Martin Lewis shared the ‘rule of thumb’ on his ITV show (Image: ITV)
Martin Lewis has shared a ‘rule of thumb’ he says should help people achieve a ‘better retirement‘. The Money Saving Expert founder explained it on the latest episode of ITV’s The Martin Lewis Money Show, which aired last night (May 5).
The finance expert hosted a ‘Pensions Special’ episode, which he described as his “most important show” of the year. During the instalment, he spoke about private and workplace pensions, pension ‘super powers’, inheritance tax and how to find lost pensions.
He also answered questions sent in by viewers. Martin Lewis‘ co-host, Jeanette Kwakye MBE, read a question from a viewer called Daryl, who asked about how much he should be contributing towards his pension.
She said: “Daryl’s asking, is there a good rule of thumb to pay into pensions, whilst I want to put more into my pension, I don’t want it to impact my quality of life in the here and now. Is doing 15% contributions to someone in my mid-thirties enough?”
In response, Martin Lewis said: “Wow, I think you’re doing really well. I mean, way more than most people. Let me give you the rule of thumb that scares the pants off everybody.”
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He went on to share the ‘rule of thumb’ for a ‘better retirement’. It involves taking your age when you begin your pension and dividing it by two. That result is the percentage of your earnings you should try to save for the rest of your working life (for example, if you start at 20, save 10%; if you start at 40, save 20%).
He explained: “Take the age when you start putting into your pension. So in your case, we’ll say 30. Half it, that’s 15. That’s how much of your income you want going in the rest of your life for a decent retirement”.
Martin Lewis said that not many people actually reach this goal in real life, but he stressed that starting earlier yields better retirement outcomes. “Very few people ever get there,” he said.
Martin Lewis then pointed out that if you begin saving for a pension sooner, it will help you have a safer financial situation when you retire. “The real reason for using that rule of thumb is to indicate that the earlier you start, the better a retirement that you’re going to have,” he said.
Martin Lewis also pointed out that getting a state pension depends on the National Insurance contributions people make while working. This is different from any private pension plans they might have.
He added: “Of course, you’ll also get the state pension depending on your National Insurance contributions, and when you retire at age 66 or 67, but tonight we’re focused on private pensions.”
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In the UK, everyone can receive a State Pension if they earn National Insurance years through work (you can also earn National Insurance years in other ways, like taking care of your child, being a caregiver, or being sick). Nowadays, most people need about 35 years to be eligible for the full new State Pension, which is currently £241.30 each week for a single person.
On the Money Saving Expert website, it says: “This payment is taxed as other income is and currently paid when you hit a certain age whether you still work or not. Between 2026 and 2028 this age is being gradually increased from 66 to 67 so if you’re currently 65 or 66 the exact date you’ll be eligible is based on your date of birth.” You can use the government’s State Pension age tool to check.