‘I tried Martin Lewis’ 15% pension hack – here’s everything I’ve learnt so far’ | Personal Finance | Finance


A pension contributions formula recommended by personal finance champion Martin Lewis is proving to be a hit on TikTok.

The money saving expert offers a pension tool that allows people to forecast the contributions a worker needs to make to afford a comfortable retirement.

The basic premise of the formula is that an individual starting to pay into a pension for the first time should be making total contributions equivalent to half their age.

In simple terms, someone who starts paying into a pension at the age of 30 should be looking to make contributions equivalent to 15 percent of their salary.

This is not as big a chunk of salary as it might appear, for, importantly, this 15 percent is made up of the combined contributions made by the individual and their employer.

TikTokker ‘markinthecloud’ posted an example of a worker on a relatively modest salary to demonstrate the power of the Martin Lewis method. The full details can be found here – https://www.tiktok.com/@markinthecloud/video/7299121111545974049

The example included someone aged 30 with a salary of £25,000 and a planned retirement age of 68.

The scenario assumed this person was paying into a pension for the first time. It also assumed the employee would contribute 12 percent of their gross salary, while the employer contributions would be another 3 percent, taking the total up to the 15 percent target.

Using a UK Pensions Calculator, this estimated the pension pot would be worth £310,386 based on annual growth of 5 percent per year, which is made up of a 3 percent increase to reflect inflation plus 2 percent growth achieved by the pension investments.

This figure relates to what the pot would be worth in terms of spending power today. The final cash figure would be much higher when the individual retires at 68.

The pot was worth a higher £459,678 based on total annual growth, including inflation, of 7 percent, which is considered the most likely scenario.

And the figure was a higher still £706,759 based on total annual growth of 9 percent during the lifetime of the pension.

The TikTok video examined what would happen if the worker took 25 percent of their pension pot tax free when they retired and then drew down the rest at a rate of 4 percent a year as income.

Based on the most likely scenario of a pension pot of £459,678 in today’s money, this provides a tax free lump sum of just under £115,000 and an annual income of around £13,800.

Once this is added to the new State Pension, which is just about to go up to £11,502 a year, annual income would be some £25,302 in today’s money.

Workers do not need to take the tax free amount. Leaving it in the pot boosts the annual income available from the most likely scenario to some £18,387 a year. That would give a total annual income of £29,889 in today’s money once State Pension is added.

The TikTokker said the evidence of the figures is that the ‘half you age’ method for pension contributions ‘stands up’.

He added: “If you’ve got to your 30s and you’ve had a wild 20s, like a lot of us do, and you haven’t really focussed on your pension, it’s not too late to start.”

He said that the cash amount that a worker on £25,000 annual salary will need to contribute is a net figure of around £2,000 a year – about £38 a week.

Significantly, the sum paid into the pension pot will be a higher £3,000 because of tax relief available on pension contributions.

Martin Lewis’s pension advice and calculators can be found here –



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