How to avoid retiring on £23 a day

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If you don’t have a pension or other savings you can live off when you retire, you could be living on £23 a day. That’s the full ‘flat rate’ state pension amount. What’s more – with more rises to the state pension age planned, you may have to wait until you’re 68, 69 or even 70 before you get your state pension.

Here’s how you can avoid that.

Tip 1. Join your workplace pension

If you’re not in your employer’s pension scheme, then in the vast majority of cases, you should join it. There are two key advantages:

  1. Your employer will contribute to it. Depending on how generous your employer is, they may match your contributions £ for £, they may make a contribution without you paying anything (although this is increasingly unusual), or they may pay in the minimum amount that the law requires. Either way, it’s still a boost to your pension.
  2. You don’t have to fill in a lot of (online) forms. I’m not trivialising saving for retirement when I say this. It’s definitely the case that some people don’t start paying into a pension because they never get round to filling in the application forms. With a workplace pension, you’ll generally be put into it without you having to do anything.

Read more: You can find out more about automatic enrolment, which is a scheme to put you in your employer’s pension without you doing anything, in my article: A beginner’s guide to automatic enrolment. 

Tip 2. Pay in as much as you can afford

My first job at the BBC was working as a producer for BBC Radio 4’s personal finance programme, Moneybox. Stay with me, this is relevant! Before I joined the programme, I wasn’t the kind of person who found personal finance fascinating and I certainly didn’t give much thought to my own pension.

It was only because pensions and retirement were such a hot topic in the office (you have no idea!), that I really began to think about what I would live on when I retired. So, I joined the BBC pension scheme and – when I could afford to – paid in extra. As much as I could. It was one of the best decisions I made.

I wasn’t employed by the BBC for very long (most of my career with the BBC was as a freelancer), so I certainly haven’t built up a large pension with them, but, without it, my retirement might look very different.

Budgets are tight for many people and you may not be able to spare anything. But I suppose the message I’m keen to get across is to make sure your pension is on your list of priorities if you can afford it.

Tip 3. Save more when you’re paid more

If you get a pay rise, put some – or all – of it towards your pension. If you do it the first month you get the pay rise you won’t even notice that you’re ‘missing out’.

Tip 4. Start saving for your retirement early

I know that’s easier said than done, but the earlier you start to save or invest for your retirement, the less you’ll have to put aside each month. That’s because you’ll be doing so over a longer period.

As a rough guide, the total amount going into your pension should be half the age you start saving for your retirement. So if you start saving when you’re 25, 12.5% of your salary needs to go into your pension.

If you start saving when you’re 45, 22.5% of your salary needs to go into your pension. That’s almost a quarter of your salary. Eek!

SAVVY TIP: The percentage I’m referring to includes tax relief (which is a top-up from the government) and any money your employer pays in, if you’re employed. Everyone who pays into a pension gets tax relief on contributions they make, although there are limits on how much you can pay in and get tax relief. I’ve written an article that explains how tax relief works.

Tip 5. Don’t put it off!

There’s always something else to spend your money on, but if saving for your retirement is always at the bottom of your list, you could well end up living on the state pension alone.

I think it’s particularly hard to put money into your pension if you don’t have a permanent staff job or contract, if your hours are uncertain or if you’re self employed. I’ve been both employed and self employed so I know how much harder it can be to pay into a pension when you’re self employed.

But even £2 a day adds up to £60 a month. If you invest that every month over 40 years, you’d end up with at least £43,000 if you assume a modest 2% growth a year (once charges have been taken into account) and at least £70,000 if you assume 4% growth a year (once charges have been taken into account).

SAVVY TIP: I’ve said you’ll get ‘at least’ this much because this calculation assumes that your return is added to your investment only once a year.

The figures I’ve mentioned are not a fortune and it won’t go very far in retirement, but I believe it IS better than nothing. Setting aside £120 a month would give you £86,000 assuming 2% growth and £140,000 assuming 4% growth a year.

SAVVY TIP: I’ve not taken the tax relief you get on pensions into account, or any contribution from your employer.

Related articles:

10 tips to help you get the most from pensions and retirement saving

Pensions jargon explained – what pension terms mean

How not to fall for a pension scam and to keep your pension safe.

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