SAVVY saver Joanne Gascoyne has managed to build a huge £220,000 nest egg thanks to the golden 15% savings rule.
A handy app also helped her to save without even thinking about it – here’s how she did it, plus top money experts reveal their tips on how you can build up your very own pot of cash too.
Business consultant Joanne, 46, from Sheffield, chose to squirrel away the huge amount so she doesn’t have to worry about money during her retirement.
She started saving into a workplace pension when she was 21, and currently pays 15% of her income into her pot. This works out at around £500 on average per month.
Money experts say you should aim to follow this golden 15% savings rule as a way of ensuring you are putting enough away for retirement. Her employer matches her contributions.
She’s over halfway towards saving enough money for a moderate lifestyle in retirement – important to Joanne as she never wants to have to worry about finances later in life.
“My lifestyle is built on planning rather than spontaneity, I only spend on what really matters and the rest goes towards my future,” she said.
“I don’t want to be worrying about money or regretting not planning ahead.”
To be able to afford to put £500 a month into her pension, Joanne is super frugal with her spending.
She shops exclusively on Vinted instead of buying new if she needs to replace any clothes.
She also uses money saving app, Plum, which has helped her save nearly £10,000 over three years – most of which she has put into her pension.
Plum links up to your bank account and works out how much you can afford to save before automatically setting it aside for you. It means you are saving without even realising it.
The cash is stored in an easy access savings account in the app, which offers an interest rate of 3.53%, but Joanne has decided to funnel most of the money into her pension instead.
Another huge bonus to saving into a pension is that it is one of the most tax-efficient ways to save because of the tax relief you get – which means more money in your pocket.
The tax relief that basic-rate tax payers like Joanne get is 25% – which means that for every £80 you save, the Government tops it up to £100.
As a result, Joanne’s pot has also benefited from significant ‘compound interest’, which is where you earn more as your pot gets bigger.
Joanne also uses bargain online shop Vinted to keep her spending down[/caption]
“It’s taken a lot of hard work and discipline to save consistently, but I’m hoping it will mean I’m comfortable and won’t have to worry about money later in life,” she said.
Joanne is not alone in worrying about having enough cash to live off in retirement.
Around 15million of us are not saving enough, according to the government’s own estimates, and it’s only getting worse.
Pensioners set to retire in 2050 will be around £800 worse off a year compared to those finishing work today.
Savers are feeling the pressure, with half of people worried that their pension savings won’t be enough to last them through retirement, according to investment company Investec Wealth & Investment.
But don’t panic – top money experts have revealed the crucial tips to turbocharge your savings pot if you’ve fallen behind – from how to pocket an extra £342 a year in state pension payments to the all-important 15% rule.
Step one – check how much you need saved
It can be really tricky working out how much you need for retirement, because everyone’s circumstances are different.
But industry experts have drawn up general guidelines to help you figure out how much you need to live off per year.
The Pension and Lifetime Savings Association, an industry trade body, says a single person needs £13,400 (£21,600 for a couple) for a “minimum” retirement, which covers your basic needs and bills, with money leftover for a small holiday and a cheap meal out once a month.
For a moderate lifestyle – which is enough to cover your bills plus a holiday abroad a year, eating out twice a week, and funds to take up two or three weekly activities – you’d need £31,700 (£43,900 for a couple).
A comfortable lifestyle – which includes a foreign holiday, several mini breaks, beauty treatments and hair appointments – will cost £43,900 (or £60,600 for a couple) a year.
But how much do you need to save in total over the course of your retirement to afford this? Again, it’s hard to know for sure, but Quilter says a single person will need to save the following by the time they retire:
- £28,000 for a minimum retirement (most of your basic needs are covered by state pension at this level)
- £415,000 for a moderate retirement
- £682,000 for a comfortable retirement
But there are factors that could change how much you need to save.
For example, if you have not paid off your mortgage or you are still renting, you’ll need considerably more, as Quilter’s figures don’t factor in these housing costs.
Top jobs for bumper pensions
MANY people tend to prioritise their salary over everything else when choosing a job, but it’s important not to forget your pension.
