Are You Saving Enough For Retirement?

Are You Saving Enough For Retirement?

There is increasing pressure on the government to provide the state pension to a population which is living longer and, at around a quarter of the national average earnings level, it is simply not enough to fund retirement beyond the most basic of needs. Auto-enrolment for workplace schemes has increased pension saving generally, but it is only mandatory if the employee is earning at least £10,000 per year, and most schemes fall short of what is required to save adequately for retirement. Women in particular are simply not saving enough. Women lag behind in earnings and, consequently, pension savings. We are more likely than men to work part-time and to take career breaks, meaning that many end up with less than anticipated in their pension pot when it is time to retire.

It would not be overstating it to call this a crisis. This means you have to take responsibility for saving into your own hands. I will explain how you can protect yourself from pension pitfalls and help you enjoy a retirement free from money worries.

Assess your current plan – Find out what you are currently saving, what your employer is contributing (if applicable) and see if they can provide you with a statement or, even better, a forecast. Educate yourself about how your scheme works as your starting point.

Work out how much you need – Scottish Widows reckons that most people need to save 12% of their annual income to save adequately for retirement. It is arguable that you will need less income in retirement than during your working life. You will hopefully have managed to buy a house and clear the mortgage and most people will have paid off other debts they had earlier on. However, you must ask yourself if this really rings true for you. Your retirement is your reward at the end of your career and many people envisage taking lots of holidays, living in a comfortable home and perhaps helping children and grandchildren with education costs or to get onto the property ladder. You need to aim for a retirement income which will match your desired lifestyle.

Start early – Saving early will allow you to benefit from compound interest and maximise the growth of your fund. This is especially important if you plan to take time off later on, perhaps to start a family. Saving an additional 2% of your income per year in your 20s could offset a six year career break in your 30s.

Ensure you will qualify for the state pension – You need to make national insurance contributions for 35 years to be eligible for the full state pension. You can make voluntary contributions if you are not working and child benefit gives you national insurance credit for every year you receive it. Some high earners do not claim child benefit due to the tax charge that comes with it, but you can register for it and then opt out and still qualify for the national insurance credit if this applies to you.

Seek advice – The Pensions Advisory Service is a free, impartial service available to anyone who wants information about pensions. If you have a final salary pension and want to save more, are self-employed or are approaching retirement and are unsure of your options, you would be wise to speak to a financial adviser to work out your best option.


The purpose of this feature is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice.