How big should my pension pot be?

How big should my pension pot be?

Author
Discussion

SluffMcDuff

Original Poster:

43 posts

123 months

Wednesday 28th January 2015
quotequote all
I'm 36 and for one reason or another have never got around to getting a pension (yes I know).

I will shortly be coming into a not insubstantial amount of money and think I could use some of this to bump start a pension. I think I can put £30k a year in and still get full tax relief (please correct me if I'm wrong).

The big question is, at my age how much should I already have in my pension? I know that's an almost unanswerable question. As a bit of context I earn approx £50k at present if that means anything to this question.

Any help and guidance appreciated

SkinnyPete

1,411 posts

148 months

Wednesday 28th January 2015
quotequote all
I can't help you with your specific question, but does your employer have a salary sacrifice scheme? If so you can sacrifice your salary down to the minimum wage to jump start your pension pot, you'll be amazed how quickly it can grow with the tax benefits plus any employer NI contributions.


mike9009

6,918 posts

242 months

Wednesday 28th January 2015
quotequote all
Try some of the on line calculators such as this....

http://www.standardlife.co.uk/c1/guides-and-calcul...

https://www.moneyadviceservice.org.uk/en/tools/est...

I am not a pension expert, but I know I am not saving enough in my pension (as I suspect most people are not). These calculators really put it into perspective what you need to be saving. I think this is a big looming problem for many in the UK, if retirement is going to be a time for enjoyment!

The early years are really important, which is a bit late for you now. To give some context, I am 40 and my pension pot is nearly £100k at the moment - I think I need to be putting in more though frown It is a balance between lifestyle now or later. At the moment 'now' is winning......

Mike

SluffMcDuff

Original Poster:

43 posts

123 months

Wednesday 28th January 2015
quotequote all
Yes there is a salary sacrifice pension available and I was thinking of doing just as suggested.

Using those calculators I can see the amount since been thinking of aren't enough to give me what I want. Looks like more money need into the pot now.

davepoth

29,395 posts

198 months

Wednesday 28th January 2015
quotequote all
I'm 33, and my pension pot is about £500. frown

I'm doing a lot better than most of my friends though. I'm not sure whether that's due a smile or a frown .


Soir

2,268 posts

238 months

Wednesday 28th January 2015
quotequote all
The calculations are rather depressing (39 no pension for me)

£25k pa = £456k pension pot

Interesting that the current £5.8k state pension would be £115k
-other way round £115k pot = £480 per month

red_slr

17,122 posts

188 months

Wednesday 28th January 2015
quotequote all
I don't think there is a straight answer as it depends on your own circs.

I think a good rule of thumb is to put half your age as a % of income into your pension.

So at 20 its 10%.
At 50 its 25%.

So if you work that back from the age you started work it should give you a good idea.

Ginge R

4,761 posts

218 months

Thursday 29th January 2015
quotequote all
SluffMcDuff said:
I'm 36 and for one reason or another have never got around to getting a pension (yes I know).

I will shortly be coming into a not insubstantial amount of money and think I could use some of this to bump start a pension. I think I can put £30k a year in and still get full tax relief (please correct me if I'm wrong).

The big question is, at my age how much should I already have in my pension? I know that's an almost unanswerable question. As a bit of context I earn approx £50k at present if that means anything to this question.

Any help and guidance appreciated
At the most, you can put £40,000 a year (after tax relief) into your pension. Don't forget though, you can also use the three previous years unused annual allowances as long as you have the taxable income in those years to support the retrospective contributions. Don't *over* obsess about the pension wrapper - use them all (and consider in concert with your partner's too) and keep the costs down. Think a little too, about your possible tax status when in retirement and how you want to draw the money and for what (ie; do you simply need income or will you want lump sums). That might steer what you do now.

GT03ROB

13,208 posts

220 months

Thursday 29th January 2015
quotequote all
Basic answer is it cannot be enough.

It is truly shocking how much you need to be putting away to end up with anything that will allow a reasonable existence in retirement. I've had well paid jobs, with what I thought were decent pension schemes (including 23yrs in a final salary scheme), but it just doesn't ever seem to provide anywhere enough. I certainly can't see me being able to retire at any sort of early age.

MrPicky

1,233 posts

266 months

Thursday 29th January 2015
quotequote all
You may not want to put more into your pension than wipes out any 40% tax you would be making.

You can use allowance from previous years, this could help in building up a pot to start with.

Check what your employer's attitude is with salary sacrifice, they could share the NI saving with you to give just a bit extra.

Don't forget investing in S&S ISA will give you the freedom to take your cash when you want - who knows what will happen with regulation on pensions in the next 20 years.

Remember the pension companies will do whatever they can to get their hands on as much of your money as possible for their shareholders/bonuses - as shown by the current lack of enthusiasm for the coming deregulation in April. Read all pension contracts carefully - especially the extra management charges they can add to shore up their own profits when they feel like it.

IANAIFA, just someone nearer pension age than you are.

SkinnyPete

1,411 posts

148 months

Thursday 29th January 2015
quotequote all
I wouldn't be the first to ask this, but increase pension payments or overpay the mortgage?

Zigster

1,636 posts

143 months

Thursday 29th January 2015
quotequote all
I'd agree with a lot of the other posters.

Don't get too hung up on the term "pension" as it is just a tax wrapper around an investment, particularly now with the removal of the requirement to buy an annuity at retirement.

If you pay this money into your pension, do so to "use up" any income on which you pay income tax at 40%. You thus save 40% on the way in and probably only pay 20% on the way out (usual caveats about tax rates might well change over the next 30 years).

