What’s the ideal monthly pension contribution at age 22?

Q: What's the ideal monthly pension contribution at age 22?

A: Younger people often have little money to spare, but saving what you can for the longer term is likely to be hugely beneficial, as the longer your money is invested, the greater the eventual returns will likely be due to the effects of compounding.

Those who are employed will find that 8% of their salary is automatically invested into a workplace pension, via auto-enrolment. This is made up of a 5% deduction from your salary, plus a 3% employer top-up.

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However, while this is a good start, many financial experts say this minimum level is unlikely to be enough for a comfortable retirement. Ideally, people should aim to increase this to between 12-15% of their salary, including employer contributions.

Some financial advisers recommend the ‘half your age’ rule as a good rule of thumb: halve your age when starting pension contributions and save this percentage of your salary throughout your working life. So if you start at 22, you might want to contribute 11% of earnings for life, but if you delay starting a pension until 30, you will need to contribute around 15% of earnings for the rest of your working life to accumulate a similar sized pot. This shows the power of starting to save when young.

One easy way to boost overall contributions is to check if your employer offers a ‘matching’ scheme, where they increase their contribution if employees do the same. It is worth taking advantage of these where available.

If you don’t have access to an employer scheme, you may want to consider a self-invested personal pension (SIPP) - although these won’t benefit from employer contributions. As with workplace pensions, contributions qualify for tax relief, so a basic-rate taxpayer effectively sees their contributions boosted by 20%.

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It’s also important to remember that money invested in a pension is locked away for the long term. Currently, this can be accessed at the age of 55, but from 6 April 2028, this will rise to 57.

It is also possible to use stocks and shares ISAs to build long-term retirement savings. These shouldn’t replace pensions, but they may be a useful addition if you have surplus funds to save. Contributions into an ISA don’t qualify for tax relief, but these savings plans can be accessed at any time, which provides flexibility should circumstances change in the interim.

• Read: How to boost your State Pension before crucial April deadline
• Read: An extra £100k in ten years - what does it take?
• Read: Top 10 best-selling ISA and SIPP funds in March

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in an ISA or SIPP and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one ofFidelity’s advisers or an authorised financial adviser of your choice.