Martin Lewis has disclosed the precise amount individuals should be saving to ensure a comfortable retirement. The MoneySavingExpert.com founder cautioned that the figures can be alarming, urging savers to take a deep breath before considering their pension contributions.
The rule of thumb for pension savings
Lewis explained a simple formula: take the age at which you begin contributing to your pension, halve it, and that is the percentage of your salary you should aim to save for the rest of your working life. This includes employer contributions. For example, starting at age 20 requires 10% of your salary, while starting at 40 requires 20%.
He emphasized that the earlier you start, the lower the percentage needed, making it crucial to begin saving as soon as possible. Delaying significantly increases the monthly amount required to build a sufficient pension pot.
Triple lock and tax concerns
The advice comes amid warnings that hundreds of thousands of pensioners may see little benefit from the annual triple lock increase due to frozen tax bands. The triple lock guarantees a yearly state pension rise matching the highest of inflation, wage growth, or 2.5%.
However, frozen tax bands since 2021 have pushed more over-65s above the personal allowance threshold, meaning they must pay income tax on their state pension. Critics argue this renders the triple lock increase almost worthless for some retirees, as the tax hike offsets the gain.
Lewis's guidance aims to help individuals plan for a strong retirement income despite these challenges. He stresses the importance of understanding both personal savings and state pension rules to avoid shortfalls in later life.
