Yes, there’s the State Pension. But that’s only about £10,000 a year. Have you also checked if you’ll get the full amount of State Pension? Check your State Pension.
And it’s likely you won’t get your State Pension until you’re at least 68. It could even be later. Check your State Pension age.
How much will you need when you retire?
The Retirement Living Standards were created to help people think about how much money they’ll need to live on when they retire.
They suggest the minimum income you need, to ‘cover all your needs with some left over for fun’ is £13,400 a year for a single person and £21,600 a year for a couple. This assumes you live outside London. It doesn’t include housing costs.
The suggestion for a moderate lifestyle, with ‘more financial security and flexibility’, is £31,700 for a single person and £43,900 for a couple. And for a comfortable lifestyle, with ‘more financial freedom and some luxuries’, you’d need £43,900 as a single person and £60,600 as a couple.
Where’s that money going to come from? That’s where saving for retirement comes in.
How early should you start saving?
As early as you can. The earlier you start, the more money you’re likely to have when you retire.
With auto enrolment, this is easy. You get put into a pension as soon as you start working – as long as you qualify to be auto enrolled. You must be between 22 and State Pension age, normally work in the UK and earn more than £10,000 a year (£833 a month or £192 a week) from one job, to be auto enrolled.
Auto enrolment was introduced to get more people saving for their retirement. Since it was introduced in 2012, over 10 million people have been enrolled into a pension and started saving for their retirement with their workplace’s help.
Find out more about auto enrolment.
Even if you don’t earn enough to be auto enrolled, as long as you’re between 16 and 74 you can ask to join your workplace pension. Your workplace must put you into a pension and pay into your pension savings (although if you earn less than £6,240 a year your workplace doesn’t have to pay into your pension savings.
Why it’s worth saving in a workplace pension
One of the best things about workplace pensions is that your workplace pays in too. That’s extra money, on top of your salary, going towards your pension savings.
And if you’re a taxpayer, you get tax relief on your pension payments. The income tax you would have paid gets added to your pension savings instead.
Here’s an example:
- You pay £75 into your workplace pension.
- But because you save £15 in tax, this only costs you £60.
- Your workplace adds another £45.
- In total, £120 has gone into your pension savings, but it’s only cost you £60.
- So you’ve doubled the amount going in to your pension savings just by being in your workplace pension.
(Remember, this is an example. The actual amounts will vary depending on how much you pay, how much your workplace pays and your rate of tax.)
Find out more about pensions and tax.
How much should you save?
The minimum legal requirement for auto enrolment pensions is 8% of qualifying earnings. Workplaces must pay at least 3% of this, so you pay the remaining 5%. If your workplace pays more than 3%, you pay less. For example, if your workplace pays 4% of qualifying earnings, you pay 4%.
Qualifying earnings are all earnings between a lower and upper limit set by the government and reviewed each year. They include salary, wages, commission, bonuses, overtime, statutory sick pay and statutory parental leave pay (maternity, paternity and adoption pay).
But this is the minimum amount. If you want to, you can pay in more to grow your pension savings faster.
Find out about paying more into your pension savings.
How much can you afford to save?
It’s hard to think about paying into a pension when there are so many other demands on your money.
- Maybe it’s your first or second job. You’re paying back a student loan or trying to save for a deposit on your first home.
- Or perhaps you’re wrestling with family expenses, kids growing out of their clothes all the time and ever-increasing food and fuel bills.
- Maybe you’re trying to tackle credit card debt. Or struggling to keep up with rent or mortgage payments.
It’s worth taking the time to sit down, list all the regular expenses you pay out and compare them to the money you have coming in. There are lots of apps to help you do this. Or you can use the free budget planner from MoneyHelper.
You can then work out what difference paying into a pension will make to your income. Even putting in small amounts can make a difference.
How do you stop paying in?
You don’t have to pay into a pension you’ve been auto enrolled into. You can ask to stop paying in.
As long as you do this within one calendar month of being enrolled, your workplace will pay back the money you’ve put into the pension, and you’ll be treated as if you’d never been enrolled.
You can stop paying into your pension at any time. But, you won’t get your payments back if it’s been more than a month since you were enrolled. Your pension savings will stay invested until you retire and start to take your money, or you transfer your pension savings out to another pension.
You can stop paying into your now:pensions account here.
What if you can’t afford to start pension saving now?
Don’t worry – you’ll get other chances.
Every three years, your workplace will check if there’s anyone who qualifies to be auto enrolled but isn’t in the pension, and re-enrol them. It has to do this by law.
So even if you’ve left your workplace pension, you can be re-enrolled into it. And this time, you can stay in and start building up your pension savings.
You don’t even have to wait to be re-enrolled. If you’re ready to start paying into a pension, you can ask your workplace to put you in.
It’s the same if you stop paying into your pension savings. As long as you still qualify for auto enrolment, your workplace will re-enrol you after three years. Or, you can ask to rejoin at any time.
What’s the effect of stopping payments or starting late?
Stopping paying into your pension, or starting later, means you’ll build up less pension savings.
Remember, it’s not just you. Your workplace isn’t paying in either. And if you’re a taxpayer, you’re losing out on the tax relief you would have been getting.
Here’s an example:
- Let’s say you earn £35,000 a year
- You pay 5% of this into your pension savings
- Your workplace adds another 5%, making 10% in total
- You stop paying in for two years
- This could mean as much as £25,000 less in your pension savings when you retire.
Could you retire later?
One way to make up for this could be to retire later. There’s no set pension age in the UK. So, if you want to build up more pension savings, you could move your retirement age.
If you decide to do this, it’s important to tell your provider your new retirement age. It can affect the way your pension savings are invested.
In now:pensions we assume your planned retirement age is your State Pension age, unless you’ve told us something else. But you don’t have to stick to this. Just make sure to tell us if you want to retire earlier, or later, than your State Pension age.
Compound interest
Whatever time of life you start saving for a pension, you’ll benefit from compound interest.
Compound interest is the magic ingredient in pension saving. It means the more you save, the faster your pension savings build up.
It works like this.
- You and your workplace pay into your pension savings.
- You get tax relief on your payments in.
- Your pension savings are invested with the aim of getting them to grow.
- And it goes on repeating. You and your workplace pay more into your pension.You get more tax relief. This means there’s more to grow, so over time you get new growth on any profits on your existing savings as well as new money you and your workplace pay in.
Watch a video from the Department for Work and Pensions explaining compound interest.
What happens if you change jobs?
If you change jobs, your new workplace will enrol you into their pension as long as you qualify.
If you don’t qualify, you can still ask to join their pension. They’ll have to put you in and pay money in for you.
After changing jobs a few times, you could end up with several small amounts of pension savings scattered around. It’s worth thinking about putting your pensions together in one place.
Putting your pensions together
You pay charges to each pension provider for managing your pension savings. So putting your pensions together could save you money, as you’d pay only one lot of charges.
Most pension providers will let you transfer your pension savings out to another pension. now:pensions doesn’t charge you to transfer your pension savings out, but you should check if your other pension providers charge.
If you have savings with now:pensions, you can bring other pensions in and benefit from our low charges for managing your pension. Check out our costs and charges.
