You’re thinking about your retirement. So, how much should you be paying into your pension? We can’t just tell you how much you should pay in, but we can give you some useful pointers that will help you figure out the answer for yourself.
First, picture the kind of retirement you hope to have. If you’re keen to maintain your lifestyle, you’ll need to plan for this in your calculations.
It’s unlikely you’ll want to rely solely on the state pension, as most people need more than that to live on. Start by working out roughly how much you need to live on each year. Next, work out how much money you’ll need to have in your pension to fund this.
What size will your contributions need to be? Online retirement calculators, such as the one on our website can help with this. Once you know what your desired income is when you retire, you can start to plan what financial steps you need to take to help you reach your retirement goals. Tools, like the Fidelity 'My Plan' can help.
How much you actually need to save depends on how big your existing pension pot is, how much you’re saving, when you want to take your pension, your approach to risk and your age. It also depends on your goals and the type of lifestyle you want to lead in retirement. Essentially, the more you save now, the better your retirement lifestyle will be. So, why not look for ways to boost your pension pot?
Workplace pensions can enhance your pension pot. Both you and your employer contribute to your pension. And there’s tax relief - for every £1 you contribute, the government tops it up by 20%. Higher-rate taxpayers can also claim additional tax relief.
Some employers offer the option of salary sacrifice, where you give up some of your monthly salary and it’s added to your pension before you pay tax or national insurance.
You might also consider paying into a self-invested personal pension, or SIPP, which you can set up yourself. SIPPs attract the same tax relief as workplace pensions. While you can pay as much as you want into your pension, there are limits on the tax relief available. If you want to know more about the contribution, earnings, annual and lifetime limits - you can find out more in our ‘What is pension tax relief?’ video.
When it comes to thinking about how much you should pay into your pension, this will of course be affected by when you start. Naturally, it’s never too early, but equally, it’s never too late as there are things you can do to catch up. And with these pointers, hopefully you can start to look forward to your retirement with confidence.
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