Martin Lewis has delivered his verdict on how much people should be saving for their pension. On the Martin Lewis Money Show Live, the MoneySavingExpert.com founder hosted a pensions special, breaking down all the details on how individuals can maximise their savings.
The Rule of Thumb for Pension Contributions
Daryl, a viewer of the show, asked: “Is there a good rule of thumb to pay into pensions? Whilst I want to put more into my pension, I don’t want it to impact my quality of life in the here and now. Is doing 15% contributions as someone in my mid-30s enough?”
Martin replied: “I think you’re doing really well… way more than most people. Let me give you the rule of thumb that scares the pants off everybody. Take the age when you start putting into your pension - so in your case, we’ll say 30 - and halve it, that’s 15. That’s how much of your income you want going in for the rest of your life for a decent retirement. Very few people ever get that. The reason for using that rule of thumb is to indicate the earlier you start, the better a retirement you’re going to have. Of course, you’ll also get the state pension depending on your National Insurance contributions.”
State Pension and National Insurance
To qualify for a full new state pension, Brits need 35 years of National Insurance (NI) contributions. This equates to £241.30 weekly, or £12,547.60 annually after rising by 4.8 per cent in April. The finance expert explained: “That is the minimum. If you have less than 10 years, nothing counts.” Meaning, 10 years is required to receive any state pension when you claim the benefit.
He added: “An extra National Insurance year is worth around £360 a year of state pension for you. So if you're going to retire on less than the full state pension and you can buy a year, even if it costs you £1,000, because it's going to add £360 a year to your state pension, even if you live just a few years once you get your state pension, you make your money back.”
Martin continued: “Many older people complain saying, I've now got enough for my full state pension, why do I have to keep paying National Insurance? That's because National Insurance is a tax in reality, it's just a tax that happens to be demarked as your contributions towards getting your state pension when you are older.”
