Martin Lewis has outlined a simple rule of thumb for pension contributions, describing it as a guideline that 'scares the pants off everybody'. The MoneySavingExpert.com founder addressed the question during a pensions special on the Martin Lewis Money Show Live, aired on ITV1 on Tuesday, May 5.
A viewer named Daryl, in his mid-30s, asked whether contributing 15% of his income to his pension was sufficient. Lewis responded by explaining the rule: 'Take the age when you start putting into your pension – so in your case, we'll say 30 – and halve it, that's 15. That's how much of your income you want going in for the rest of your life for a decent retirement.' He added that very few people achieve this level, but it highlights the importance of starting early.
Lewis also reminded viewers that the state pension is available based on National Insurance (NI) contributions. To qualify for the full new state pension, Brits need 35 years of NI contributions, which currently amounts to £241.30 per week or £12,547.60 per year after a 4.8% rise in April. A minimum of 10 years of contributions is required to receive any state pension.
The money expert noted that buying extra NI years can be a worthwhile investment. 'An extra National Insurance year is worth around £360 a year of state pension for you,' he said. 'So if you're going to retire on less than the full state pension and you can buy a year, even if it costs you £1,000, because it's going to add £360 a year to your state pension, even if you live just a few years once you get your state pension, you make your money back.'
Lewis addressed complaints from older people who continue to pay NI despite having enough for a full state pension, explaining that NI is effectively a tax. 'That's because National Insurance is a tax in reality, it's just a tax that happens to be demarked as your contributions towards getting your state pension when you are older,' he said.
