Your contributions

Deciding how much to pay into FuturePlanner.

There’s lots of good news about life expectancy and the average person now spends over 20 years in retirement. This means it’s more important than ever to make sure you have enough money saved to enjoy those years in retirement.

Many people struggle to know how much they need to save. Below are ‘six golden rules’ which you might find helpful to think through.

FuturePlanner offers two-for-one double-matching contributions from Leonardo. If you pay in anything less than 5%, you are giving up ‘free’ money that your employer is willing to pay into your pension. Don’t forget that (for a basic rate taxpayer) each £3 saved into your pension for these double-matched contributions is only actually costing you 68p once your tax and National Insurance savings are taken into account. Use our two-for-one tool to find out more.

It’s difficult to predict how much you will actually need when you retire, as everyone’s circumstances are different. There are several ways you can think about this.

A common approach is to think about your ‘replacement ratio’, which is the proportion of your salary that you would need as a pension. Your living costs are likely to be lower when you retire, perhaps because a mortgage is paid off and there are no expenses like travelling to work. Against this, spending on leisure or travel might increase. A rough guide is that you will need 50% of what you were earning before retirement, so your aim would be to get your pension values up to this amount. You can find out more about replacement ratios here.

Another important idea is the ‘power of compound interest’, which is to say that money paid early in your career is more valuable in pension terms because it has more time to generate investment returns. It follows the principle that the earlier you start, the better. A common rule of thumb is to aim to pay into your pension a percentage at least equivalent to half your age when you start – so a 20 year old would pay 10%, a 30 year old pays 15%, and so on.

It’s always helpful to review spending carefully and work out a budget. There could well be some items that are costing you more than you intend or that could easily be cut back on. A small additional contribution over your career could make a worthwhile difference to your retirement. You can find out more about the difference just 1% more can make.

It’s easy to see how your Retirement Account is building up and you might be pleasantly surprised to see the ‘power of compound interest’ at work. FuturePlanner will send you annual Benefit Statements, but more importantly, you can log into your Retirement Account at any time to see how much you have saved and model options for the future. Find out how to sign up here.

It’s much better to start with something and adjust it later on, if you’re not certain how much to pay. Otherwise, pension decisions can be prone to ‘fridge moments’ – the times when an important letter comes in and you put it on top of the fridge to look at ‘when you have time’. Several months later, the letter is still there with all the other important documents you haven’t had time to look at.

If you do nothing when you join the Company, you will be put in automatically at the 3%/6% level.