If you’re contributing to your workplace pension, you’re already taking an important step towards your future. Contributions you make today will be invested and grow over time. But how much should you be putting in to be on track for a comfortable future?
The default minimum
There is a default minimum that should currently be going into your pension. The great thing about a workplace pension is that the money doesn’t just come from you. Your employer is obliged to contribute an amount equal to a percentage of your earnings. Usually, this is done on the basis of ‘qualifying earnings’, which are your earnings between £6,240 and £50,270. Currently, an employer must contribute at least 3% and you must contribute the rest to make a minimum overall contribution of 8%. You will also get tax relief on your contributions, which means the government is also contributing to your pension.
How much will I need for retirement?
However, this default minimum may not be enough for you to live the life you want in the future. Which estimates you’ll need an annual retirement income of £25,000 to cover the basics, and £40,000 to include luxuries like holidays or a new car. You might therefore need a final pot of around £700,000 (which of course may vary depending on where you live, if you have a partner and other factors).
Increase your contributions with Maji
Thankfully, you can easily increase your pension contributions through your Maji account. The pension provider Scottish Widows recommends an ‘adequate savings rate’ of 12% of your income to support a more comfortable life in the future. But a Labour party review published in 2016 set out a recommended savings rate of 15%. Maji suggests aiming for somewhere in this range with your monthly contributions. Remember this includes the free money from your employer and the government! So you don’t need to reach this level of contribution all by yourself.
Of course, everyone’s circumstances are different. Use Maji’s financial planner to find out what kind of lifestyle you’ll want and to set a personalised contribution target that will help you achieve your goals.
And remember, you can start your journey by increasing by just 1% today. Even a small amount of money, invested today, can grow a huge amount over the decades.