The question of how much to save into your pension pots in your 40s is an important one as it can have a significant impact on your retirement income.

How much should I save into my pension pots in my 40s?

One commonly used rule of thumb is to save half of your age as a percentage of your salary into your pension each year. For example, if you are 40 years old, you should aim to save 20% of your salary into your defined contribution pension scheme (most workplace pensions and private pensions). The older style defined benefit pensions are more complicated as these pay out a % of your final salary upon retirement and were most common in public sector organisations.

This rule of thumb is based on the idea that the earlier you start saving for retirement, the less you will need to save each year to achieve your retirement income goals. By starting to save early in your career, you can benefit from compound interest and investment growth over a longer period, which can help to build a larger pension pot.

To put these numbers in context, the tables below illustrate some typical salaries and how much you should be contributing into your pension pots at 40 (20%) and 49 (24.5%).

Age	%	Salary	Annually	Monthly
40	20	£25,000	£5,000	£416
40	20	£30,000	£6,000	£500
40	20	£40,000	£8,000	£666
40	20	£60,000	£12,000	£1,000
40	20	£100,000	£20,000	£1,666
40	20	£150,000	£30,000	£2,500

Saving half of your age as a percentage of your salary at age 40.

Age	%	Salary	Annually	Monthly
49	24.5	£25,000	£6,125	£510
49	24.5	£30,000	£7,350	£612
49	24.5	£40,000	£9,800	£816
49	24.5	£60,000	£14,700	£1,225
49	24.5	£100,000	£24,500	£2,041
49	24.5	£150,000	£36,750	£3,062

Saving half of you age as a percentage of your salary at age 49.

What’s startling though is just how much of your salary should be saved into your pension pot. The UK government introduced auto-enrolment into a workplace pension scheme for employees to make it easier for people to accrue a sizable pension pot. However, while there are various thresholds and considerations to take into account, the actual contributions made by the employee and employer combined are often below 10%, which is well below the 20% to 24.5% guideline someone should be paying into their retirement savings in their 40s.

What you may notice is that an enhanced level of employer pension contributions is typically offered as an incentive to more senior roles and, more generally in the financial services and energy industries. According to the Pensions Regulator:

“In financial services, for example, organisations contribute an average of 9.5% of their employees’ salaries. Businesses in the energy sector, on the other hand, contribute 7.1% of an employee’s salary on average. It is worth noting that the average employer contributions for men across all industries is 4.6% and for women, it is 4.4%.”

With this in mind, if the average employer’s pension contribution is 4.5%, you will personally need to contribute 15.5% of your salary at age 40 and 20% of your salary at age 49 to meet the guideline savings goals.

Age	% of sal.	Emplyrs cont.	Your cont.
40	20	5	15
40	20	6	14
40	20	7	13
40	20	8	12
40	20	9	11
40	20	10	10
40	20	11	9
40	20	12	8
40	20	13	7
40	20	14	6
40	20	15	5

What your employee pension contribution should be at age 40.

Age	% of sal.	Emplyrs cont.	Your cont.
49	24.5	5	19.5
49	24.5	6	18.5
49	24.5	7	17.5
49	24.5	8	16.5
49	24.5	9	15.5
49	24.5	10	14.5
49	24.5	11	13.5
49	24.5	12	12.5
49	24.5	13	11.5
49	24.5	14	10.5
49	24.5	15	9.5

What your employee pension contribution should be at age 49.

In theory, these numbers are all good and well, but some employers may be less happy to facilitate increasing your own pension contributions into their workplace scheme, or may only allow you to do this once a year. Not to worry though, all you need to do is take the total contributions from your employment (which could be as low as 8%) and save the difference to your target percentage into a private investment scheme from your take-home pay, such as an ISA or SIPP – just speak to a financial adviser to understand the tax implications/benefits of each of these options.

Bear in mind though that this rule of thumb is just a guide, and the actual amount you need to save will depend on several factors, including your:

Retirement income goals: If you want a larger income, you will need to accrue a larger pension pot.
Current pension and others savings: If you are ahead of the game, the less you will need to save and vice-versa.
Expected retirement age: The earlier you want to retire, the more you will have to save into your pension at an early age.
Where your pension is invested: Typically speaking, a well-diversified high risk fund or multiple funds will provide the greatest potential for returns above inflation over the long term. It may be you need to review your investments to ensure they are aligned to your attitude to risk and your overall retirement goals.
Type of pension scheme you are contributing to: There are different rules for personal pensions, auto-enrolment pensions, occupational workplace schemes, stakeholder schemes and defined benefit / final salary schemes.

Conclusion.

There is no one-size-fits-all answer to the question of how much one should save into their pension pots in their 40s. However, some general rules of thumb can help guide your decision-making process and one of the easiest yardsticks is to save at least half of your age as a percentage of your salary into your pension.

It's also important to regularly review your pension contributions and adjust them as needed. As your income or retirement goals change, you may need to increase or decrease the amount you're saving into your pension pots.

It’s also worth reading our article “How much should I have in my pension savings pots at 40” to better understand where your pensions savings should be by now and what steps you can take to increase your pension pot.

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.

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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.

How much should I save into my pension pots in my 40s?