Martin Lewis has revealed an easy trick to know exactly how much money you should be putting into your pension pot each year.
The finance expert shared his ‘rule of thumb’ on what percentage of your salary to put away on last night’s episode of ITV’s The Martin Lewis Money Show Live.
The Money Saving Expert’s method involves taking the age you started paying into your pension, halving it, and paying that percentage of your salary into your pension.
So if you started paying into your pension at 30, you should halve that number, and pay 15 per cent of your annual salary.
Martin Lewis (pictured) has revealed an easy trick to know exactly how much money you should be putting into your pension pot; using pictures of celebrities to illustrate his point
The London-based finance expert last night appeared on his ITV programme, The Martin Lewis Money Show Live, where he shared his ‘rule of thumb’ on how much to save
He admitted that while ‘very few people’ can afford to put away this percentage of their salary, the earlier you start putting money away for later in life ‘the better’.
‘So let me give you the rough rule of thumb’, explained Martin. ‘The rule of thumb is to get roughly two thirds of your final salary each year in retirement.
‘You’d need to take the age you start contributing to your pension, halve it, and put that percentage of your salary in for the rest of your life.’
Martin used pictures of celebrities Dina Asher-Smith, 25, Rochelle Humes, 31, and Ben Shephard, 46, to illustrate his point.
Martin and co-host Angelica worked out that a 25-year-old should be putting away 12 and a half percent of their salary for the rest of their life.
How to work out what to put into your pension
Martin revealed his ‘rule of thumb’ to gain roughly two thirds of your final salary each year in retirement.
Firstly, take the age you started paying into your pension pot. Half this number and put that percentage in for the rest of your life.
So if you started paying into your pension at 30, you would pay 15 per cent of your annual salary until you retire.
Meanwhile, someone under 31 who has already started paying into their pension pot should save 16.5 per cent and a 46-year-old should be saving 23 per cent of their salary.
Martin accepted that the rates may seem high to viewers, but encouraged them to save whatever they can, even if it’s £10 or £20 a month, to allow the money time to compound interest.
‘I know what you’re thinking’, he said, ‘You’re doing that equation for yourself and you’re saying there is absolutely no way I could afford that.
‘And you’re right. Very few people do.
‘But the real message I want you to get out of that is the earlier you start contributing to your pension, the better. The less of your salary you have to put in.
‘If you know a 20/21-year-old, tell them, ‘Get money in your pension now.
‘Even £10 or £20 a month – because it’s got time to compound and that will make you a much better retirement.
Martin later explained how auto-enrolment means the majority of employees over the age of 22 can automatically save for retirement.
The current state pension is £175.20 a week- however many will be saving into private workplace pensions which automatically kick in when you’re earning over £10,000 and aged 22 or above.
‘This means that if you are an employee, you are almost automatically contributing into a pension.
‘The total amount you must pay in is 8 per cent of your salary – 3 per cent of this must be from your employer’, Martin said.
Viewers were quick to take to Twitter to praise the finance expert, with several admitting they had no idea they should be putting so much of their salary aside
Viewers were quick to take to Twitter to praise the finance expert, with several admitting they had no idea they should be putting so much of their salary aside.
‘The Martin Lewis Money Show is the highlight of my Thursdays, notes notes notes!’, said one.
Another wrote: ‘Oh god. Got the Martin Lewis Money Show on and I should be putting in 15% of my wage into my pension really. It’s the age you started, then half it. That’s the %.’
A third viewer commented: ‘Martin Lewis programme on pensions interesting if you missed it’, wrote another.’
Martin accepted that the rates may seem high to viewers, but encouraged them to save whatever they can to allow the money time to compound interest