Martyn James: How to make sure you’re paying in enough into your pension

Pensions are one of the most important things we will ever spend our money on in our lives, yet most of the people I speak to don’t really understand how they work. Then we have the ‘ostrich factor’. This is where you stick your head in the sand and go in to denial about what your pension is doing: because knowing the reality of your situation can be overwhelming.

Pensions are complicated, but the good news is there are tips and suggestions, calculators and payment guides that can help you understand more about your pensions and how much you might want to pay in at different stages in your life. Here’s my guide.

What are the different types of pensions?

The state pension. This is the pension you get from the state (or government) and is based on your National Insurance contributions over your lifetime.

Your workplace pension. This is the pension you have through your workplace. Your employer will pay into it, and you can usually contribute extra into it as well. The pension provider should send you a statement every year showing you how it’s doing – even after you’ve left the business. Over your working life you might have a few.

A private pension. These are pensions you set up yourself. You get the same tax benefits as a workplace pension, and they are a really useful way to save for retirement – especially if you are self-employed.

How do I find out more about my pension?

The state pension payment is largely out of our hands, but you can make the most of your workplace and personal pensions. The free MoneyHelper website has loads of plain English pension advice – and they have a helpline you can call too.

But before you plunge into savings, track down your pensions! Over our working lives we will pay in to various work-based pension schemes. Track them down and find out how they are performing. It’s dead easy.

Seven simple tips to help you save for retirement

I asked my good mate, Sarah Pennells, consumer finance specialist at Royal London, for her top pension savings tips:

1. Start now, even if it’s only a small amount. One of the biggest advantages younger savers have is time. Even small, regular pension contributions can grow significantly over the years thanks to investment growth and compound returns.

2. Make the most of your workplace pension. If youre employed, check you’re contributing enough to get the full employer contribution. Employer contributions are effectively free money that can give your pension savings a valuable boost.

3. Treat pension contributions like a bill. Many people save what’s left over at the end of the month, but often there's very little left. Instead, think of your pension contribution as a regular bill and make it part of your monthly budget.

4. Increase contributions when you can. Pay rises, bonuses or a reduction in other outgoings can be a good opportunity to increase pension contributions. Even a small increase can make a noticeable difference.

5. Check your pension isn’t lost or forgotten. Many people have had several jobs during their career and may have old pensions they’ve lost track of. Tracking down old pension pots and understanding what you’ve already saved is an important first step in retirement planning.

6. Get a clearer picture of your retirement income. It’s difficult to know whether you’re saving enough if you don’t know what retirement might cost. Check your pension value, get a State Pension forecast and use retirement planning tools to understand what sort of income you’re on track to receive.

7. Don’t put it off. It can be tempting to focus on more immediate financial priorities, especially when money is tight. But delaying pension saving means missing out on years of potential growth.

Martyn James is a leading consumer rights campaigner, TV and radio presenter and journalist. Read more from him here.