How Much Should I Put in a Pension
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Most UK employers are mandatorily required to put in place an adequate pension scheme and enrol all qualifying workers. However, auto-enrolment pensions work on minimum contribution levels. If you are making a monthly contribution to your retirement fund, your savings may not be enough to sustain the retired life that you envisioned. If you can afford to; start making more solid investments for a better future.
HOW MUCH SHOULD I PUT IN MY PENSION
Before you decide on how much money you wish to put aside each month for your retirement. Make sure you have cleared all impending debts — especially those incurring high-interest rates. There is no point in planning for a limpid future with a murky present. Coming back to the crucial pending question -- how much should I put in a pension plan? -- no ballpark figure suits all.
Your idea of retirement must govern the amount you choose to put in a pension plan. However, an important thing to remember is to ensure a comfortable retirement; people should start contributing as early and as much as possible. An excellent way to calculate your ideal pension premium is to divide your current age by two. The number you get denotes the percentage of your pre-tax salary that should go to save up for your retirement.
So, if you are 30, you must invest 15% of your pre-tax salary each year into a pension plan. This numerical percentage includes both the contribution made by you as well as your employer. When it comes to pension plans, people should strive to take maximum advantage of the boon called the compounding effect. Thus, the sooner you start contributing, the more time your money will have to grow. In simpler words, if you start early, the power of compounding will ensure you have a hefty sum in your hands at the time of retirement.
Another way to be better prepared for your future is to increase the value of premiums paid towards your pension, which is known as the pay rise trick. At the start of their careers, most people are unable to contribute a lot to their pension. However, as they advance into their career, contributions made by them towards their retirement plan should increase in direct proportion to any increase in their salary. Furthermore, ensuring a substantial retirement corpus.
If numbers confuse you, we recommend using the Money Advice Service's Pension calculator. The calculator based on the relevant information provided including anticipated retirement age, employee and employer contribution, the effect of inflation. Using this tool will give you a clear idea of how much you should be contributing to your retirement plan every month.
IS THERE A LIMIT ON HOW MUCH I CAN CONTRIBUTE TO MY PENSION PLAN?
According to UK laws, there is no upper limit on how much money you can put into a pension plan. However, taxpayers get relief only on pension contributions of up to 100% of the total earnings or an annual allowance of £40,000, whichever is lower. Contributions made towards the pension scheme over and above this limit are considered a part of the taxable income and thus, attract income tax. The best time to start saving for a better future is now. Don't delay.
Paul Dodd Asset Management Limited is committed to providing independent financial management throughout Leeds and North Yorkshire. If you need to speak to our pension planning specialist today, please get in touch to discuss the ways that we can help you.