I’m a pension millionaire with over £1million saved – how you can do it too
BUILDING up a pensions pot worth a million pounds sounds like an impossible dream, particularly for those of us earning average salaries.
But Darren, a 56-year-old retail worker from South Yorkshire, managed to save a nest egg of over a £1million on a modest salary.
We explain how by saving early, taking advantage of company matching opportunities and benefitting from compound interest he managed to do it.
A pension pot worth a million pounds could get you a guaranteed annual income for life of around £37,700 each year,
That figure assumes that you've already taken your 25% tax-free lump sum.
Of course, how much you'll actually need for retirement depends on a lot of factors including the lifestyle you want, how much you earn now, and whether you own your property or will need to pay rent.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension - The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% (1% in tax relief) and employers contributing 3%. - Final salary pension - This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £179.60 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
- Basic state pension - If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £137.65 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
As a general rule of thumb, experts say you should aim to have savings that provide an income worth between half and two-thirds of your annual salary.
Consumer experts Which? estimate that a couple needs at least £757,000 in pensions savings to have a retirement lifestyle that includes annual long-haul holidays and a new car every five years.
It says that a couple would need to have £305,000 saved to have an income of £19,000 a year from an annuity, which would allow for a “comfortable” life — including holidays to Europe; visits to pubs and restaurants; Sky TV and days out.
We spoke to Darren to find out how he achieved his goals and his top tips for savers at every stage in the retirement savings journey.
Questions to ask your new provider:
- Do I apply to transfer through you or my current provider?
- Are there any fees for transferring in, e.g. set-up fees?
- Do I have to make regular payments into the new pension?
- What investment funds and levels of risk do you offer? You may need help from a financial adviser with this.
- What options do you have for when I want to take my money out?
Boost your pot
In the run up to retirement, Darren says the most important thing he did was to start ramping up his contributions.
Check your state pension
Darren’s final tip is that people should check their national insurance record to make sure that they are on track to get the full amount.
You can view your own record on .
He says: “Make sure you check your national insurance contributions as that could be a lifeboat for savers. While it’s great to have the extra savings don’t forget the basics.
"Check that, be aware of that, then build on it. Regularly looks at all your benefits and pensions statements, if you keep checking you’re more likely to engage and pay more.”
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