If you’re in your 40s and haven’t started your pension, you’re not alone. Many people avoid planning for their retirement, with more than half of Brits saving nothing into a pension and almost the same amount of people having no idea what amount of funds they’ll need for retirement.
But even if you’re starting your pension at 40, there are still ways to build a decent pension pot before your retirement.
Here are 4 tricks to grow your retirement fund:
Track Down Pensions in Your Name
You could easily have an unclaimed pension from a previous employer. There are around 1.6 million unclaimed pensions1, valued at £400 million, in the UK and one of those could be yours. Dig out your old paperwork to see where you or your employer may have invested funds so that you can use this to start a new savings plan.
Combine Your Pension Pots
If you do find old pensions, your best course of action may be to combine these into one self-invested personal pension (SIPP) fund. Having all your savings in one place makes it easier to manage your funds, and prevents your smaller funds being swallowed by fees.
Did You Know?
Pension scheme fees can have a significant impact over time, especially if your fund has slow growth or you aren’t contributing frequently. Some pension providers claim annual fees of as much as 10.4%
Keep in mind that some pensions are better left alone, such as those with guaranteed benefits, so do your homework before combining your funds.
Map Out Your Contribution Plan
Once you know what your savings stand at, you’ll be able to put a plan in place to grow your fund. How much you’ll need for retirement2 is dependent on your circumstances, but researchhas shown that the average retired couple needs around £18,000 a year to cover household essentials. These costs include food, utilities, transport and housing. To afford luxuries such as travelling, couples had to increase the yearly income to £26,000.
To reach this income, you’ll need to save £5,000 for each year of your retirement on top of the full State Pension of £8,546.20.
In Simple Terms
If you’re starting from zero, based on the State Pension and pension age, you should be saving:
- £131 monthly from age 20,
- £198 a month if you’re in your 30s,
- £338 monthly if you’ve turned 40, and
- £633 every month from the age of 50.
What does this mean for you?
For a couple who decide to start a pension in their 40s, you’ll each have to save £169 per month or less if you’ve got funds in pension schemes from previous jobs. But if you leave starting your pension any later, the monthly amount you need to save could become substantial.
The sooner you can start saving, the more funds you’ll have for your retirement. Start by enrolling for your workplace pension scheme if you can, as your employer’s contributions can help increase your pension pot.
Keep Chipping In
The cost of living can make budgets tight and bring the temptation of reducing your pension contributions. However, if you’re just starting your pension at 45, you’ll have to be disciplined. You have time to save up a reasonably-sized pension, and it is unlikely to change your lifestyle significantly – small budget cuts go a long way in saving up funds.
A Few Common Questions
Ideally, you start saving as early as possible for your retirement. The more time you have to save, the more money will be in your pension pot when you retire, and the smaller your contributions will be. However, you can start saving at any age – you will just have to adjust your contributions accordingly.
The value of your retirement fund will depend on your circumstances and their income. The general rule to work off is that you should have saved around 70% of your working income for your retirement years.
Most pension schemes will pay out an amount to your chosen beneficiary after your death. The amount your loved one can claim tax-free is dependent on your age at death, whether or not you are already drawing from your pension and the rules of your particular pension scheme.
Aside from increasing your contributions, you can keep your pension growing by investing lump sums whenever you have a windfall. To make sure you’re getting the most savings possible, ensure you are benefiting from employer contributions to your workplace pension scheme and taking advantage of tax relief programmes offered by the government.
You may be starting your pension savings slightly late, but you still have plenty of time to save up for your retirement. Small changes can help you free up funds for your pension and sticking to your financial plan can see your retirement savings back on track in no time.