Pension Contributions – the foundation of pension saving
Your pension contributions are the building blocks of your pension savings.
Each pension contribution you make takes on a life of its own. First, it is topped up by government, with tax relief at 20% or 40%, depending on the amount of tax you pay.
Then your pension contributions are invested, mainly into the stock market, and enjoy compound growth over the course of your working life. They form the ‘pension pot’ that you will collect, when you retire. It has been calculated that the first £1 pension contribution you make, if this happens in your 20s, can have grown to £28, if left invested until you reach 65.
Find out what level of pension contributions you need today, to achieve your savings target! Use our pension calculator, make an online pension advice enquiry or freephone 0800 678 5929 now
How much should my pension contributions be?
If you have a clear idea of the retirement income you are seeking to achieve, it is a simple matter to work backwards and calculate the level of pension plan contributions you should be making today.
Principle First’s online Pension Calculator tool allows you to enter your age and your desired pension income, and estimates the level of pension fund contributions that will achieve that goal.
You can also run several projections through the pension calculator, to show you how your pension contributions would vary, for various target levels of retirement income. You can therefore use the retirement pension calculator to explore various scenarios, and discover what you are likely to achieve with several levels of pension contribution.
The ‘extra value’ of early pension contributions
As touched upon above, earlier pension plan contributions have extra value, because they will be invested for longer. The pension calculator will also allow you to see the cost of delaying your pension plan contributions.
In general, every month of delay in starting a pension adds 10% to your pension contributions, to achieve the same level of pension pot.
Using the pension calculator you will see that a 20-year old man, wishing to retire at 60 on an annual pension of £8,000 per year, would have to make a pension contribution of £50.80 per month from today.
By simply altering the age in the pension calculator to 30, you can see the effect on this man’s pension contributions of delaying his pension by 10 years. His required monthly pension contribution would more than double to £109.29.
