preferred retirement age. You can also see if delaying your retirement helps.
Limits: In theory, you can pay as much as you want, but there are limits to consider making sure what you’re paying in is as tax efficient as possible.
Annual allowance: you can get a tax boost on your savings up to £40,000 each year or the annual earnings, whichever is lower. If you put away over this limit, then you may face a tax charge.
Lifetime allowance: You can save £1,073,000 on pension savings during your lifetime. If you save more than this then you may pay a hefty tax bill on any amount you withdraw over this limit.
Start saving as early as you possibly can. If you start saving, even if it’s a smaller amount than you would like, you’re taking advantage of the tax benefits that you’re entitled to and giving your savings a chance to grow over time. You can also rollover any unused allowance from the last three years, so if you have a pension in place you could always put away more money later on.
If you’re saving into a pension for the first time, then you might be able to use a rough rule of thumb where you take your current age, divide in half and pay that amount as a percentage from your income each year.