Save for retirement

State pension

For an idea of what you’ll need to save yourself, you can check what you’ll receive from the state. The Pension Service calculates and pays pension entitlements and, as long as you’re more than 30 days away from state pension age, it’ll be able to give you a forecast of what you’ll receive. But, even if you’re entitled to the full state pension – £97.65 a week in 2010/11 and £156.15 for a couple – it’s unlikely you’ll want to rely on this alone. 

Start early

Starting your pension planning as early as possible will help. For example, according to Legal & General, a 30-year-old wishing to retire at 65 on a pension of £500 a month in today’s money would need to save £236 a month. If they postponed their pension until they were 40, this monthly contribution would have increased to £372. 

Indexed contributions

If you index your pension contri-butions you’ll take some of the pain out of these figures. As you earn more, your contributions will go up but, conversely, earlier amounts will be lower. For example, the average 30-year-old’s initial contribution reduces from £236 to £173 and the 40-year-old’s from £372 to £292. There are other ways to bump up your pension contributions too. Your employer can help and, from 2012 there will be a compulsory pension contribution of 3% from employers. 

Salary sacrifice

One of the most tax-efficient ways to get money into your pension is through salary sacrifice. With this, rather than taking part of your salary or a bonus, you redirect it to your pension. This reduces the amount of tax on your income but also means you and your employer make savings on national insurance. Some employers will also pass their national insurance savings on to you as additional pension contribution.  

Pension consolidation

Combining your existing pension pots can reduce charges as well as make them easier to manage. It could also allow you to take advantage of the investment flexibility of a self-invested personal pension or SIPP

If you do decide to consolidate your pensions it’s worth seeking financial advice. Some schemes can have penalties if you transfer out of them plus it’s important to check you’re not giving up a higher tax-free cash entitlement or preferential death benefits.

When thinking about your pension planning, also take into account your husband or wife’s pension. It may seem sensible to focus all the savings on the higher-rate taxpayer but by spreading it across both pensions you can take advantage of two personal allowances in retirement. 


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