How much should I pay into my pension pots in my 30s?

How much should I pay into my pension pots in my 30s

Introduction.

As you move into your 30s, it's natural to take a more diligent approach to your long-term financial goals and one of the most important things to consider is making sure you set aside money now to generate an income when you retire. Whether you have already been accruing money into a pension plan in your 20s, or if you are only getting started today; if you are wondering how much you need to pay into your pension in your 30s to achieve your goals, we can help. In this article, we will provide you with all the information you need to ensure that you are on track for a comfortable retirement.

We have written another article on how much you should have in your pension pots at 30, which is very much worth a read as it will help you to set a target figure for your pension pots when you retire. If you don’t have time right now to read it, you generally want to aim for anything from £575k for an income of £23k each year in retirement to £2.5m for an income of £100k each year in retirement.

Why is it important to contribute to your pension in your 30s?

Before we get into the detail of how much you should be contributing to your pension in your 30s, it’s important to take a moment to discuss why it is so important to start early. When it comes to long-term savings and investments, the earlier you start and the more you can pay in early on, the better off you will be. This is mainly due to the effects of compound interest - whereby interest is generated on interest, which generates even more interest and so on. Essentially, you can compare this phenomenon to a snowball, in that as a small snowball rolls down a hill, it collects more snow as it goes and grows in size. As the snowball gets bigger, it has more surface area to attract even more snow and therefore grows at an exponential rate, collecting ever greater amounts of snow. We have a full article that explores the theory of compound interest in more detail, so be sure to read it.

As a quick example, if you were to have contributed just £250 each month into a pension in your 20s and achieved 6% growth each year, you would have built up a pension pot of approximately £41k by the time you were 30 (made up of £30k deposits and £11k interest). If you were then to stop paying anything into your pension over the next 35 years until you were 65 (note that this is not something we would ever recommend!), your £41k could turn into over £330k.

Conversely, if you had nothing in your pension pots at 30 and did the same; investing £250 each month for the next 10 years, achieving a 6% annual return, stopping contributing at 40 and then sitting back for the next 25 years, your pension pot will only be worth £183k at 65. By comparison, if you continued to contribute £250 each month for the next 25 years, you may be able to build a pension pot of £357k by the time you reach 65.

That’s the power of compound interest over time. The earlier you start, the more the magic happens. Compound interest is one of the key factors that makes starting early so advantageous. By contributing as much as you can into your pension in your 30s, you can still benefit from compound interest.

You can play around with your own figures using a Compound Interest Calculator.

It’s worth pointing out that starting early also gives you more flexibility and you'll have more time to adjust your contributions if your circumstances change. For example, if you receive a pay rise, you can increase your contributions to reflect this.

How much should I pay into my pension in my 30s?

Now, let's get to the heart of the matter: how much do you need to pay into your pension in your 30s? The answer, of course, is that it depends.

There are a few factors that will influence how much you need to contribute to your pension, including:

1. Your retirement goals: How much income do you want to have in retirement?

2. Your current income: The more you earn, the more you can afford to contribute.

3. Your current pension pot: If you have a decent pension pot already, you may not need to contribute as much.

4. Your age: The older you are, the more you'll need to contribute to catch up.

As a general rule of thumb, however, it is suggested that you should be aiming to contribute around 15% of your pre-tax income into your pension in your 30s to give you an income in retirement that offers a similar lifestyle to that when you were working. This might seem like a lot, but remember that these are total contributions, which will typically be made up of employer contributions, your own contributions and any tax relief you are able to benefit from on your contributions.

How to calculate your pension contributions in your 30s.

If you're not sure how much you're currently contributing to your pension, or how much you should be contributing, don't worry. There are plenty of tools available to help you calculate this. However, your first step is to find out what percentage of your income your employer is contributing to your pension. This can be anything from 3% to 15% and above for very senior roles. You'll then need to work out how much you need to contribute to make up the rest of the 15% recommended contribution.

For example, if your employer is contributing 5% of your income to your pension, you'll need to contribute an additional 10%. If you earn £30,000 per year, this means you'll need to contribute £3,000 per year, which is typically made up of your pre-tax pension contribution and any tax relief you are entitled to.

The table below puts this into context for a range of gross salaries and should help you realise the scale of how much you should be saving each month.

Income	Annual Cont.	Monthly Cont.
£20,000	£3,000	£250
£30,000	£4,500	£375
£40,000	£6,000	£500
£50,000	£7,500	£625
£75,000	£11,250	£937.50
£100,000	£15,000	£1,250
£125,000	£18,750	£1,562.50

15% of annual gross salary as annual and monthly total pension contributions.

Our top 5 tips for increasing your pension contributions in your 30s.

If you are not currently contributing 15% of your pre-tax income to your pension, don't worry. There are plenty of ways to increase your contributions and get on track for a comfortable retirement.

Here are our top 5 tips to help you build the pension pots you need in retirement:

1. Increase your contributions gradually: You don't need to go from 0 to 15% overnight. Try increasing your contributions by 1% or 2% every few months until you reach your target.

2. Take maximum advantage of your employer’s contributions: If your employer offers a matching scheme, make sure you're taking full advantage of it. This is essentially free money, so it is well worth making the most of it.

3. Consider consolidating your pensions: If you have multiple pensions from previous jobs, it may be worth consolidating them into one. This can make it easier to keep track of your pension pot and potentially reduce fees, maximising your returns and making admin easier.

4. Review your contributions regularly: Make sure you're regularly reviewing your pension contributions to ensure that you're on track to meet your retirement goals. If you're falling behind, consider increasing your contributions or making other adjustments to your plan.

5. Open a SIPP or personal pension to build a pension pot that is independent of your workplace pension (but don’t cancel your workplace pension membership!): Additional pensions are particularly useful if you have already hit your 15% contribution target at work and your employer doesn’t allow you to contribute any more (or won’t match any more - this is always worth asking about). As you will be paying into a SIPP/personal pension with your take-home pay that has already been subject to tax, you will be able to claim tax relief on your contributions to further boost your savings.

Conclusion.

If you are in your 30s and wondering how much you need to pay into your pension to secure a comfortable retirement, the answer is around 15% of your pre-tax income. Of course, this will vary depending on your individual circumstances, but aiming for this target is a good place to start. Remember that you will need to build a substantial pension pot of at least several hundred thousand pounds to provide an income for a comfortable retirement.

Remember that starting early is key, and that you can gradually increase your contributions over time. By taking advantage of employer contributions, compound interest, consolidating your pensions and regularly reviewing your contributions, you can make sure that you are on track for a financially secure retirement.

What’s next?

If you want to bring yourself up to speed on the topic of pensions, a great place to start is this index of pension articles we’ve published on the subject. If you need help or advice on your personal or business finances or if you want to consider investing to make your money work harder, you can get in touch with one of our advisors for independent financial advice. We offer a free initial consultation and although we are based in Tunbridge Wells, we advise clients across the UK.

Don’t forget, this article offers general financial information and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and the benefits depend on individual circumstances.