Making your pension plan your priority in your 30s and 40s

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Reasons to step up your retirement plans in your 30s and 40s and five easy ways to get started.

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The milestones can come thick and fast in your 30s and 40s. It’s not always easy to strike the right financial balance with jobs, homes, holidays and families all to factor in.

So it’s not surprising that more than a third of people in their 30s and 40s want to enjoy their money now even if it means savings less for later, and 30% feel they only need to start thinking about retirement planning later, according to a Standard Life study.

But if you’ve been putting off pension planning we have some good reasons why now might be the right time to make your retirement plans a priority. And we have some simple steps you can take to give your pension plan a boost.

Many of us would like to retire earlier than we think we can

Our study found that on average people would like to retire at the age of 62, but don’t expect to be able to retire until the age of 68.

Having a plan can give you confidence

Those who plan for how much they’ll need to live on in retirement expect to retire earlier on average and are more confident in their financial decision making than those who haven’t planned, our research found. Of those who have already retired, those who planned are enjoying their retirement more, as our article Research shows the positive benefits of retirement planning explains in more detail.

The retirement landscape is shifting

If you’re in your 30 or 40s now, the situation when you come to retire could be very different from the one your parents or grandparents enjoyed. Life expectancy has increased in the UK over the last 40 years, albeit at a slower pace in the last decade. So, for many people, the money they save will have to last for longer.

Longevity has a knock-on effect on social care needs and 17% of the 30 and 40-somethings we surveyed expect to have to pay for the long-term care of a loved one during their retirement, while 40% expect to have to help children and grandchildren financially.

When we think of retirement we tend to focus on the early stages when we’re fit and healthy and downplay any less active stage later. So, it’s important to consider how long that might last and what the financial implications could be.

State Pension may not be enough

State Pension age rose to 66 last year and is due to rise again in 2028. 39% of 30 and 40-somethings think they will rely on it as a source of funding for their retirement. You can find out when and how you qualify and how much you can expect to receive in our article Changes to state pension – here is what you need to know. But it’s worth bearing in mind that even a full new State Pension for tax year 2022/23 would be just over £9,600 a year, which is a lot less than a minimum wage salary and would only cover a very basic lifestyle on its own.

If you want to give yourself peace of mind that you’ll be able to spend your retirement doing the things you want to, it’s important to understand how much you might need to save into your personal or workplace pension plan to fund that.

Paying your future self

The good news is that personal or workplace pension plans are among the most tax efficient ways to save for the future, as we explain in this guide to pension tax relief.

Money in your pension plan is invested and benefits from what’s known as compounding. Saving what you can afford earlier means your life savings have the chance to grow over a longer time. The longer you keep your money invested, the more likely it is to grow. This is because you have the opportunity to achieve growth not only on the money you’ve invested, but also on the growth you might have already experienced. This could happen year on year with a ‘snowball’ effect, though as with any investment, the value can go down as well as up and it may be worth less than was paid in.

Want to kick-start your pension planning? 5 things you can do

1. It’s a good idea to log on or use our app to regularly review how much is in your pension pot and how much you’re paying in. Our pension calculator can show you how much money that could give you in the future.

Are your plans still on track? If not, could you afford to increase your payments? Even just a little extra every month can bring significant rewards in the long run. It’s worth thinking about the next time you get a pay rise.

As your pension plan is an investment, it can go down as well as up and you could get back less than was paid in.

2. If you have a workplace pension plan, find out how much you need to pay in to get the maximum contribution from your employer. Some employers offer matching schemes where they will pay in more if you do.

3. Have your plans changed since you started your pension plan? Check what retirement date you’ve set and make sure your investments are in line with what you want to achieve.

If your pension provider knows what your plans are they can provide you with the right information and support at the right time, whatever your age.

4. If you’ve moved house or changes jobs a few times, have you lost track of any old pension plans? This article explains how you can track down any pension money you might be entitled to.

5. Consider how you’d like to approach retirement when it comes. People are less likely to view it today as a cliff edge between work and leisure. Our research shows that 51% think retirement means stopping work altogether, while 29% see it as a gradual reduction in work hours and 10% see it as a change in jobs to a more flexible work pattern. Read our retirement guides and start thinking about the options that will be available when you get closer to retirement.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

The information here is based on our understanding in March 2022 and shouldn’t be taken as financial advice.