While private sector jobs tend to offer more flexibility and a higher salary, public sector jobs typically offer more generous “defined benefit” or “final salary” pension schemes.
These schemes guarantee an income that rises with inflation, making them a “gold-plated” option rarely found in the private sector.
In the private sector, you’ll likely have a “defined contribution” scheme, where your retirement income depends on contributions and investment performance.
So what are the best jobs in the private and public sector to help build your pension pot? Here’s the list of jobs providing bumper pensions according to data from interactive investor.
Top pensions in public service:
1. Town planners – £41,400 annual pension
Town planners have some of the most generous pension pots.
Workers are set up with the Local Government Pension Scheme, which works by adding 1/49th into your pension pot each year.
Someone earning £30,000 a year from the age of 30 could retire with an annual pension of £41,400
2. Armed forces – £32,000 annual pension
Armed forces personnel don’t have to pay into their pensions at all. The Ministry of Defence contributes on their behalf, adding 1/47th of their salary each year.
A sergeant retiring as a major could receive a pension of around £32,000 a year.
3. Teachers – £25,700 annual pension
Teachers can build a pension of roughly £25,700 a year after 40 years of service on a £60,000 salary.
Plus, they can get £170,000 if they take a one-off tax-free lump sum.
4. Tax inspectors – £23,600 annual pension
Tax inspectors in the Civil Service Alpha scheme could receive £23,600 a year on a £36,100 salary.
The Civil Service Alpha pension scheme is a ‘career average’ defined benefit scheme where you build up an annual pension based on 2.32% of your pensionable earnings each year, adjusted for inflation
5. Police officers – £22,000 annual pension
Police officers can retire after 30 years with about £22,000 annually.
Top pensions in private service:
1. Unilever: offers benefits package equal to 25% of pay. If you earn £40,000, this means £10,000. You can put it all in your pension.
2. Shell: offers total pension contribution of 20% (5% from employees and 15% from the employer), which can rise to 27.5%.
3. Legal & General: combines a basic contribution with a matching scheme, allowing employees to potentially reach a total of 20%.
4. Kingfisher, owner of B&Q and Screwfix: offers a sliding scale where employees contributing 8% or more receive 14% from the employer.
5: Phoenix Group: boosts salary sacrifice contributions, enabling employees to receive 14.2% while contributing only 2%.
Step two – look at your pension pot
Now you know how much you need to save, the next step is to see how much money you have in your private pension pot so far.
Chances are that you will have lost track of a pot.
There is around £31.1bn sitting in inactive or ‘lost’ pension pots, meaning that it’s either forgotten about or the saver can’t track it down.
Go through your work history and check whether you know where your pension for each company is.
You join a new workplace pension scheme automatically each time you join a new company, so you should have one for every employer you’ve worked for.
Your employer should have sent you paperwork about your pension when you joined.
If you no longer have this, you can contact the HR department at your old company and ask which provider your pension was with, as well as any other details to help track it down.
Then, you can contact the company and ask for help finding your pension.
You can also try using the Government’s free online Pension Tracing Service, or free pension tracing service Gretel, which only requires your name and address.
To get a clear picture of how much you have saved, you could consider consolidating all your old pensions into one single pot.
To do this, you need to open a new pension scheme and then ask the provider to transfer your old pensions into it. You’ll need to know who your old pensions are with first.
Step three – give your pension an MOT
There are loads of ways you can boost your private pension income.
One of the easiest ways is to contribute more to your workplace pension and start saving as early as possible, as it will have more time to grow.
The minimum amount you must put into your pot is 5% of your annual salary – while your employer must contribute 3%.
Plus, the government tops up your pension contributions by 25%, known as ‘pension tax relief’, so you’re essentially getting two lots of free cash.
It can be hard sacrificing some of your pay check, especially when the cost of living is still biting.
But increasing your contributions if you’re able to can turbo boost your pot.
For example, if you saved £50 a month into your pension and it grew at 5% a year after charges, you would be left with £76,301 over 40 years.
But if you increased your payments by 2.5% per year (which would be just £1.25 a month or £15 a year more) you would save a total of £109,671 – while only saving £40,000 of your own money.
