AD / How much do I need to save in a pension? Q&A

*Asterisks set out in this article relate to advertising and they indicate that the author receives a small share of sales through the related link.* This article is sponsored by PensionBee*, but all opinions are my own. PensionBee is authorised and regulated by the Financial Conduct Authority. With pensions, your capital is at risk.

I’ve been speaking a lot about pensions on my Instagram and asked if you had any questions about it. I got so many responses that I thought it would be best to put them in an article.

I have partnered with PensionBee* to help me out with this, as they who I have my pension with.

If you sign up with my referral link you will get a bonus £50 in your pension!*

Best way to put them together from old jobs – how to find them?

Most of us have had a bunch of different jobs, and this can make finding all of our pensions difficult.

In the best case scenario then you’ll have all of your pension information from each of your old employers/pensions.

If you don’t, don’t panic. The next step would be speaking to your previous employers to find the details of the pension providers.

If you are still unable to find your pensions then you can use the Pension Tracing Service (it’s free).

Once you have found them then you can choose to move them all into one pot, which is what I have done with PensionBee.

Pension funds which are deferred from previous employment. Should I merge?

It’s ultimately up to you what you decide to do with your pensions. Do you want to keep them where they are, or put together in one pot?

I wanted to keep mine in one pot because it was easier for me to manage, but it’s worth weighing up the pros and cons.

Where do I start with private pensions?

A private pension is similar to a workplace pension, but it’s one that you set up yourself.

When you want to start up a private pension then you will need to choose where to have it. As you know, I am with PensionBee*.

I chose them because I liked how you could merge all of your previous pensions into one pot. It just seemed easier to manage for me!

I also checked out the fees, because when you are comparing companies then this is one of the most important parts.

If you have had pensions before, then you will want to go through the steps mentioned in the previous question.

What are the best private pensions and do you have to pay the same amount monthly?

I can only personally comment on PensionBee* because they are who I use.

I have loved them so far because everything has been easy! As mentioned, make sure you check the fees with who you are signing up with.

You can choose from various funds in which you would like your investments to go, including ones that promote sustainability.

With PensionBee you don’t have to pay in the same amount monthly – and you can choose to put in nothing at all if you don’t want to.

Is there a way to trace pensions you forgot you had?

Yes – as mentioned above, the best steps to take are to:

  • In the best case scenario then you’ll have all of your pension information from each of your old employers/pensions.
  • The next step would be speaking to your previous employers to find the details of the pension providers.
  • If you are still unable to find your pensions then you can use the Pension Tracing Service (it’s free).

Once you have found them then you can choose to move them all into one pot, which is what I have done with PensionBee.

Is it best to consolidate pensions into one, or have a few policies on the go?

This will vary from person to person because no one has the same work experience.

You will need to look at whether it is better for you to keep your pensions where they are or merge them into one.

For me, it was better for me to merge them into one, and I also liked having them in one place as it was easier for me to manage.

I am able to check in on my pensions more and I love that it’s online. I just need to log into my account and see what it’s all looking like.

How much should I have put in by age X? Should I pay more to that or house deposit?

This is another thing which will vary massively from person to person.

When it comes to retirement planning, the first step is to look at how much you would like to live on when you are retired.

You can do this by going over your budget now and making any adjustments for how you think things will change in retirement. 

For example, you may not have a mortgage, and you will likely not have any childcare costs. You’ll probably live on less money than you do currently, but this will be different for everyone.

Once you have an idea of how much you want to live on in retirement then head on over to the PensionBee calculator.

You can adjust the calculator to put in the age that you are now and how much money you want to live on each year in retirement.

You can choose to include the state pension in your calculations or do it without (I always do it without because I don’t want to rely on an unknown).

From there, you can see how much you will need to save each month in order to have your retirement income.

You may find that it was more than you expected or perhaps less. Nevertheless, you have your monthly savings target and you now need to include that in your budget.

In terms of whether you should be putting more towards your pension or a house deposit, this will depend on your budget.

With the house deposit you will need to get a number to work towards and break down as well.

Find out how much you can borrow and look at houses within your price range. Then work out how much deposit you will need – try and do as much as possible.

You will then want to look at your budget and see if you are able to do the savings for both your house deposit and pension.

How do I know if my pension is going to be enough?

There are lots of free online tools that can help you. As mentioned, you can use the PensionBee calculator to check how much you will have at retirement.

There is also an option on the calculator to include the amount that you currently have in your pension.

The best thing to do is to go through your budget and really focus on how much you think you will need in your retirement to live on.

Don’t forget that your expenses will likely be much lower than they are now.

Do I need something in addition to a company pension?

You may find that your company pension is perfectly fine – this comes down to the individual person.

When you have a workplace pension the benefit is that by law, your employer has to pay in 3% and you have to pay in 5%. 

They also have to do auto-enrolment – it used to be that you had to choose whether or not to start a pension with them.

You may want to merge all of your old pensions into one, and your employer can even pay into this (if they agree).

Is a LISA a good way of saving for retirement?

Yes, a LISA (Lifetime ISA) is a good way of saving for retirement. It will depend on your individual circumstances as sometimes a pension would be better.

