Your retirement could last 20-30 years or more. A rough estimate is that you need two-thirds of your pre-retirement income at retirement. It is likely that big expenses such as your mortgage will already be paid off before you retire.
For example, if you want to receive £27,000 income for 25 years at retirement then we estimate you will need a pension pot of £675,000.
How do I achieve the pension pot needed?
Most employees now qualify for auto-enrolment which means that their employer has to contribute a minimum of 3% of your pensionable earnings to your pension each year. You must also contribute at least 5% of your pensionable earnings as well.
If you can afford to contribute more than the minimum of 5% then this is something you should consider. A pension is one of the most tax-efficient ways that you can save for your future. Saving for your retirement early will give your pension more time and potential to grow.
Start saving early
It is never too early to start saving for your pension. Life expectancies are increasing so your pension pot is likely to need to last longer than you may anticipate.
The more that you put into your pension when you are young, the more time that your pension pot has to potentially grow over time.
For many people, saving into a pension is very low on their priority list as they are likely to be trying to save to get a house and may have student debts to pay off. However, even a small amount per month can make a big difference by the time you reach retirement age.
Pension tax relief
Did you know that you can contribute up to £40,000 into your pension this tax year, or 100% of your UK Relevant Earnings, (whichever is lowest) and these contributions will qualify for tax relief?
If you are a basic rate taxpayer your rate of tax will be automatically claimed back into your pension. So if you top up £80, the government will add another 20% making your pension contribution £100.
If you are a higher or additional rate taxpayer, you can receive up to 45% tax relief but this must be claimed back on your annual tax return.
Grow your pension over time
Your pension savings should benefit from compound growth over time. Compound growth is where any growth received on your pension pot is reinvested giving the potential for growth on growth. If this happens each year it can have a very positive impact.
Should you consider increasing risk in your pension?
If you start saving into your pension when you are young then you will likely have a long time frame until you can access the money which means that you can consider taking more risk with your investment strategies.
You then have more growth potential, especially over a longer period.
You should reduce the amount of risk as you approach retirement age.
Pensions for women
Women tend to have less pension savings than men when it comes to retirement. This is because many women have career breaks at some stage to start a family. They may then return to work part-time and therefore receive less money into their pension each month.
This means it is important for young women who are entering the workplace to consider paying more into their pensions while they are working full time.
Boost your pension pot today
If you want to review your existing pensions, save more into your pension or discuss your pension options, you can book a no-obligation meeting with a financial adviser online or by calling 0117 973 0500.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.