Other than that, use an ISA as the tax breaks are fairly similar.

Saving for a retirement income is expensive. The way I think of it is that you are spending the middle (approximately) third of your life both living and saving enough to be able to stop working for the last third. Not surprising that it takes a lot of saving to get to a position where you are able to live off your savings.

Stevemr

540 posts

155 months

Thursday 29th January 2015
quotequote all
30K a year = deposit on buy to let every year.

Buy at 90000 mtg 60000 rent at £475 mtg pays at 5% int only =£250 (you will get much better then 5% at the moment) allow for voids, tax, agents fees etc.

in 20 years you have 20 properties.

Use next 10 years 30000 a year plus income from properties to pay off mortgages

End up with 20 properties, generating 9k a month.

You can pass them on to kids, unlike a pension.

Properties will rise in price over time.

Rent will rise over time.

You have tangible assets within your control.



Riff Raff

5,086 posts

194 months

Thursday 29th January 2015
quotequote all
Stevemr said:
30K a year = deposit on buy to let every year.

Buy at 90000 mtg 60000 rent at £475 mtg pays at 5% int only =£250 (you will get much better then 5% at the moment) allow for voids, tax, agents fees etc.

in 20 years you have 20 properties.

Use next 10 years 30000 a year plus income from properties to pay off mortgages

End up with 20 properties, generating 9k a month.

You can pass them on to kids, unlike a pension.

Properties will rise in price over time.

Rent will rise over time.

You have tangible assets within your control.
The first thing anyone who gives investment advice for a living will tell you is not to put all your eggs in one basket.

A balanced review of the risks associated with BTL can be found here:

http://moneyfacts.co.uk/guides/buy-to-let/btl-have...

The paragraph at the end says:

Moneyfacts said:
Borrowing to fund investment is a risky business – you're not only risking money you've got, but also money you haven't got, money that would have to be paid back if your buy-to-let loses a marked proportion of its value.

BoRED S2upid

19,643 posts

239 months

Thursday 29th January 2015
quotequote all
SkinnyPete said:
I wouldn't be the first to ask this, but increase pension payments or overpay the mortgage?
Depends how quickly you can pay off the mortgage then start on the pension pot.

Say you mortgage is £1000 month when it's gone then that grand a month can be put to good use building up a nest egg.

sideways sid

1,371 posts

214 months

Thursday 29th January 2015
quotequote all
BoRED S2upid said:
SkinnyPete said:
I wouldn't be the first to ask this, but increase pension payments or overpay the mortgage?
Depends how quickly you can pay off the mortgage then start on the pension pot.

Say you mortgage is £1000 month when it's gone then that grand a month can be put to good use building up a nest egg.
Its not quite so simple given that the mortgage is paid out of net income and the pension contribution is paid out of gross income.

Also, it depends whether the return on the pension is likely to be higher than the interest on the mortgage, which it quite easily could be with current mortgage rates. In bald arithmetic terms it makes more sense to contribute £1.5k to the pension and earn 5% on it tax-free, than pay tax and NI, then use the remaining c.£1k reducing a mortgage that is costing less than 3%. But life is not about arithmetic...



Back to the OP's question, very very approximately (given the myriad of variable such as retirement age etc) you'll need to have about 20 times the annual pension in the pot.

So if you want to have a £50k pension, you'll need to have something of the order of £1m in the fund.

Stevemr

540 posts

155 months

Thursday 29th January 2015
quotequote all
"Borrowing to fund investment is a risky business – you're not only risking money you've got, but also money you haven't got, money that would have to be paid back if your buy-to-let loses a marked proportion of its value."

But with buy to let, you dont have to sell!

Also if you think a £90000 house will significantly lose value in 30 years, you are not living in the same world as I am!

Point of strategy I roughed out above is its very conservative!

oyster

12,577 posts

247 months

Thursday 29th January 2015
quotequote all
Stevemr said:
"Borrowing to fund investment is a risky business – you're not only risking money you've got, but also money you haven't got, money that would have to be paid back if your buy-to-let loses a marked proportion of its value."

But with buy to let, you dont have to sell!

Also if you think a £90000 house will significantly lose value in 30 years, you are not living in the same world as I am!

Point of strategy I roughed out above is its very conservative!
Unless you live in the north, you won't find a place to BTL at £90k?

Also how much time will that take to maintain versus a simple pension?

Stevemr

540 posts

155 months

Friday 30th January 2015
quotequote all
I do live in the North, so that does make it a bit easier I agree.

However I use agents to rent them out and they do everything basically, so in terms of time I would say not much really.

I dont know where OP lives or property prices there, but if you are fairly careful I do not think its that big a deal buying property a way from where you live.

Essential to get rent guarantee insurance.

Of course there will be disadvantages, but overall to me its always made more sense than private pensions, with their rip off charges, and over optimistic returns.

nct001

733 posts

132 months

Friday 30th January 2015
quotequote all
Stevemr said:
"Borrowing to fund investment is a risky business – you're not only risking money you've got, but also money you haven't got, money that would have to be paid back if your buy-to-let loses a marked proportion of its value."

But with buy to let, you dont have to sell!

Also if you think a £90000 house will significantly lose value in 30 years, you are not living in the same world as I am!

Point of strategy I roughed out above is its very conservative!
I inherited a house in the north east in 2002 and sold it in 2003 and it is worth less today than it was in 2002 and when you adjust for inflation, in 2032 it could well be worth less than its 2002 value.