The last two years might have upset your pension saving. From the lockdowns and furlough scheme of the pandemic to the cost of living crisis, focusing on your future self has been particularly hard of late.
You might have been tempted to opt out of your workplace pension or lower the contributions you make into a private scheme. Maybe this was to free up extra funds for yourself, or to support an adult child through a difficult financial period.
Whatever the reasons, if you are entering your 50s and looking at a potential pension shortfall, it’s important to remember that it’s never too late to save.
Here are four reasons why pension saving in your 50s is a great idea, plus how to do it.
1. You might need to make larger contributions, but it could be more affordable
By the time you’re in your 50s, you will likely be earning the highest salary of your career. This is good news for your pension saving.
The rule of thumb is to halve your age and then pay that percentage of your income into your pension each month. That meets someone starting to save aged 30 would need to contribute around 15% of their monthly income into a pension.
As you approach your 50s, this percentage will clearly increase but you’ll be at the right stage of life to afford it.
Ideally, you’ll be putting 25% of your income aside.
While this might not have been affordable at the start of your career – when you were newly in work, looking to get onto the housing ladder, and starting a family – later in your career, the contributions might be easier to come by.
2. Make the most of your workplace pension while you can
Maximising pension contributions in your 50s also means taking full advantage of your workplace pension scheme, and auto-enrolment.
Currently, the minimum contribution you can make is 8%, but only 5% comes from you. The rest is paid by your employer.
This is effectively “free” money so make the most of it. Increase your contributions if you can afford to. You might find that your employer is willing to increase their contribution too.
Also, be sure to ask about salary sacrifice. This decreases your gross salary by paying a set amount straight into your pension. This decreases the Income Tax and National Insurance contributions (NICs) you pay.
Salary Sacrifice won’t be right for everyone so check with us before you decide. A lower salary could affect affordability criteria if you are applying for a loan. You might also find that your entitlement to certain work benefits is affected.
3. Your 50s are a great time to check in with your State Pension entitlement
Jeremy Hunt’s recent decision to reinstate the triple lock is great news for those approaching State Pension Age.
From the 2023/24 tax year, the full new State Pension will be worth £203.85 a week, or £10,600.20 a year.
To receive the full amount you’ll need 35 “qualifying years” of NICs. Check your National Insurance record to see how much you might receive and you can factor it into your plans.
Remember you need 35 qualifying years to receive the full amount. With between 10 and 35 qualifying years you’ll receive an amount calculated based on the applicable number of years. With less than 10 years, though, you won’t receive any State Pension at all.
In your 50s, you’ll likely have 10 more years or so to go until retirement, making now a great time to check-in.
4. Remember that there is still time to be patient
All investments are a long-term proposition and your pension is no different. We would normally only recommend investing with a specific goal in mind – in this case your retirement – and only if that goal is at least 10 years away.
Putting money aside in your 50s still gives your money the chance to grow, through investment returns and a decade of compound growth.
The general trend for the markets is an upward one, so stay patient, stay focused on your goal, and actively block out the noise of economic uncertainty and short-term stock market volatility.
Get in touch
Managing a pension shortfall in your 50s will require focus and commitment. It can, though, be a great time to revisit your pensions and start thinking seriously about your retirement.
Whatever aspect of your long-term retirement plans you need help with, get in touch. Email email@example.com or call 0800 0787 182.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.