Am I saving enough?

Putting off saving could cost you more later.

Sometimes it helps to know what you’re aiming for when you save for a pension and FuturePlanner has several tools to help with this.

A common way of thinking about your savings target is the ‘replacement ratio’, which is the proportion of your salary you would need as an income in retirement. The tables below have been prepared by our advisers at Aon Hewitt to illustrate the level of contributions you might need to pay in order to achieve a target income. They also show the importance of starting to save as soon as you can, rather than leaving it until later.

Employee contribution required

At age 65 to replace:
30% of income
40% of income
50% of income
60% of income
You pay
30% of income: 3%
40% of income: 4%
50% of income: 5%
60% of income: 7%
Leonardo pays
30% of income: 6%
40% of income: 8%
50% of income: 10%
60% of income: 10%
Total
30% of income: 9%
40% of income: 12%
50% of income: 15%
60% of income: 17%
You pay
30% of income: 4%
40% of income: 5%
50% of income: 8%
60% of income: 11%
Leonardo pays
30% of income: 8%
40% of income: 10%
50% of income: 10%
60% of income: 10%
Total
30% of income: 12%
40% of income: 15%
50% of income: 18%
60% of income: 21%
You pay
30% of income: 5%
40% of income: 8%
50% of income: 12%
60% of income: 17%
Leonardo pays
30% of income: 10%
40% of income: 10%
50% of income: 10%
60% of income: 10%
Total
30% of income: 15%
40% of income: 18%
50% of income: 22%
60% of income: 27%
You pay
30% of income: 7%
40% of income: 13%
50% of income: 19%
60% of income: 25%
Leonardo pays
30% of income: 10%
40% of income: 10%
50% of income: 10%
60% of income: 10%
Total
30% of income: 17%
40% of income: 23%
50% of income: 29%
60% of income: 35%

For most people, the State pension will be an important part of their saving plans. The age that the State pension is payable depends broadly on your date of birth but it is usually between age 65 and 68. You can check your State pension age here.

At age 68 to replace: 30% of income 40% of income 50% of income 60% of income
Start saving at age 25  2% 3% 4% 5%
Start saving at age 30  3% 4% 5% 8%
Start saving at age 35  4% 5% 9% 12%
Start saving at age 40  5% 9% 14% 19%
Starting salary of member (currently aged 30): £20,000  £30,000   £40,000  £50,000
Percentage of salary represented by State pension at age 68:  29% 19% 14% 11%

These figures have been produced by Aon Hewitt to assist FuturePlanner with its communications. The figures show the benefit of starting to save earlier towards retirement. For employees who start to save at younger ages, lower contribution rates are expected to be required in order to target the same percentage of salary as pension at retirement.

The figures are based on the following assumptions:

  • The member has a salary of £20,000 when they start saving. Their salary increases at a rate of 3.5% each year until retirement at age 65.
  • The member is assumed to continue to contribute at the same rate from the age at which they start saving through to age 65.
  • The employer pays contributions at a rate of two times the member’s contribution rate, up to a maximum of 10% of salary each year.
  • The member’s fund grows by 7% each year. Actual investment returns may be higher or lower than this, and will also depend on how the member's fund is invested.
  • Investment charges applied to the member’s fund are 0.55% of the fund each year. The growth figures above are shown gross of these fees. Actual investment charges will depend on how the member's fund is invested and may differ from this. The pattern of investment returns also has an important influence on the accumulated fund.
  • At retirement, the member uses their fund to buy an annual pension. The illustrations above assume that it costs £20.80 to buy each £1 of pension at retirement, which is based on average rates currently available in the market for an annuity with the following features:
  • The member is assumed to be male and retire at age 65 (please note that an annuity for a woman would be more expensive).
  • The pension does not increase while it is in payment.
  • On the member's death, their spouse will not receive any pension.
  • There is no lump sum payable on the death of the member to their spouse if they die within five years of retirement.

The figures at age 68 are produced on a consistent basis. The cost of each £1 of pension at age 68 is assumed to be £19.80.

The proportion of final salary that the State pension represents at age 68 is for a member currently aged 30 whose salary is assumed to increase at a rate of 3.5% each year until age 68. The member is eligible to receive the full State pension. This is £159.55 per week in the 2017/18 tax year and is assumed to increase by 2.5% p.a. until age 68.