Half-Way To Retirement - Is my pension doing ok?
Discussion
I'm turning 34 this year and it's become a sort of "half-way to retirement" mental fixation for me, prompting me to check what I actually pay into my pension and whether it's enough. I'm looking for some reasonable/honest/open advice so have set up a throwaway account to be able to post numbers more freely. I fully expect state pension age to keep increasing but I'd rather not be working full-time much past 65 if I don't need to...
I earn a basic salary a few quid short of £40,000 and commission and bonus on top of that which varies but this financial year was around £15k. For the basis of my online research I've used £50k as my current income and most online calculators suggest I'll need an income of £32k in retirement (in today's money) for a similar standard of living once my mortgage is gone. This feels about right to me knowing my expenses.
I currently have two pension pots, one from a previous job which sits at £12,500 and one with my current employer at £32,000. My contributions are via salary sacrifice at £525/month, and logging into the pension provider's website it shows a monthly amount of £690 being paid in suggesting my employer adds £165 or so, plus the associated tax relief.
I genuinely don't know how this works - It used to be a standard(?) pension under which my employer paid 5% and I paid about 10% and when the salary sacrifice model was introduced last year it was set at a level to provide an equivalent net income each month as I had previously. I assume my employer's contribution is their previous 5% as it's the same figure give or take a few pence.
One online pension calculator (unbiased.co.uk) suggested with these numbers that I could have a pension of £56k/year and another (moneyhelper.org.uk) suggested £29,000 - both inclusive of state pension. Meanwhile my pension provider itself suggests only that my total fund value could be £610k at retirement.
I simply cannot make sense of the numbers and would greatly value a little wisdom from those who grasp these things better than I do. Am I doing okay? Do I need to up my contributions? Do I need to find someone to offer professional advice? Thanks in advance.
I earn a basic salary a few quid short of £40,000 and commission and bonus on top of that which varies but this financial year was around £15k. For the basis of my online research I've used £50k as my current income and most online calculators suggest I'll need an income of £32k in retirement (in today's money) for a similar standard of living once my mortgage is gone. This feels about right to me knowing my expenses.
I currently have two pension pots, one from a previous job which sits at £12,500 and one with my current employer at £32,000. My contributions are via salary sacrifice at £525/month, and logging into the pension provider's website it shows a monthly amount of £690 being paid in suggesting my employer adds £165 or so, plus the associated tax relief.
I genuinely don't know how this works - It used to be a standard(?) pension under which my employer paid 5% and I paid about 10% and when the salary sacrifice model was introduced last year it was set at a level to provide an equivalent net income each month as I had previously. I assume my employer's contribution is their previous 5% as it's the same figure give or take a few pence.
One online pension calculator (unbiased.co.uk) suggested with these numbers that I could have a pension of £56k/year and another (moneyhelper.org.uk) suggested £29,000 - both inclusive of state pension. Meanwhile my pension provider itself suggests only that my total fund value could be £610k at retirement.
I simply cannot make sense of the numbers and would greatly value a little wisdom from those who grasp these things better than I do. Am I doing okay? Do I need to up my contributions? Do I need to find someone to offer professional advice? Thanks in advance.
Saddo or not, this is the most helpful response so far - Thank you! My responses below.
My take is that your pots (44.5K) while a great start, are not going to be enough even with the time you have left unless you start paying in way more than you currently are. I wont comment on final pot sizes as others have done that. By how much? The gist of my question is to understand how much needs to be paid in... I mean, I'm doing a combined 15% of my pay which feels fairly significant... How short am I, realistically?
That said, there is some additional information missing in the picture that might further influence what you do today.
Do you have a partner and what does their provision look like - similar, zero, better? - If your other half is a teacher for example, then you might consider the overall outlook is in a much better place, if they have zero, then the challenge is a bigger one. Partner is in a similar role to me but we both take a practical approach that as we're not married our pensions our for our individual futures only; There's no guarantee we'll still be together in 40 years so it's best to plan for our own security.
You've crossed the 50k threshold with the bonus, because of this, you are paying higher rate tax, ugh, fiscal drag is a bummer. Yes, but this year only by £830 and going forward I should be below it as my contributions are salary sacrifice.
