It’s understandable to feel overwhelmed by pensions. With immediate financial goals taking priority, retirement planning often gets pushed aside. However, whether you envision retiring from work altogether or a gradual transition, having a solid pension income is essential for your future lifestyle. Starting now maximises your chances of enjoying a comfortable and fulfilling retirement.

 

Your pension options

There are three types of pensions you should know about:

  • The State Pension: A government-provided regular payment, accessible upon reaching State Pension age. You’ll need to have made National Insurance contributions for 10 years to be eligible for any State Pension, or 35 years for the full State Pension.
  • Workplace pension: An employer-sponsored scheme, with contributions typically from both you and your employer (unless you opt out).
  • Personal/private pension: A self-managed pension, like the Moneybox Pension, designed to supplement your retirement income.

 

Can the State Pension cover your retirement?

If you’re eligible to receive the State Pension, you might be wondering why you would need to make extra savings at all. While the State Pension is valuable, it typically forms only a portion of most people’s retirement income. Currently, the full State Pension is approximately £11,502.40 annually, which is not sufficient to cover the average person’s lifestyle costs.

 

How much should you save for retirement?

Think about your ideal retirement: will it involve globetrotting, cosy home comforts, or something in between? This vision dictates your needs. Factors like your desired lifestyle, when you plan to retire, and even potential healthcare costs play a role.

There are three main categories of Retirement Living Standards* in the estimation set out by the Pension and Lifetime Savings Association (PLSA):

  • Minimum: a lifestyle with essential needs covered.
  • Moderate: financial security and a little extra.
  • Comfortable: all finances easily covered and extra left over for luxuries.

If you want to enjoy a moderate lifestyle in retirement, the PSLA recommends saving enough to give yourself an income of:

  • £31,300 annually for a single person.
  • £43,100 annually for a couple.

These figures assume that you’re no longer paying a mortgage or rent. However, you may need to add these and other costs depending on your circumstances, such as social care costs and any tax on pension income.

 

How to build your pension savings

The ‘Save half your age’ rule

We know those figures can feel pretty daunting, especially if you’re starting from scratch, but the sooner you start, the easier it will be to reach your goals.

There are lots of saving strategies to explore, but one quite useful rule of thumb to follow is the save half your age approach. This rule recommends saving a percentage of your pre-tax salary equal to half your age. For example, starting at 30 means saving 15% annually. As with most saving styles, the earlier you start saving the better.

🎓 Brian Byrnes, Head of Personal Finance, explains this saving approach in more detail.

It’s also important to remember that it’s not all on you! There are lots of things working together to help you build up a healthy pension pot. Remember, your pension growth is supported by…

 

Pension tax relief

When you save into a pension, the government essentially ‘refunds’ the amount you would have paid in tax on your contribution when you were paid.

If you’re a basic rate UK taxpayer you’re entitled to tax relief on your pension contributions, which you can also think of as a 25% top-up, or free money. So for every £80 you pay into your pension, the government will add an extra £20. This makes saving into a pension one of the most tax-efficient ways to save for retirement.

When you will receive pension tax relief, in addition to how much, will depend on the type of pension(s) you have.

🎓 Learn more about pension tax relief.

 

Employer contributions

If you’re employed, it’s likely that you’ve been automatically enrolled into a workplace pension scheme. Typically, your employer is required by law to contribute a minimum of 3% of your salary into your workplace pension and you’ll usually contribute a minimum of 5%, totalling 8%.

Some workplaces offer contribution matching or will pay more than the minimum contribution if you increase yours too, so it’s worth checking with your employer – it’s free money after all!

 

Compound interest

Compound interest is possibly the biggest incentive to start saving for retirement as soon as possible. Essentially, compound interest is when you earn further gains on the gains from your original investment. In this way, your savings can grow exponentially over time and by delaying starting your pension savings, you could be missing out on additional earnings.

🎓 Learn more about compound interest.

Should you consolidate your pensions?

Thanks to the introduction of auto-enrollment, more people are enrolled into a workplace pension scheme than ever. However, currently when an employee leaves a job, they also leave their workplace pension behind and have a new one set up for them with their new workplace. There are an estimated 3.3m ‘lost’ pension pots out there – worth £31.1bn!1

Consolidating all your lost pots into one easy-to-manage pension pot can be a great first step to taking control of your retirement savings. With Moneybox, it’s easy to do, you could get more choice in where your pension is invested, and means you can see all your money in one place. You may even pay less in fees, but this is something you should check with your current providers before deciding to consolidate.

Don’t have all your pension policy details to hand? No problem. Use our Pension Provider Search Tool in-app to find them, just let us know your employer name and when you worked there and our Pension Detectives will do the rest.

 

Ready to build a retirement worth waiting for?

A Moneybox Pension makes it easy to save for the future you want.

  • 🔍 Find and combine your old pension pots
  • 💸 Receive a 25% bonus on everything you contribute to your pension – for free!
  • 💪 Get help from our dedicated Support team

Explore the Moneybox Pension

 

1 Briefing Note 138 – Lost Pensions 2024

As with all investing, the value of your pension can go up and down, and you may get back less than you invest. Payments you make into your pension won’t be accessible until the minimum pension age. Tax treatment depends on individual circumstances and is subject to change.

When deciding whether to transfer your pension, it’s important to compare the charges, investment options & benefits between Moneybox and your old provider. Moneybox cannot accept a transfer from a pension your employer is currently paying into.

If you’re not sure whether the Moneybox Pension is right for you, you may want to contact a suitably qualified financial adviser for help.