How much should be in your pension at 30? Retirement savings guide for your 20s and 30s

Retirement might seem decades away when you're 30, but the power of compounding means setting up a pension as early as possible is your best chance of a decent standard of living in your later years. 

Young people should be aware of the need to contribute to their company pension or self-invested personal pension (SIPP).

But there is even more to the ins and outs of how to contribute, strategise and build strong retirement savings. So, with no time to waste, let’s get stuck into the ways to go about saving and investing for your retirement in your 20s and 30s.

How Much Should You Have in Your Pension at 30?

This number has changed over time. Older generations often have the benefit of gold-plated salary-for-life pensions to rely on.

But if you are in your 20s or 30s now, you probably do not have one of these defined benefit pensions. Or even if you do, they’re likely to be a lot less generous than they used to be. So, kick-starting your retirement savings early is important. But it’s not just about shoving as much cash under the mattress as possible.

By age 30, a common rule of thumb is that you should aim to have saved approximately 1x your annual salary in your pension pot.¹ This is a useful benchmark, but bear in mind your specific retirement goals, lifestyle expectations, and current financial situation will all impact your personal target. 

Here's a more detailed breakdown of how that might look over your lifetime:

Remember, it’s always best to speak with a professional financial advisor if you’re unsure about how to best meet your own goals.

Why start saving for your pension early?

1. The power of compounding

The most compelling reason to start pension contributions early is the power of compounding. When you gain interest on your investments, over time that interest earns its own interest, creating a snowball effect that accelerates the longer you leave it.

Let's compare two pension savers to illustrate this.

Consider Sam and Alex. 

Sam starts investing £100 at the end of each month when they are 25 until the age of 65. The total amount they end up putting away over that period is £48,000. And if their investments were to achieve a 5% annual return, they’d finish with a pot worth £148,281.72.

Alex begins later but doubles up on the pension contributions to try to make up for it. They invest £200 at the end of each month from the age of 45, hitting the same £48,000 by 65. But even with the same 5% annual return on their investments, they end up with £81,176.92.

That’s over £67,000 less than Sam.

Simply saying that saving as much as you can, as early as you can, and as often as you can is trite by any standard, but time can add serious value to your pension savings.

2. Longer Retirement Period

Another reason to start saving for retirement when you can is that better healthcare and longer life expectancies mean today's 30-year-olds could spend over two decades in retirement.² The state pension age will likely be at least 68 for most people currently in their 30s, so the standard of living you can afford at that point will depend largely on how much you've saved yourself.

How much money do I need to retire?

When trying to determine how much money is required to retire comfortably, you first need to establish what you want life in retirement to look like. The UK’s Pensions and Lifetime Savings Association (PLSA) has defined three retirement living standards, and the amount of expenditure required to achieve that given standard right now. 

Inflation will impact what these lifestyles cost down the line. But this is a useful benchmark to help think about the kind of lifestyle you want in retirement, more practically.

How much should I put in my pension at 30?

If you have not started contributing yet, a common rule of thumb is to contribute a percentage of your salary equal to half your age when you start pension saving. So if you are making a start at 30, you should ideally be putting away 15% of your gross salary into your pension.

Remember, this percentage includes:

• Your personal contributions
• Your employer's contributions (minimum 3% under auto-enrolment)
• Tax relief from the government

So, depending on your circumstances, the actual contribution from your salary might be around 8-9%, with the remainder coming from your employer and tax relief.

If you are already contributing to your pension, the question is trickier to answer. It’s likely worth looking at your current pension pot and comparing it with the milestones already covered in this article. 

If you are seriously lagging behind these rough benchmarks, or you want to retire early, increasing your rate might be the way to go. 

3 Tips to Boost Your Pension Savings at 30

If you are looking for more information, read our complete guide to checking and improving your pension. 

1. Maximise employer matching

If you earn more than £10,000 (from one job) and are aged between 22 and the state pension age, both you and your employer have to pay a percentage of your salary into a workplace pension scheme. 

Many employers will match additional contributions beyond the minimum requirement. Check pension documentation from your employer to ensure you are making the most of their potential generosity.

2. Consider a SIPP

There are multiple types of pensions out there. A Self-Invested Personal Pension (SIPP) gives you more control over your investments and can complement your workplace pension. 

