How much should I have in my Pension Fund

The Pensions Authority published a consultation document in July 2016 on the “reform and simplification of supplementary funded private pensions“. One of the drivers of reform outlined in the report is the low public confidence in pension outcomes, the difficulty understanding pensions and poorly worded and structured communication .

Pension Benefit Statements are issued by pension providers annually and in the case of PRSAs  every six months but who actually reads and more importantly understands them. A Pension Benefit Statement  will show the current value of the pension, the projected value of the pension at retirement age, the estimated pension you will receive and the current value of that pension in today’s terms. This will be followed by a page of assumptions, warnings and footnotes relating to the calculations. The confusion is multiplied for anyone who has paid into a pension from a number of employments and receives a number of benefit statements with different assumptions and retirement dates.

Pension Benefits statements serve a purpose and I’m not suggesting that we should scrape them. We need to come up with better ways to simplify the numbers and help pension savers keep track of their progress throughout their working life.

Fidelity have come up with a  savings factor which is a rule of thumb to help you track where you are on the journey to retirement. You simply multiply your income at certain ages by your savings factor to see how much you should aim to have saved at that point.

Age                Savings Factor 

30                  1x of your salary

35                  2x

40                 3x

45                  4x

50                 6x

55                  7x

60                 8x

67                  10x

If you’re ahead of target that’s great, if you’re behind maybe you may need to consider increasing contributions or consider retiring at a later date. The Fidelity savings factor still comes with all the usual warnings and assumptions and is only intended as a quick engagement tool to highlight how much you need to save for retirement.