Pensions - How much to put in and how soon to start?

In order to ensure a comfortable retirement, when do you need to start saving towards it, and how much do you need to put in every month? Our chairman, George Critchley takes a look at this frequently asked question.

Public sector vs. Private sector

If you work in the public sector, your final salary pension will probably do most of the work for you. Add the state pension and you will likely hit your goals of a comfortable retirement.

If you work in the private sector then it’s a whole different kettle of fish. If employed by a firm you should be in their scheme, whatever it’s nature. If it’s a Work Place Pension Scheme (WPP) you are winning in two ways. You get tax relief on your contributions, so 5% of salary only costs you 4% ( basic rate tax payers ), and your employers contribution (most likely another 3% of salary ). If you add the two together then that’s 8% of salary in total, at a cost to you of 4%. So, you have doubled your money on day one!!

Will this WPP scheme be enough? Probably not, even when added to your State Pension. Most members of a WPP will not have been in them for 40 years, unless they started when in their early 20’s.

Time invested is crucial

The sooner you get your retirement planning going, the better. As a rough rule of thumb, every seven or eight years you delay starting a pension, your final pot will be a half of what it would have been*. This assumes the same level of contribution.

Many of us have financially challenging middle years in our lives. Between 30 and 50 years of age, we may be pushed to the limit by mortgages, child care fees, car costs, and a hectic lifestyle.

If you can hit the saving habit hard when young, in your early twenties, that money will have many many years to grow. If you must, then ease off (not stop) in the middle years. In the last 15 years till retirement it’s all systems go. Your motivation will increase the nearer you get.

So how much needs to go in to my pension?

More than you initially think. Almost everyone underestimates the magic number. A financial planner will work this out accurately for your particular circumstances. A rough guide is 12-15% of your salary for 40 years. “That’s as much if not more than my mortgage” I hear you say. Yes it is. Time to get serious, I think.

* Returns of money contribution pensions vary based on the returns of the underlying investment funds selected.


If you would like to speak to one of our Independent Financial Advisers about your pension, or any other aspect of financial planning then please contact us or call 01257 260011.