There's a huge difference in the size of pension pots between men and women. Men have on average saved £74,000, almost three times the £25,000 held by women. Trust us, we're just as surprised as you are! Here's how to mind the gap with these pension boosting tips.
#1 Find out what type of pension you have
Through your work you either have a defined contribution pension where you end up with a pot of money at retirement and get to decide what to do with it or a final salary pension where you get paid a percentage of your salary when you retire.
#2 Go big on contributions
The monthly contributions paid into your pension pot now, made up by your employer and you, are the biggest factor determining how much you have at retirement. This is where women are falling short (excuse the pun!) as men are saving over twice as much. That’s £272 a month compared to £119. As a rule of thumb, aim to put at least 10% of your monthly salary into a pension.
MOXI Tip: Many larger companies offer to “match” your contribution, this is free money and shouldn’t be ignored! Make sure you find out what your company offers.
#3 Understand the tax relief
Tax relief on a pension makes it the best saving you’ll ever make. Here’s the deal: The government’s HMRC repays income tax on every pound put into your pension. This is a HUGE saving – 20% for basic-rate taxpayers, 40% for higher-rate payers and 45% for additional-rate payers. We have a guide for this.
#4 Calculate how much £ you’ll have at 65
This depends on how much you contribute, for how long and where it is invested. Your pot will include all contributions plus 20% basic income-tax relief. If you contibuted £400 a month (after tax) the government would add £100 making a total of £500 (or £6,000 a year). To work out your total, take your contribution and multiply by 1.25.
Next, you have to consider the number of years you are contributing. If you start at 30 you will be contributing for 35 years, so the total contribution plus tax refund will be 35 x £6,000 = £210,000 (yet in reality this will be higher because your salary will increase and so will your pension contribution)
Lastly, money placed in a pension is invested which can increase or decrease your pot. Using the same example, if the investment grew an average of 4.5% a year (regarded as Medium growth) after 35 years your pot would be worth £426,000. Note: This has considered pension provider and fund charges of 0.75% a year.
Want to find out how much your pension will be worth? Try Aviva’s Retirement Planner tool.
#5 Know your options at retirement
Defined contribution schemes, aka pension pots, are accessible from the age of 55. That’s when you get to decide how the money is paid to you. You’ll need to consider your needs at that time, any other income you’re receiving and how to make it tax efficient. We have a guide for this.