How to defuse the pension time bomb

[POSTMAN]

http://www.moneysavingexpert.com/news/b ... mpaign=box" onclick="window.open(this.href);return false;

Britons must increase the amount they save by thousands of pounds a year to secure a decent retirement income, research suggests.

The study, carried out by insurer Aviva and accountants Deloitte, estimates UK workers are collectively saving £317.5 billion a year too little into pensions which is storing up massive problems for the future.

It is estimated those aged 50 need to boost their pension saving by an average of £6,200 a year to receive a pension income of 70% of their current pay, which the study judges to be a comfortable sum for most (see the Pensions guide).

Meanwhile, 40-year-olds need to increase contributions by £3,100 a year on average to achieve a similar income, the research says.

Those in their 20s and 30s have longer to save before they reach retirement, but the study says even a 20-year-old should set aside an extra £1,300 a year and a 30-year-old £1,800 a year.

The worrying figures should not concern the 7.5 million people with a gold-plated final salary pension who get a retirement income based on their salary and years of service.

Here's how to help boost your retirement income.

Start a pension early

The earlier you start paying into a pension the less you need to save as a percentage of your salary.

Financial adviser firm Hargreaves Lansdown (HL) estimates those starting should save half their age as a percentage of their salary to end up with a pension (comprising a private and state pension) of between half and two thirds of their income.

So someone who starts at 20 should save 10% of their salary, while at 30 it's 15%, according to HL.

From April 2012, every employee will be auto-enrolled into a company pension with 1% of their salary going in (rising to 3% by 2017), with employers also forced to contribute.

A spokeswoman for the Department for Work and Pensions says: "We know people aren't saving enough for retirement and that's exactly why we are committed to bringing in reforms that will result in up to nine million people saving for the first time."

Remember pension tax perks

You may have other plans for retirement income such as cashing in on a property or investments, so you won't necessarily be relying solely on a pension, meaning HL's figures don't add up for everyone.

Yet saving in a pension comes with significant tax perks as virtually everyone gets full tax relief on the amount deposited.

A basic rate taxpayer who saves £80 a month from their take-home pay will see £100 go into their pension, as an additional 20% tax relief is added.

If you wonder why it's 20% of £100, not 20% of £80, it's because to get £80 of after-tax pay you'd need to have earned £100 before tax.

A higher rate taxpayer who saves £80 will also get £100 paid into their pot, but at the end of the tax year they can claim a further 20%.

If your employer operates a salary sacrifice scheme you could be even better off because contributions are taken from your pre-tax pay, meaning not only do you get the tax relief but you do not pay national insurance on your contributions.

Salary sacrifice is not beneficial for everyone, however (see the Salary sacrifice MSE News story for details).

Take free cash

Some employers also contribute to a company pension which is effectively a pay rise. In some cases, you don't even need to set money aside yourself for your employer to contribute

It is estimated 750,000 people are offered a company pension where their employer contributes even if they don't, but 75,000 fail to take the free cash.

Save, save, save

Ensure you keep saving throughout your lifetime if you are worried about a low retirement income. Most importantly, use up all your tax-free savings allowances.

Every adult can save up to £10,200 a year in a tax-efficient Isa.

You can put the full £10,200 in an investment Isa, where most of your returns are not taxed. Of that allowance, a maximum £5,100 can go into a separate cash Isa, which is a normal savings account where the interest is not taxed (see the Top New Cash Isa guide).

[POSTMAN]

FFS How are we supposed to live for now!

[BELIAL]

Every adult can save up to £10,200 a year in a tax-efficient Isa.

[POSTMAN]

Every adult can save up to £10,200 a year in a tax-efficient Isa.

I thought it was £3600 or summin like that,has it changed then?

[RobertT]

I thought it was £3600 or summin like that,has it changed then?

You can now put in £10,200 per year into ISA's with a maximum of £5,100 going into cash and the remainder into stocks & shares.

[POSTMAN]

I thought it was £3600 or summin like that,has it changed then?

You can now put in £10,200 per year into ISA's with a maximum of £5,100 going into cash and the remainder into stocks & shares.

Oh right,not that it matters anyway,i am a postie you know lol

[BELIAL]

What planet ?

[borders]

laughable !!! i am sat here looking at my savings account and wondering what to do with the 300 quid i have saved up so far this year .
anyone got any good share tips that will increase a thousand fold in the next few months ?

[heapsy]

laughable !!! i am sat here looking at my savings account and wondering what to do with the 300 quid i have saved up so far this year .
anyone got any good share tips that will increase a thousand fold in the next few months ?

BP?

[heapsy]

On a serious note, I am more fortunate than most on here, I suspect. Having got fleeced by the ex gave me a chance to really think about this very issue, without any hinderance. Having started again with a new mortgage in summer 2001 I am now mortgage free. I did this by paying lump sums off the balance, roughly every 4 months, together with regular monthly overpayments. I kept the mortgage payment fixed, once it had dropped to just over £250. Every time the building society dropped the payments, I reinvested the money in MORE overpayment. In March this year, just short of 9 years, I am now mortgage free. However, I have not stopped there. I now put the £250 from the mortgage in to a cash ISA. I was already paying £130, for cars and stuff into this same ISA. My thinking behind this is to have a larger, TAX FREE lump sum when I eventually retire. Next year, I have an endowment, used purely for saving purposes, maturing in the summer. Again, because I don't need the money, I will put this away, TAX FREE. Anybody got any questions about anything above, or similar issues, (I've got a few ideas) pm me if you wish.

[fishtank]

On a serious note, I am more fortunate than most on here, I suspect. Faving got fleeced by the ex gave me a chance to really think about this very issue, without any hinderance. Having started again with a new mortgage in summer 2001 I am now mortgage free. I did this by paying lump sums off the balance, roughly every 4 months, together with regular monthly overpayments. I kept the mortgage payment fixed, once it had dropped to just over £250. Everey time the building society dropped the payments, I reinvested the money in MORE overpayment. In March this year, just short of 9 years, I am now mortgage free. However, I have not stopped there. I now put the £250 from the mortgage in to a cash ISA. I was already paying £130, for cars and stuff into this same ISA. My thinking behind this is to have a larger, TAX FREE lump sum when I eventually retire. Next year, I have an endowment, used purely for saving purposes, maturing in the summer. Again, because I don't need the money, I will put this away, TAX FREE.

Heapsy....would you like to be my friend?

[DGP1]

On a serious note, I am more fortunate than most on here, I suspect. Faving got fleeced by the ex gave me a chance to really think about this very issue, without any hinderance. Having started again with a new mortgage in summer 2001 I am now mortgage free. I did this by paying lump sums off the balance, roughly every 4 months, together with regular monthly overpayments. I kept the mortgage payment fixed, once it had dropped to just over £250. Everey time the building society dropped the payments, I reinvested the money in MORE overpayment. In March this year, just short of 9 years, I am now mortgage free. However, I have not stopped there. I now put the £250 from the mortgage in to a cash ISA. I was already paying £130, for cars and stuff into this same ISA. My thinking behind this is to have a larger, TAX FREE lump sum when I eventually retire. Next year, I have an endowment, used purely for saving purposes, maturing in the summer. Again, because I don't need the money, I will put this away, TAX FREE.

Heapsy....would you like to be my friend?

Sod being friends, would you like to marry me