Ian Futcher, a financial planner at Quilter, said the golden 15% rule is important to follow.
He said: “A good rule of thumb is to save at least 15% of your income, including what your employer contributes.
“The earlier you start saving, the easier it becomes thanks to compound growth.
“Even small contributions in your 20s can snowball over decades. Someone who saves £200 a month from 25 could end up with a bigger pot than someone saving £400 from age 40.”
Consolidating your pensions can also boost your savings as it can reduce the fees you pay.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Moving all your pensions into one pot can slash the fees you pay and mean you retire with a much larger sum saved.”
The average annual management fee for a pension is 0.75 per cent, but some providers charge as little as 0.3 per cent. If you swapped to a lower fee plan, over 20 years, you could be almost £20,000 better off if you started with a £100,000 pension.
It’s also worth checking what your pensions are invested in. You can do this by looking online or asking your pension provider.
You should be able to check how much money your investments have made over time.
If your investments are performing poorly, consider switching to a better-performing fund. Get professional advice if you’re not sure.
How much do I need to have saved at different ages?
You should keep tabs on the total you have saved for your retirement and consider sticking to targets for saving at different ages.
Your 20s are all about laying the groundwork, so try squirrelling away as much as you can afford, according to data compiled by Fidelity International.
But by the time you hit 30, you should aim to have saved one year’s worth of your salary. The average salary is £37,430 a year – so if this is what you earn at 30, that’s how much you should have saved away.
By the age of 40, you should try to save two times your annual salary.
This would be £74,860 for the same worker if they did not receive a pay rise in the interim period.
At 50, work towards saving four times your salary.
By this point, a worker who is paid the national average salary should have £149,720 stashed away.
Your 60s are an important time to focus on your pension as you near retirement age.
Try and save six times your salary by your 60th birthday, which is £224,580 for someone earning the national average salary.
Step three – boost your state pension
Don’t forget the state pension – this is the backbone of most people’s retirement plans and is worth a maximum of £11,973 a year.
To help boost your overall retirement income, it’s important to make sure you’re getting as much state pension as you can.
You need 35 years’ worth of National Insurance (NI) contributions to get the full amount, and at least 10 years to get anything at all.
You get a qualifying year of NI for each year that you pay a sufficient amount of NI through employment or self-employment.
According to the government, you need to earn £242 a week if you are employed and at least £125 a week if you are self-employed.
Check your record if you aren’t sure whether you have enough qualifying years.
If you don’t have enough years, you may be able to pay to top up your record, which will boost your retirement income.
You can backdate your contributions by up to six years. Each extra year of contributions currently costs around £900 and adds £342 a year to your state pension.
You may also be able to claim credits to fill in gaps in your NI history, for example if you were raising kids.
Grandparents and other relatives aged over 16 – but under state pension age – who care for a child aged under 12 may be able to get ‘specified adult childcare credits’. You can apply by visiting the gov.uk website.
If you claim child benefit and are a high earner, you can also claim credits without claiming child benefit – you just need to tick a box on your child benefit form.
If you don’t need your state pension immediately, consider deferring taking it to boost the amount you get.
Your state pension rises by 1% for every nine weeks that you defer it, or 5.8% for every 52 weeks.
If you deferred taking it by a year, you would get an extra £13.35 a week, or £694.20 a year.
But deferring your state pension could be a mistake if you are eligible for a vital benefit, called Pension Credit.
This is a benefit for pensioners on a low income to help them afford the cost of living.
You can claim pension credit if you have reached state pension age and your weekly income is less than:
- £218.15 if you’re single
- £332.95 if you’re a couple.
The benefit tops up your income to £218.15 a week for individuals or £332.95 for couples and also unlocks other benefits, like a free TV licence.
You don’t qualify for Pension Credit if your income is more than these amounts. So there’s a danger that is you boost your state pension payments, you could tip your weekly income over the threshold and disqualify yourself from getting the benefit.
Losing Pension Credit would be a mistake because it is a really valuable benefit, and is a gateway to other perks like council tax reductions and free TV licences.
Visit the gov.uk website to apply.
