Unsure how much you should be saving for retirement? Here’s what you need to know

By Chancellor

Saving for retirement is an essential facet of your financial plan. 

No matter how much you earn, when you plan to retire, or how soon that day will arrive, planning ahead to have a comfortable life when you stop working is vastly important.

The likelihood is: you already know this. From when you started work, you have probably been contributing into a workplace pension, or have maintained one or multiple private pension pots.

Yet, according to a study published by MoneyAge, 40% of UK savers are unsure of how much to save for retirement. Indeed, you could be putting money away each month without much clue about whether it is enough to live comfortably later in life, or how close you are to reaching that goal.

So, read on to find out all you need to know about saving efficiently for retirement. 


Keeping up with workplace pension contributions can help you build a valuable pension pot over the course of your career

If you are employed, workplace pension contributions are a fantastic place to start when it comes to saving for retirement.

It is a legal requirement for employers to offer a workplace pension. It is likely your workplace will set up your pension early on in your career, paying a minimum contribution from your salary each month. 

Workplace pension contributions can be tax-efficient, too. The amount your employer reroutes from your salary into your pension, and any additional contributions they make, are typically paid before Income Tax or National Insurance contributions (NICs) are deducted, and your employer doesn’t pay NICs on the sum. You can benefit from tax relief up to the Annual Allowance which, as of the 2022/23 tax year, is £40,000 or your total earnings, whichever is lower.

What’s more, you can elect to pay more than the minimum mandated contribution. Your employer may also match your increased contributions, so this could provide a further boost to your savings.

If you can afford to do so, maximising your pension contributions within the Annual Allowance can help fund the lifestyle you want down the line. 

Maintaining workplace pension contributions over a period of decades means you can slowly build a pension pot that could fund your dream retirement lifestyle. Remember, your pension is invested – so although there is a chance of it decreasing in value, it is likely your pot could grow to a valuable sum over time.

Plus, with the help of your financial adviser, keeping your contributions within the Annual Allowance and Lifetime Allowance (LTA) can help keep your pension tax-efficient while you save.

If you are unsure about the amount you should contribute, your financial adviser can help you discover how much you need to retire using accurate cashflow modelling software (more on this later). 


Avoid reducing your pension contributions during the cost of living crisis

Unfortunately, it can be tempting to reduce your pension contributions in a pinch. If your finances become stretched, as they might have done in 2022, you may wish to lower or cancel your payments in response. 

Indeed, 2022 has been a tough year financially for almost everyone in the UK. Your investments could have experienced a downturn, while your outgoings, including your mortgage repayments and everyday costs, might have increased.

As a result, according to Money Marketing, 45% of businesses with more than 500 employees have reported some employees are opting out of pension contributions altogether. What’s more, 40% said employees are reducing contributions during the cost of living crisis.

Crucially, pausing pension contributions can have a surprisingly big knock-on effect. 

Broadstone research published by PensionsAge revealed that a 25-year old on an average salary pausing their pension contributions for two years could be short of almost £10,000 in retirement.

Plus, these reductions can easily become permanent if you let them slip your mind. The study claimed if the same individual reduced their pension contributions by just 2% permanently, they could be left with a £60,000 shortfall in retirement. 

So, ensuring you stick to your regular pension contributions, even when times are tough, can help you boost your retirement income by a significant amount.


Cashflow modelling software can accurately determine how much is “enough” for you to live on in retirement

The truth is, there is no “one size fits all” figure that can provide you with a comfortable retirement. If you are unsure how much you should be saving each month, working with an expert can help.

One of the benefits of working with a professional before you retire is that we can help determine how much is enough for you to have your desired lifestyle later on.

Using cashflow modelling software, we can help determine: 

  • How your existing pension pot(s) might grow over time
  • How your retirement savings could be affected by rising inflation
  • When you may be able to retire, based on your income, existing pension savings and prospective future contributions
  • How altering (either increasing or decreasing) your monthly pension payments could help reach your goals tax-efficiently
  • How much you need to sustain your retirement lifestyle and pass wealth on to the next generation.

Alongside using software, your financial adviser will utilise one powerful tool: listening to your goals. 

Your adviser can’t determine how much is enough to sustain your retirement lifestyle without listening to your dreams, the opportunities you want to provide to your children, or the places you want to travel later in life. 

You talk, we listen.


Get in touch

For a bespoke review of your pension circumstances with an experienced adviser, email info@chancellorfinancial.co.uk, or call 01204 526 846 to speak to an adviser.


Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can down as well as up which would have an impact on the level of pension benefits available.  Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.

Workplace pensions are regulated by The Pension Regulator.

The Financial Conduct Authority does not regulate cashflow modelling.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.