If you find yourself in your 50s, with nothing set aside for retirement, it can feel like a daunting mountain to climb. Yet, this scenario is more common than you might think, with an estimated seven million people over 50 in the UK having no private pension savings at all.
Let’s face it, when you were younger, there wasn’t the financial awareness or planning tools we have today. Even benefits like Auto-Enrolment - which has meant more employees were automatically saving into a workplace pension - are relatively recent. However, it’s not too late to start saving, and the power of compound interest can help you make up for lost ground.
It’s never too late to start
The first thing to understand is the power of compound interest. Albert Einstein once famously referred to it as the ‘eighth wonder of the world’. Compound interest works on the principle that the interest you earn on your savings also earns interest. So, even if you’re starting to save later in life, your money can still grow significantly over time.
Example: Sarah’s 50 years old with no private pension savings, but she’s able to start saving £400 a month into a personal pension. For every £400 she contributes, the government adds an extra £100 in basic rate tax relief, effectively boosting her savings by 25%.
Assuming a growth rate of 5% after fees and inflation, she’d have a pension pot worth around £200k in 20 years time. This could give Sarah an extra £8k of income in retirement. Combined with her full new State Pension entitlement, she’d comfortably have over £20k a year to live on from her 70th birthday.
Many people now consider 70 to be the new 60. Research even indicates that baby boomers are experiencing a slower aging process compared to previous generations. With retirement ages already on the rise, it seems that not only is retirement being postponed, but so is the experience of old age.
Delaying retirement offers several advantages. Emotionally, remaining in the workforce can create more social connections, reducing the feelings of loneliness many retirees face. Physically, maintaining a routine that includes even light exercise can lead to improved health outcomes and increased life expectancy. Financially, the benefits of compound interest continue to grow, meaning that working longer and continuing to contribute to your pension can further bolster your retirement savings.
How much do I need to save?
Fortunately, for those curious about the potential expense of retirement, the Retirement Living Standards provided by the Pensions and Lifetime Savings Association (PLSA) offer a helpful resource. These standards estimate the costs associated with retirement living at three different levels.
The living standards for 2024/25 are:
- Minimum - which covers all your needs, with some left over for fun. This costs £14,400 a year for one person, or £22,400 for a couple.
- Moderate - which offers more financial security and flexibility. This costs £31,300 a year for one person, or £43,100 for a couple.
- Comfortable - which includes more financial freedom and some luxuries. This costs £43,100 a year for one person, or £59,000 for a couple.
Here’s a graph to illustrate how much income you’d need from workplace and personal pensions, on top of a full new State Pension entitlement (more on this later!), to achieve these different lifestyles in retirement.
If you want to retire at 60, a good rule of thumb is that you’ll need savings of about 20-25 times your desired annual income in retirement. With this, you’ll also need to consider when you can access your pension money. You can start taking your personal and workplace pension at 55 (rising to 57 in 2028). But if you’re eligible for the new State Pension, you won’t be able to claim it until you reach 66 (which will rise to 67 in 2028).
Waiting to take an income from your pension gives you more time to save and allows your investments to grow. This potentially could lead to a more comfortable retirement and better financial security in the future.
How to start from zero savings
Starting your pension savings from scratch can feel daunting, but you can still make great progress in your 50s. Here’s a simple guide to help you get started.
1. State Pension
Your State Pension entitlement is based on the National Insurance contributions you make and the number of ‘qualifying years’ you accumulate. You can see how much you could receive, when you can claim it, and ways to increase it at gov.uk. Simply fill in a few details to check your National Insurance record.
As of 2024/25, the full new State Pension is worth £221.20 per week, amounting to £11,502.40 per year. To receive any State Pension, you need at least 10 years of contributions, while 35 qualifying years are required for the maximum amount.
Checking your State Pension forecast is essential for retirement planning, as it helps you understand what you’ll receive from the government. If you’ve been a caregiver, you may qualify for National Insurance credits through Child Benefit claims, so make sure to claim everything you’re entitled to.
2. Workplace pension
A workplace pension is a pension that’s arranged by your employer. If you’re eligible, you’ll be automatically enrolled and contributions will be taken directly from your wages and paid into your pension each month. Usually, your employer also adds money to your pension and contributions from the government will be added in the form of tax relief. Usually basic rate taxpayers get a 25% tax top up, meaning HMRC adds £25 for every £100 you pay into your pension making it £125.
If you’re unsure whether you already have a pension, you can use our ‘Do I have a pension?‘ tool could be a good starting point. You can also search for your previous employers and find out which pension provider they likely used.
New analysis conducted by the Centre for Economics and Business Research reveals that over £50 billion pounds in hard-earned pensions are at risk of being misplaced or lost. If you have several pension pots, consolidating your pensions can be a good way to get on top of your retirement savings.
3. Personal pension
While a workplace pension is set up by your employer, you can choose and set up a personal pension yourself. When you start a personal pension you’ll usually be given a choice of investment options. Once you’ve chosen a plan, you can begin making regular contributions and one-off payments.
Why not take a moment to check which plan you’re currently in and think about how much risk you’re comfortable with? You might also want to look into specialist plans that really resonate with your values and financial goals. Taking this personalised approach can help you feel more confident that your investment strategy is right for you.
For 2024/25 the tax-free annual allowance is 100% of your salary or £60,000 (whichever is lower). This is the amount you can save into a pension each year while still receiving tax relief. If you earn less than £3,600, or you don’t earn anything at all, you’re still allowed to receive tax relief on pension contributions up to £3,600 gross. That means you can save up to £2,880 net plus a 25% tax top up.
Summary
Starting your pension saving from scratch in your 50s may not feel ideal, but it’s still worthwhile. With a clear plan and some discipline, you can still grow a sizable pension pot for your retirement. It’s your future that matters, so begin your planning today.
Consider it like planting a tree: the best time to plant one was 20 years ago, but the second-best time is now. Even if you’re starting in your 50s, you could have 20 more years to prepare for your future - which can truly make a difference.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
