Britons are being urged to “get started” with pension saving as soon as possible in order to amass enough money for a moderate retirement.
New calculations show a person who starts pension saving at 50 needs to put away just over four times the amount of money than someone who starts at age 25.
Alice Guy, head of pensions and savings at interactive investor said: “For employees, the good news is that pension auto-enrolment means the vast majority of workers are now saving into a workplace pension. But pension savers need to watch out because saving the minimum amount into your workplace pension might not be enough for a moderate retirement.
“For example, a 25-year-old earning £30,000 who pays five percent of their salary into their workplace pension and receives three percent contributions from their employer would only be saving £125 each month into their pension themselves, which will fall short of a moderate retirement income.”
Ms Guy added: “The biggest thing you can do to make a difference in your retirement is to get started with pension saving, whatever your age. Small, regular contributions really mount up and just £50 each month could add up to £76,000 over 40 years and will only cost £40 after tax, assuming five percent investment growth.”
With Pension Awareness Week well underway, interactive investor have calculated, based on the 2022 PLSA retirement living standards, how much a person might need to save towards retirement, depending on the age they start saving into their pension
The annual PLSA retirement living standards are widely used in the industry as a measure of how much personal pension wealth is needed for different levels of retirement.
Single people are estimated to need £36,500 for a minimum retirement, £248,000 for a moderate retirement and £530,000 for a comfortable retirement. In contrast, couples need less as some costs are shared.
How much to save for retirement from age 25
According to interactive investor, the monthly pension contributions needed for single savers starting at age 25 to achieve minimum, moderate and comfortable retirement include:
- Minimum pot: £23 a month
- Moderate pot: £155 a month
- Comfortable pot: £331 a month.
How much to save for retirement from age 30
For a minimum, moderate, and comfortable retirement, people aged 30 should put the following sums away:
- Minimum pot: £29 a month
- Moderate pot: £193 a month
- Comfortable pot: £411 a month.
How much to save for retirement from age 40
People aged 40 need to save just under double the amount per month to achieve each level of retirement:
- Minimum pot: £46 a month
- Moderate pot: £314 a month
- Comfortable pot: £671 a month.
How much to save for retirement from age 50
People aged 50 need to save just over four times the amount as someone aged 25 to amass the same wealth at retirement:
- Minimum: £87 a month
- Moderate: £625 a month
- Comfortable: £1,336 a month.
Couples should aim to save slightly less than half of the mentioned amounts each month individually.
Calculations are firstly based on the PLSA’s pot recommendations and were adjusted for an assumed two percent inflation each year until retirement at age 67.
Experts at interactive investor said: “We then worked out how much pension savers of different ages, with no previous pension wealth, would need to save to achieve those amounts.
“We assumed the employee increases their pension contributions by two percent each year. We’ve also assumed employer contributions of three percent, employee contributions of five percent, investment growth of five percent net of fees and retirement age of 67 years old.”
For those whose pension pots may be “lagging”, Ms Guy provided some practical tips to give them a boost.
Ms Guy said: “If you can afford it, consider boosting your pension contributions by paying in more than the minimum amount.
“If you’re thinking of moving jobs, then take a look at your prospective employer’s pension contributions as well as the salary. Some employers pay in more than the minimum three percent required and a small percentage boost could make a big difference in retirement.”
Ms Guy also suggested: “Check your old pension pots and consider if you could save money and hassle by consolidating old pensions.”
However, she noted: “You need to check first in case you lose any valuable benefits by transferring your pension.”
