Martin Lewis has shared his pension rule of thumb formula on Money Show Live, explaining how much Brits should contribute to their retirement savings
Many of us are already counting down the days until retirement, and perhaps you’re even wondering how can I retire early? Well, financial guru Martin Lewis has set out precisely how much individuals ought to be setting aside for their pension.
During a pensions special on the Martin Lewis Money Show Live on Tuesday, May 5 on ITV1, the MoneySavingExpert.com founder broke down in detail how people can make the most of their retirement savings.
A viewer named Daryl posed the question: “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?” For money-saving tips, sign up to our Money newsletter here
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.”
To qualify for a full new state pension, Brits are required to have 35 years’ worth of National Insurance (NI) contributions.
This amounts to £241.30 per week, or £12,547.60 per year following a rise of 4.8% in April.
The money expert added: “That is the minimum. If you have less than 10 years, nothing counts”.
This means a minimum of 10 years of contributions is needed before any state pension can be claimed.
He added: “An extra National Insurance years 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.”
If you missed Martin Lewis Money Show Live, you can now catch up on ITV X for more pension tips and tricks.
