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How to start building a pension in your 40s in three easy steps

Written by: Romi Savova
The earlier you start saving for retirement the better, but don't panic if you've left it until later in life to open a pension.

The idea of building a decent pension from scratch at the age of 40 might seem impossible. It’s important to remember, however, that your 40s are a time when you’re likely to be at your peak earning potential, with somewhere between 15-30 years still to go until you can draw your pensions. By staying on top of your pension and planning ahead, you can build the retirement you want, starting today.

Find out how much you need to save

There are a few rules of thumb when it comes to pension saving, such as putting away 15% of your salary or dividing your age by two. However, a pension calculator can provide more personalised guidance, helping you figure out how much you need to save in order to afford the retirement you want.

Most calculators will give you the option of adding the State Pension so you can see a realistic estimate of what your income is likely to be and, crucially, if you’re on track.

We recently carried out a 2019 Pension Landscape survey, which found that if savers were to make an additional contribution of just £100 a month, on top of their auto-enrolment contributions, they could make a significant difference to their retirement.

Don’t miss out on free money

Many savers are unaware that they can claim tax top ups on their personal pension contributions, meaning they are effectively missing out on “free money” from the government. Basic rate taxpayers can get a 25% tax top up, while higher and additional rate taxpayers can claim a further 25% and 31% respectively through their self-assessment tax returns. The great thing about tax relief is that almost anyone can benefit from it – whether self-employed, in part-time employment or not working at all.

If you work in the UK and earn more than £10,000 a year, under the rules of auto-enrolment your employer must contribute 3% of your qualifying earnings by law, while you pay in 5%. If you can afford to pay more than 5% into your workplace pension, and your employer will match your contributions, this can be a great way to add even more “free money” to your pension.

Move your pensions as soon as you change jobs

The Department for Work and Pensions estimates that the average person could have 11 pension pots from 11 employers during their lifetime. If you move house, and don’t update every provider, it’s unlikely you’ll continue receiving regular statements, making it impossible to know how much you are paying in fees, or how your investments are performing. It can also be easy to forget where your money’s saved.

To avoid losing track, it’s worth considering consolidating your old pensions into one pot. This can help you better manage your retirement savings and potentially save you money in the long-run as you’ll have one clear balance, one fee and can easily track the performance of your investments.

Romi Savova is CEO of online pension provider, PensionBee 

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