Posted on: 18 September 2020
This Tuesday was Pension Awareness Day 2020, so today we’re sharing some tips on how to save for retirement. People often feel disengaged from their pension because it seems like a long way off or they find the subject too complex. But by not saving for the future, you may be forced to work in your retirement years, or risk running out of money later in life.
No matter how old you are, it’s never too late to start putting money aside. Here’s how to get started.
- How much do I need in my pension pot?
Use your living costs now as a guide for how much you’ll need to live on per year. Some bills will be reduced when you retire, like commuting costs, and perhaps you’ll have paid off your mortgage by then. Some costs will stay the same however and you may wish to think about a budget for travel, meals out or presents for family etc.
Tally up your likely costs and you should have a good idea of what level of income to aim for. Tools like the Money Advice Service pensions calculator let you plug in all this information and come up with a ballpark figure.
Once you have your desired income in retirement, you can start thinking about how to fund this.
- What will I get from the government?
First, find out your state pension age and how much money you’ll receive from the government when you retire. You will be entitled to state pension as long as you have made your National Insurance contributions. You can check here how many years of contributions you have made, and your state pension age here.
You can then use this info to get a forecast of what the government will pay you once you retire. Bear in mind that the state pension is currently £134.25 - £175.20 a week, so you shouldn’t rely on this alone to support your retirement, as it provides only the bare minimum living standard.
- How much have I saved up already?
From 2018 all employers had to auto-enrol their staff into a workplace pension, so chances are you have at least one pension pot. If you’re unsure how to access information about your pension, speak to your current employer.
If you’ve had a number of different employers, then you have probably had a number of different pension pots. Gather all your paperwork together and work out how much you have saved up in total. If you think you may have lost track of your savings then there is an official website to help you find ‘lost’ pension pots.
- Will this be enough?
It’s impossible to say with certainty since your pension is invested in the stock market, and the rate of growth may vary over time. Your income or the amount you pay into your pension might go up or down. Finally, depending on your age, it’s also possible that the state pension age or benefits system may have changed by the time you’re ready to retire.
However, you can get a firm idea by using the calculator mentioned above. Based on the information you put in, this will give you a breakdown of your projected retirement income and any shortfall or surplus.
- What if there’s a shortfall?
A gap between your ideal retirement fund and projected income means you may need to increase your contributions and/or continue working for longer. If you’re already a member of a workplace scheme, boosting your contributions to it might be the most convenient option for you. Many employers match the contributions their employees pay (up to a point), so if you pay more, they also pay more.
If you’re thirty years or more away from retirement, aim to put away as much as you can afford but don't worry if it's not as much as you'd like to start with. It can be better to save small amounts that have a long time to grow in value.
If you're starting to save later in your working life, the amount of money you'll need to save may be higher. You may need to prioritise your budget differently so that you can afford to pay extra into your pension. For example, you might cut your spending on non-essential items like going out, so that you can afford to save a bit in your pension. The Money Advice Service has some handy tips here on how to boost your pension in the run-up to retirement.
If you have any questions about your workplace pension, speak to your employer as they will be able to explain anything you’re not sure about. They may also be able to offer advice on reaching retirement goals. You can also learn more about your retirement options by visiting the Pensions Advisory Service.
Remember, your retirement may last anywhere from fifteen to thirty years, so you may have to live for quite a long time on your pension income alone. It’s worth getting the facts now so you can enjoy your golden years in comfort.