Money Guide

Pensions: How much do I need to save?

If you want to enjoy your retirement, it’s never too soon to start saving in your pension. We show you how much you need to put away… (11/9/09)

How much you need to save for your pension depends on how much you think you will need to live on in your retirement.

Unless you want to live solely off the state pension, which is currently £95.25 a week for a single person, you will need to make sure you put some money aside now for your future.

To get the biggest pension pot, you need to start saving as much as you can as early as you can. Utilising a pension is important because the money you save will get tax relief. Also in some types of company pension scheme, your employer will also contribute to your pension pot.

When you retire, you will probably use your pension pot to buy an annuity, which will provide you with an income for the rest of your life.

You can use the Moneymadeclear pensions calculator (www.moneymadeclear.fsa.gov.uk) to work out how much how much you need to save to have an adequate income in retirement. It will also help you work out where you stand so far, if you have already paid into a scheme.

Here are a few examples from the calculator, assuming a retirement age of 65. The income figures are based on what you would receive in today’s money:

• If you are 25-year-old female and save £200 a month into a non-contributory pension for your entire working life, you can expect to receive £805 a month from your pension. A 25-year-old male saving the same amount could expect to receive £891 a month (men have a shorter life expectancy than women).
• If you are a 35 year old female and want to earn £800 a month from your pension, you’ll need to start saving £320 a month.
• If you’re 45-year-old male and haven’t started saving yet, you’ll need to save £520 a month to receive £806 a month when you retire. Saving £200 a month would get you £310 a month in retirement.

While the Moneymadeclear pensions calculator offers useful estimates, it’s important to note that your retirement income doesn’t just depend on how much you save but also whether your employer makes contributions and, crucially, how well your pension fund performs.

Choosing what type of pension or pensions to invest your money is a very important decision and you are strongly advised to seek personalised advice from an independent financial adviser (IFA) when making this decision.

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