How much should you pay into your pension?

A key factor which will determine how much you should pay into your pension, is the type of lifestyle you’d like to live in retirement. This will look different for everyone. What sort of hobbies do you have? How often would you like to go on holiday? How frequently would you like to eat out?

Asking yourself questions like this will help give an idea of the level of income you might need on a monthly basis. You can then work backwards to get an indication of the amount you should be contributing to your pension to accomplish that. Visit our dedicated retirement planning page which goes into more detail, including the type of lifestyle different levels of income could achieve.

Our interactive tools and calculators can help you understand how far your pension savings could go, and how changes in contributions could make a difference.

How long your pension savings are invested for can have just as much of an impact as the amount you contribute. By starting early, your money has more time to benefit from compound growth – the process whereby the returns you make generate returns themselves. This can have a powerful effect on your money, meaning the sooner you start, the less you may need to save to achieve your goals.

Take two people, Amy and George.

• Amy invests £500 a month for 10 years, achieving 6% average returns which are reinvested. After 10 years, her investment is worth £81,940.
• George invests less each month – £250 – also achieving 6% average returns which are reinvested. He invests for much longer though – 20 years – after which, his investment is worth £115,510.
• In total, they both invested £60,000, but because George’s money was invested for longer, he had more time to benefit from compound growth.

This is just an example and not advice or a recommnedation. Remember, when investing, the value of your money can go down as well as up, meaning you could get back less than you paid in. It’s never too late to start, so don’t worry if you think you’ve delayed things. There’s always actions you take which could give your pension pot a boost.