Pension Planning in Your 30s and 40s: Are You On Track?
What you need to know in 30 seconds:
- Rule of thumb: Save half your age as a % of salary (e.g., at 40, save 20% including employer contributions)
- Targets: 1x salary by 30, 2x by 35, 3-4x by 40, 5-6x by 45
- Catch-up strategies: Increase contributions by 1% annually, sacrifice bonuses, consolidate old pensions
- Tax relief: Basic-rate get 25% bonus, higher-rate get up to 67% back
- Action now: Every £100/month at 35 = £50,000+ by retirement
I know, I know—retirement planning sounds about as exciting as watching paint dry. But stick with me here, because the numbers might actually surprise you (in a good way, promise!). Let's work out if you're on track or need to course-correct...
Whether you're based in Yeovil, Sherborne, Dorchester, or Chard, your 30s and 40s represent a critical window for retirement planning. You're likely earning more than in your 20s, but retirement still feels distant enough that it's easy to delay. However, these two decades can make or break your retirement lifestyle thanks to the power of compound growth.
Across Somerset, Dorset, and Devon, we see clients balancing workplace pensions with private contributions to secure their retirement. The question most people ask is simple: "Am I saving enough?" This guide will help you answer that question and show you what to do if you're falling behind.
A useful rule of thumb is to have pension savings equivalent to half your age as a percentage of your salary.
- Age 30: Contribute 15% of salary
- Age 35: Contribute 17.5% of salary
- Age 40: Contribute 20% of salary
- Age 45: Contribute 22.5% of salary
This includes both your contributions and your employer's. So if you're 35 and earning £40,000, you should be contributing around £7,000 per year (17.5%) combined.
Here's a more detailed breakdown based on your current age and salary:
Target: 1x your annual salary in pension savings
If you earn £30,000, aim for £30,000 in your pension. If you earn £50,000, aim for £50,000.
Target: 2x your annual salary
Earning £40,000? You should have around £80,000 saved.
Target: 3-4x your annual salary
On a £45,000 salary, you're looking at £135,000-£180,000 in pension savings.
Target: 4-5x your annual salary
Earning £50,000? Aim for £200,000-£250,000 saved.
Target: 6-7x your annual salary
By 50 on £55,000, you should have £330,000-£385,000 saved for retirement.
If these numbers feel daunting, you're not alone. According to recent research, the average UK pension pot at age 35 is around £25,000—well below the recommended targets. In towns like Dorchester and Chard, many clients come to us concerned they've started too late.
The good news? You still have time to catch up, and there are several strategies to accelerate your savings. Our advisers across Somerset and Devon specialise in creating catch-up plans tailored to your circumstances.
Since 2012, auto-enrolment has made workplace pensions the default for most UK workers. Here's how they work:
The legal minimum is:
- Employee: 5% of qualifying earnings
- Employer: 3% of qualifying earnings
- Total: 8% of qualifying earnings
"Qualifying earnings" means salary between £6,240 and £50,270 (2024/25). So minimum contributions don't apply to your full salary if you earn above £50,270.
While 8% is better than nothing, it's unlikely to give you the retirement lifestyle you want. Based on current projections, an 8% contribution from age 25 to 67 might replace only 30-40% of your pre-retirement income.
Most experts recommend contributing at least 12-15% of your salary for a comfortable retirement.
Starting early makes an enormous difference due to compound returns. Let's look at a real example:
Scenario 1 - Starting at Age 30:
- Monthly contribution: £300
- Years to retirement (age 67): 37 years
- Assumed growth: 5% per year
- Total pot at 67: £348,000
Scenario 2 - Starting at Age 40:
- Monthly contribution: £300
- Years to retirement (age 67): 27 years
- Assumed growth: 5% per year
- Total pot at 67: £195,000
By starting just 10 years earlier, you end up with £153,000 more—nearly double—despite contributing only £36,000 extra (£300 × 12 months × 10 years).
Even a small increase can make a significant difference. If you're currently contributing 8%, bump it up to 10% or 12%.
Impact: Increasing from 8% to 12% on a £40,000 salary means an extra £1,600 per year (plus employer matching if available). Over 30 years with 5% growth, that's an additional £106,000.
Many employers offer matching contributions above the minimum. If your employer matches up to 6% but you're only contributing 5%, you're leaving free money on the table.
Action: Check your company's pension policy and contribute at least up to the maximum match. If you need help understanding your workplace pension scheme, our pension services can provide clarity and guidance.
Salary sacrifice arrangements allow you to give up part of your salary in exchange for pension contributions. Benefits include:
- Save on National Insurance (both employee and employer)
- Potentially avoid higher-rate tax
- More money into your pension for the same "cost" to you
Example: Sacrificing £5,000 of a £50,000 salary saves you around £600 in National Insurance, plus your employer saves on their NI, which they might add to your pension.
When you get a pay rise, consider directing half towards your pension. You'll still enjoy increased take-home pay while significantly boosting your retirement savings.
Example: £3,000 raise? Put £1,500 extra into your pension. With tax relief, that only costs you around £900 from your net pay.
Beyond your regular workplace pension, you can make additional contributions:
- One-off lump sums (bonus, inheritance, etc.)
