The decision over how much to save for your retirement depends entirely on the level of income you want as a pensioner.

If you think you will be content with the minimum provided by the state, which is currently £114.05 a week for a single person through the pension credit, then you needn’t save anything. If, however, you do not want to live a life of penury in retirement then you will have to save more.

The simple rule is that the more you save and the earlier you do it, the more your retirement income will be.

Our calculations show that a 25-year old starting a pension and investing £200 every month until the age of 65 would eventually accumulate a pension fund big enough to buy a retirement income (annuity) of around £11,000 a year in today’s money.

But if the same person waited until they were 30 to start saving the same amount each year, their retirement income would be 20 per cent less.

The Association of Consulting Actuaries advises 25-year-olds to save 15 per cent of their annual salary every year to guarantee a comfortable retirement. It says that 40-year-olds should tuck away 17 to 24 per cent of their income if they have not yet saved anything.

A useful website to calculate how much you should save is www.pensioncalculator.org.uk, provided by the FSA and the Association of British Insurers. You type in your age, income, and pension requirements and it suggest how much you should be tucking away each month.

But your retirement income does not just depend on the amount you save, it also depends on the performance of the funds you invest in.

Advisors recommend younger savers to invest their pension savings in equities because although they are higher risk, they are likely to return more over the long term. Conversely, older savers should transfer their pension pot to safer, fixed income products.

It is also worth monitoring the performance and fees of your pensions fund to ensure your management company is not underperforming or over charging.

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