A LISA is a good option if you don’t get an employer match on your contributions e.g. if you are self-employed.

A pension will probably be a better option for you if you are a higher rate taxpayer and are going to be paying a lower rate of tax in retirement than you are in work.

Pensions are available at age 55 and LISA’s are available at age 60 – so this is something to bear in mind as well. 

LISA’s can also be used to save for a home purchase, but you can only pick to use it for either a house deposit or retirement.

What to prioritise, additional pension savings or long term savings like LISAs?

This depends on a few things like your tax threshold and the age at which you want to access your retirement savings.

A LISA may be better for you if:

  • You are self-employed and therefore don’t have the employer match

A pension may be better for you if:

  • You have a workplace pension with an employer match
  • You are a higher rate taxpayer and will be paying less tax in retirement
  • You want to make large pension contributions after the age of 50

The government has said that the LISA is not a replacement for a pension, but an additional savings vehicle.

How much of income should be put into a pension to live comfortably?

It depends on what you believe living comfortably is, because this will look very different for a lot of people.

Using the PensionBee calculator we can do some sums, assuming investments will grow at an annual rate of 5% and that the annual inflation rate is 2%.

If you wanted to live off £7000 a year (I usually start with this number as it’s the amount for the state pension):

Age 30

Current pension pot £0

Not including an employer match or state pension

You’d need to save £200 a month in your pension to reach £7000 a year in retirement.

If we look at the same scenario but wanting to live off £15,000 a year:

Age 30

Current pension pot £0

Not including an employer match or state pension

You’d need to save £430 a month in your pension to reach £7000 a year in retirement.

The examples that I’ve shown don’t include a current pension pot or any of that in case you are starting from scratch.

But we can look at these scenarios with those added on:

Age 30

Current pension pot £1000

Including an employer match and state pension

If you’d save £10 a month in your pension you would reach £9,852 a year in retirement.

The best thing to do is figure out how much you would need for your yearly expenses in retirement – go through your budget – and use the calculator to see what’s achievable.

How much does the employer contribute?

Employers have to auto-enrol most of their employees and also make contributions.

The minimum amount that you have to pay is 5% of your qualifying earnings and the minimum for your employer is 3%. 

Is there an alternative to paying into a pension?

One alternative that we have mentioned is the Lifetime ISA. The LISA is available to people who are between 18 and 40 years old.

The thing to bear in mind with pensions though, is that they have big tax benefits. 

Not only that, but if you have a workplace pension then you will get free money from your employer contributions.

If you don’t want to pay into a pension then I would recommend doing some more research into the benefits. 

They may not sound like the most exciting thing ever but they are good.

Starting my first job next year, should I sign up to a pension scheme straight away?

Yes, as soon as you are able to. You should be automatically enrolled but it’s a good idea to check.

The sooner you start, the more money you’ll have!

I have an occupational pension. Is it worth looking into private too?

To start with, have a look at your current pension. As it’s not tailored specifically to you, you may want to look at the fees, returns and what it invests in.

If you are not happy then you can always set up your own private pension, but for now I’d say to enjoy the employer contributions!

I don’t know what kind of account to go with

Have you heard of ‘analysis paralysis’? Sometimes we don’t know what to choose, and we end up choosing nothing. But this isn’t good!

Luckily with PensionBee* I have the option of changing my plan if I change my mind, and it’s free, but I wouldn’t recommend moving money around too often.

Think about what is important for you to invest in and go from there.

Best options for self employed?

If you are self employed then you need to think about setting up a pension ASAP.

Talking from experience – I’m self employed, and I put off sorting out my pension for a long time – and I regret that.

There are 3 different types of pension that you can choose from if you’re self employed:

  • Ordinary personal pensions are the most common option and are offered by most providers.
  • A self invested personal pension, or SIPP, is a pension that you manage yourself. You can choose from a wide range of assets to invest in, from stocks and shares to commercial property and trusts.
  • A stakeholder pension scheme has a minimum gross contribution of £20 and fees are capped at 1.5% a year, for the first 10 years. It allows you to save flexibility, and you can stop and start your payments without incurring a penalty.

Another option is the NEST (National Employment Savings Trust) government scheme. You can join if you’re self-employed or the sole director of a company that doesn’t employ anyone else.

What tax relief do I get with a pension?

The way that tax relief works is that some of the money that you would pay tax on goes into your pension pot instead.

The tax relief is paid on your contributions on the income tax that you pay.

It looks like this:

  • Basic rate taxpayers – 20%
  • Higher rate taxpayers – 40%
  • Additional taxpayers can get up to 45%

The way that this works is for example if you wanted to put £100 into your pension then you would only need to put in £80 as the government would add the £20 (as a basic rate tax payer).

Is it better to put money in a pension or invest for higher returns?

A  lot of people don’t realise that putting money into a pension is actually investing! The money in your pension gets invested.

With that being said, there are lots of different things that you can invest in.

It’s worth looking at the tax relief that you get as well and balancing it all up.

Sign up to PensionBee here and get a £50 bonus in your pension!*

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Do you have any other questions about pensions? Let me know in the comments below!