Workplace pension reforms have helped get the nation saving for retirement – but new figures on how much people are putting in suggest many could be in for a bit of a shock when it comes to funding their lifestyle in later life.
Recent Office for National Statistics figures have revealed average contributions into pension pots are falling, which has prompted concerns that savers aren’t putting in enough.
Here, Alistair McQueen, head of savings and retirement at Aviva, has tips to take control of your pension pot and avoid low retirement savings.
Don’t fear pensions
A pension is just a fancy bank account that is locked until at least the age of 55, but which benefits from a special boost from the tax man. Simples!
Don’t follow your parents
Aviva research finds that we typically ask our parents for pensions help. This could be misguided. Your generation is different from the one that went before. For example, you are likely to live longer and the age at which you’ll get your state pension will likely be higher. Your parents’ best intentions could lead you in the wrong direction.
Remember your state pension
We pay national insurance to secure a state pension when we retire. This is most people’s biggest source of income in later life. It’s currently worth about £164 a week. The age at which you’ll receive this money is about 65, but is set to rise to 68 from 2039. To find out how much you’ll get, and when, request a free state pension forecast at gov.uk/check-state-pension.
Take the ‘free money’ from your employer
Take advantage of workplace pensions if you’re eligible. Your employer has chosen a pension for you, and they must contribute too.
Find out your date of death
Understanding your probable life expectancy will help you understand how much money you might need in retirement. There are online tools to help. Search for ‘life expectancy calculators’.
As we live longer there are two levers most of us can pull to support our retirements. We can save more and/or we can work longer. Keeping fit will help us work longer. For every year that we delay our retirement beyond state pension age, the state will give us about an extra £500.
The 40-year rule
To amass £100,000 by the time you reach your state pension age, from age 20 you’d need to save about £20 of your money every month in a workplace pension. Wait until 40 and it’s nearer £120. Aviva recommends trying to begin at least 40 years before you want to retire.
The 12 per cent rule
A common question is: “How much should I save?” The answer is different for different people. As a broad rule, Aviva recommends saving at least 12 per cent of your income every month. This can include money from yourself, from your employer, and from the tax man.
The ten-times rule
The more we save, the more we can spend in retirement. But how much do we need to maintain our standard of living? Aviva recommends trying to build up a pension pot valued at ten times your salary by the time you retire.