- Additional regular contributions via SIPP (Self-Invested Personal Pension)
- Consolidate old pensions into one manageable pot
If you haven't used your full £60,000 annual allowance in the previous three tax years, you can "carry forward" unused allowance.
Who benefits: Anyone with irregular income (bonuses, self-employed profits) or who receives a windfall.
If you earn over £100,000, pension contributions become even more valuable:
Income between £100,000 and £125,140 is effectively taxed at 60% due to the loss of your personal allowance (£12,570).
Solution: Contributing £25,140 to your pension if you earn £125,140 brings your adjusted income back to £100,000, saving you around £10,056 in tax while building retirement savings.
If your income (including employer contributions) exceeds £260,000, your annual allowance reduces by £1 for every £2 over this threshold, down to a minimum of £10,000.
Action: Seek professional advice if you're affected by the tapered annual allowance.
If you're in your 40s and haven't saved much, here's how to catch up:
Aim for 20-25% of your salary if possible. This might feel like a stretch, but remember that tax relief makes it more affordable than you think.
Working even two extra years can significantly improve your retirement income by:
- Adding more years of contributions
- Giving existing savings more time to grow
- Reducing the number of years you'll need to fund
High-interest debt (credit cards, personal loans) can cripple your ability to save. Prioritise paying these off, then redirect those payments into your pension.
If you own property, downsizing in later life or using equity release can supplement your pension income.
Check your State Pension forecast. If you have gaps in your National Insurance record, you can usually buy additional years (around £800 per year of pension).
Most workplace pensions offer a default fund, but it might not be right for you.
With 30+ years until retirement, you can afford to take more risk. Consider funds with higher equity exposure for greater growth potential.
You're still 20+ years from retirement. While you might want to reduce risk slightly, you should still focus primarily on growth rather than protection.
Check your pension performance at least once a year. Underperforming funds can cost you tens of thousands over time.
Opting out means refusing free money from your employer and valuable tax relief. Almost everyone should stay opted in.
The average person has 11 jobs over their career. Lost or forgotten pensions can add up to thousands. Use the Pension Tracing Service to track them down.
Since 2015, you can access pensions from age 55 (rising to 57 in 2028). But early withdrawals can trigger:
- 55% tax on unauthorised payments
- Loss of decades of compound growth
- Insufficient retirement income later
A 1% annual fee might not sound like much, but on a £100,000 pot over 20 years, it could cost you £30,000 compared to a 0.5% fee. Always check the charges.
As you earn more, your pension contributions should increase proportionally. Many people set up a pension in their 20s and never adjust it.
A comfortable retirement typically requires 60-70% of your pre-retirement income.
Current salary: £30,000
- Retirement income needed: £18,000-£21,000 per year
Current salary: £50,000
- Retirement income needed: £30,000-£35,000 per year
Current salary: £70,000
- Retirement income needed: £42,000-£49,000 per year
Don't forget: you'll also receive the State Pension (currently £11,502 per year for the full new State Pension), which reduces the amount you need from private pensions.
Here's your step-by-step plan for the next 30 days:
- Log into your workplace pension
- Calculate your current contribution percentage
- Find and value any old pensions
- Check your State Pension forecast
- Decide on your retirement age
- Calculate how much you'll need
- Determine if you're on track
- Increase contributions to at least 12% if possible
- Set up salary sacrifice if available
- Consolidate old pensions
- Check your current fund allocation
- Adjust if necessary based on your age and risk tolerance
- Set a calendar reminder to review annually
Generally no, except in cases of serious ill health. Accessing before 55 (57 from 2028) usually triggers a 55% unauthorised payment charge.
Defined contribution pensions can usually be passed on to your beneficiaries. If you die before 75, it's normally tax-free. After 75, beneficiaries pay income tax at their marginal rate.
This depends on your mortgage rate versus expected pension returns. As a rule of thumb: pay off high-interest debt first, then split between mortgage overpayments and pension contributions.
You can transfer old pensions into your current workplace pension or a SIPP. Always check for exit fees, valuable guarantees, or protected benefits before transferring.
You won't have a workplace pension, so you'll need to set up your own SIPP and make regular contributions. You'll still receive 20% tax relief on contributions up to £60,000 per year.
Your 30s and 40s are make-or-break decades for retirement planning. The combination of higher earnings and the power of compound growth means that what you do now will have a massive impact on your retirement lifestyle.
The key takeaways:
- Aim to contribute at least half your age as a percentage of your salary
- Always maximise employer matching—it's free money
- Review and increase contributions regularly, especially after pay rises
- Don't ignore old pensions—consolidate them
- The earlier you act, the less you'll need to contribute overall
If you're behind, don't panic—but do take action. Even small increases now can result in tens of thousands more at retirement.
Not sure if you're on track for retirement in Yeovil, Sherborne, Dorchester, or anywhere across Somerset, Dorset, and Devon? Book a free pension review with our chartered financial advisers. We'll analyse your current position, project your retirement income, and create a personalised plan to help you retire comfortably.
Explore our pension planning services to learn how we help clients across the South West secure their financial future.
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