With a SIPP, you make the investment decisions. This can allow you to invest in a way that matches your own strategy and goals, and it could also mean better returns and lower fees than traditional pension schemes. 

Just remember that the value of your investments can go down as well as up. 

3. Consolidate old pensions

Gen Z is predicted to change jobs up to 18 times during their careers. That can make it very easy to lose track of all those pension pots. According to the Pension Policy Institute, around £31.1bn is currently sitting in lost or unclaimed pensions in the UK.³ Consider transferring old workplace pensions into a single pot to reduce fees and simplify management.

Before transferring existing pensions, consider:

• Will your current provider charge exit fees?
• Will a market value adjustment (MVA) apply on transfer?
• Might you lose valuable benefits or guarantees?
• How long will the transfer take, and what impact might this have on your portfolio?

What investments should I put in my pension?

If you decide to use a SIPP, working out how to invest can be a real challenge.

At age 30, with potentially more than three decades until retirement, your pension can generally be invested more aggressively. As such, it can make sense to invest your pension heavily in stocks when you’re young. This is because stocks offer higher potential returns over the long term, but high potential for volatility over the short term.  

There are various ways to approach this, but one popular approach is the ‘Rule of 110’. This means subtracting your age from 110 (or in some cases 100) to choose how much of your portfolio is allocated to equities.

Rule of 110

That being said, it’s difficult to predict winners and losers 35 years out. Even if you are investing heavily in equities, you probably want to back more than just one, or it could tank the majority of your retirement savings.

That’s why diversification can be key, giving you exposure to a variety of different equities and leaving room for other assets like bonds, commodities like gold, and even property.

If you’re in control of your portfolio, you can quickly achieve a degree of diversification by investing in exchange-traded funds (ETFs) or mutual funds. These provide investors with exposure to a basket of different assets. 

You can also take the ‘core and satellite’ approach, which means you then supplement these broader holdings with smaller positions in individual companies, or assets like investment trusts.

How to plan for early retirement

If your retirement goals include retiring before state pension age, you'll need to put away significantly more. But remember, there are limits to your tax-free contributions:

• In general, most people can contribute tax efficiently an amount of: the lower of £60,000 in 2024/25, or 100% of their total earnings.
• However, if you are a high earner making more than £260,000 annually (including your pension contributions), that allowance is reduced by £1 for every £2 earned in excess. That tapering stops once your annual allowance reaches £10,000.

For more information about seeking early retirement, read our guide to F.I.R.E.

Tax Relief: The Government Boost to Your Pension

One of the most attractive features of pension saving is tax relief. The government adds money to your pension based on your income tax rate:

• Every taxpayer gets basic rate income tax relief applied to their personal pension contributions.
• The basic-rate tax relief (20%) is applied automatically. That means for every £80 you contribute, the government adds £20, making it £100 for your pension.
• Higher-rate taxpayers (40%) can claim additional tax relief through their tax return. This means a £100 pension contribution effectively costs you just £60. 
• Additional-rate taxpayers (45%) can claim even more tax relief through their tax return. For them, a £100 pension contribution effectively costs just £55. 

Frequently Asked Questions (FAQs)

What happens if I can't save 1x my salary by age 30?

While the 1x salary guideline is helpful, it's just a guideline. The most important thing is to start saving something now rather than delaying. You can gradually increase your contributions over time, especially as and when you receive pay rises. 

What if I'm self-employed or don't have a workplace pension?

Setting up a SIPP is simple, and it’s particularly important for self-employed individuals. Although you won’t get a helping hand from any employer contributions, you'll still benefit from government tax relief on your contributions. Plus, you get to decide exactly where your money is invested.

How do I find my lost pension pots?

You can use the government's Pension Tracing Service, which is free of charge, to help find contact details for your workplace or personal pension schemes. Once you do, you can consolidate them all under one roof with Freetrade. 

Sources:

¹ https://retirement.fidelityinternational.com/media/global-wi/pdfs/retirement-savings-guidelines-apr-2022.pdf 

² https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2018to2020 

³ https://www.pensionspolicyinstitute.org.uk/research-library/research-reports/2024/briefing-note-138-lost-pensions-2024/