Pension contributions confusion

[rainydayfund]

I was watching Martin Lewis the other night and he said that a good rule of thumb is to pay 20% of my income each month in to my pension (I'm 40's). So if I take home approx £2k a month this would be £400. But then he laughed and said don't worry as if anyone does that. But isn't that the advice, so why did he say you probably won't? Bit confused by it all....

I think for people on low incomes it's an unachievable target after the cost of rent/ mortgage/ fuel/ council tax etc. But if you can afford it, do it!

Maybe it is unaffordable for a lot of people, so paying off debt first is more important. Once you out of consumer debt and are able to pay all your bills, then contributing 15% to pension, or half your age to pension, whatever general rule of thumb you want to use, is a good idea. The more to pension the better but with the understanding that it is locking away the money, not a savings account you can dip in to.

The 20% would normally be your gross pay rather than your take home so on £30k more like £600. The difference is if you are able to do it via workplace pension or similar you are offsetting the 20% against tax and NI savings.

So as a rough example if you did sacrifice 20% into a workplace scheme your take home would drop to £1665 from £2000. So effectively you lose £335 of your take home pay. But £600 will have been paid into your pension so £265 extra in effect.

I put 20% of my salary into my pension but due to employer contributions and tax relief, i only contribute 6%. So it's worth understanding your workplace scheme.

Also, I think the rule of thumb is half your age as a percentage when you start. So the 20% would be if you are 40 but never paid into a pension before.