MoneyTalk highlights - Pension saving

The days of an easy retirement income are fast dying out. In fact, they may already be extinct.

Building the pension you hope for is a process that takes time.

It can sometimes feel like the small amounts you’re saving today will never amount to the big difference that you’re hoping for in retirement. But if you’re willing to make small changes to your contributions now, you might be amazed at what your retirement savings could evolve into.

Here’s what a person’s pension saving might look like over their career. Starting on an average salary and making contributions required by automatic enrolment, they could expect a pot of around £338,000 when they retire.

Not bad. But with small sacrifices they could more than double that pot. Instead of saving 5% of their earnings they increase this each year. So 6% in the second year, 7% in the third year, and so on. Repeat these increases for just 10 years, at the start of their savings journey, and their pot by the time they retire will have more than doubled.

But how easy is it to do? I asked Carolyn Jones, Fidelity’s head of pension policy.

Carolyn what’s it going to cost to increase pension contributions in this way?

Saving into your pension earlier can have a dramatic impact on your final pension. And it may not cost as much as you think. The government give you tax relief, so if you’re a basic rate taxpayer that means for every pound you put in it actually only costs you 80 pence. And if you’re a higher rate taxpayer the savings are even more.

And your employer might pay extra in. So you need to look at your employer’s scheme and they might match your contribution.

And how easy is it to do?

It’s very easy to do. If you’ve got a workplace pension ask your employer to deduct it from payroll and then it will come out of your pay either weekly or monthly; whenever you’re paid. And if you align that change to tax year-end or if you have a pay rise, then you may not even notice it.

If you’re in a personal pension or a SIPP then you can change your direct debit. But bear in mind that you can pay a single contribution, so if you do have some spare money at the end of the year just pop it in your pension.

Your retirement savings might start small, but adapt your habits and increase your contributions and they could evolve into a completely different animal.