It’s never too early, or too late, to plan a pension.
As a rule of thumb experts say that halving your age when you start saving into a pension will tell you what percentage of your earnings you should be saving. So if you start saving at 30, plan to save 15% of your earnings. If you start at 40, plan to save 20%.
But that’s only a guideline. What you save will depend on lots of factors; How much you earn, how much you can afford to save, whether your employer also contributes, and what your goals for your retirement are to name just a few.
Wherever you are in your life, here’s some top tips to think about to help you grow your pension:
- Make it regular: When it comes to your pension, saving regularly throughout your working life is a good habit to make. This isn’t always easy, especially for those who take career breaks. But if you can get used to saving a percentage of your earnings, your pension will soon build up.
- Get the max from your employer: If you’re an employee then check out your employer’s workplace scheme and make sure you’re taking full advantage of what it offers. Employers must pay at least 3% into their employees’ pension. But some also increase their contribution if you do, too. So the more you pay, the more they might pay. That can give your retirement savings a real boost.
- Balance investment growth and risk: Your workplace or personal pension savings will be invested to help grow your pension pot for your retirement. Usually in investment funds, which use a mix of different types of investments to generate returns. With all investments there’s a risk that their value could go down as well as up. Investing in a diversified portfolio of assets, across different sectors, companies and geographies can help spread that risk. When you’re younger and further away from retirement you might be happier to take more risk for higher potential returns. As you get closer to taking your pension money you may want to take less risk, to avoid any nasty shocks if the markets take a dip. Consider this when choosing and reviewing your pension investments. Or, if your investments are chosen for you by your workplace pension provider, make sure you’re happy with the approach they are taking.
- Be tax savvy: When you pay in to a pension, you’ll get tax relief on your payments. The government gives you 20% tax relief if you’re a basic rate taxpayer. So for every £80 you pay in, the government will add £20, giving you a total payment of £100 to your pension pot. Higher and additional rate taxpayers can claim an extra 20% and 25% tax relief from HMRC on their payments.
- Set and review goals: Think long term and make sure you’re doing what you can now to grow your pension pot for the retirement lifestyle you want. Life can be unpredictable, and your goals might change, so taking time every year or so to review your plans and your pension is a good idea too.
Ready to learn more about pensions?
Your pension is designed for later life. When you save into a pension, the value of your investment could fall as well as rise and you could get back less money than you put in. You usually can’t access your pension until age 55 (rising to 57 from 6 April 2028). Tax rules can change and depend on your personal circumstances.
This article can give you helpful tips, but it isn’t financial, or tax advice. If you’re not sure if something is right for you, you should speak to an Independent Financial Advisor.