But (potentially more importantly) I'd also ask about children - as over 50K, you start losing the child benefit for every pound you go across the threshold. This is a bugger when you factor it in to your marginal tax rate. This makes it a must to avoid if you have / are planning to have kids imho. No kids, no chance of them, no matter how hard we might "try". Perks of being a raving homo.
i.e. it may make even more sense to overpay the pension in order to get to below the magic number as the marginal tax rate at 60K if you have 2 kids for example is much much worse than the headling figure of "just" 40%.
Other comments - You should definitely dig into the numbers on the workplace pension to know exactly what you/they are paying and make sure you are matching at the max level as this is the definition of free money, and b) if you are going to pay more in to your pension now, ask them if you can increase the sacrifice amount, as this has the benefit of also avoiding your NI - every little helps. Have looked into it and yes, they commit 5% of my basic pre-bonus/commission pay as a maximum. This is the £165/month being paid in.
You should also look at the platform they use - what are the annual management charges. Somewhere near 0.5% good, Somewhere near 1% bad It's in Peoples Pension. They charge £2.50/year plus a 0.5% fee which is reduced by 0.25% for pots between £25,000 - £50,000. I think that makes my fee 0.25% + £2.50.
Oh, and if you are over 50K, and you do want to get under for this financial year, then you have a week left to pay an amount into your pension to bring you under. Go check you March payslip to see the "taxable amount" and tax paid on it to work out the exact number you need to pay in.
Lots of work to do. (p.s. I'm not a pensions adviser, just a saddo that finds all of this stuff interesting!)
fat80b said:
bricks said:
I simply cannot make sense of the numbers and would greatly value a little wisdom from those who grasp these things better than I do. Am I doing okay? Do I need to up my contributions? Do I need to find someone to offer professional advice? Thanks in advance.
First thing I would say is you are asking the right questions and you've started at the right time (i.e. as early as possible, which is always today). Many people don't ask themselves these questions until mid forties, at which point they are 10 years too late.My take is that your pots (44.5K) while a great start, are not going to be enough even with the time you have left unless you start paying in way more than you currently are. I wont comment on final pot sizes as others have done that. By how much? The gist of my question is to understand how much needs to be paid in... I mean, I'm doing a combined 15% of my pay which feels fairly significant... How short am I, realistically?
That said, there is some additional information missing in the picture that might further influence what you do today.
Do you have a partner and what does their provision look like - similar, zero, better? - If your other half is a teacher for example, then you might consider the overall outlook is in a much better place, if they have zero, then the challenge is a bigger one. Partner is in a similar role to me but we both take a practical approach that as we're not married our pensions our for our individual futures only; There's no guarantee we'll still be together in 40 years so it's best to plan for our own security.
You've crossed the 50k threshold with the bonus, because of this, you are paying higher rate tax, ugh, fiscal drag is a bummer. Yes, but this year only by £830 and going forward I should be below it as my contributions are salary sacrifice.
But (potentially more importantly) I'd also ask about children - as over 50K, you start losing the child benefit for every pound you go across the threshold. This is a bugger when you factor it in to your marginal tax rate. This makes it a must to avoid if you have / are planning to have kids imho. No kids, no chance of them, no matter how hard we might "try". Perks of being a raving homo.
i.e. it may make even more sense to overpay the pension in order to get to below the magic number as the marginal tax rate at 60K if you have 2 kids for example is much much worse than the headling figure of "just" 40%.
Other comments - You should definitely dig into the numbers on the workplace pension to know exactly what you/they are paying and make sure you are matching at the max level as this is the definition of free money, and b) if you are going to pay more in to your pension now, ask them if you can increase the sacrifice amount, as this has the benefit of also avoiding your NI - every little helps. Have looked into it and yes, they commit 5% of my basic pre-bonus/commission pay as a maximum. This is the £165/month being paid in.
You should also look at the platform they use - what are the annual management charges. Somewhere near 0.5% good, Somewhere near 1% bad It's in Peoples Pension. They charge £2.50/year plus a 0.5% fee which is reduced by 0.25% for pots between £25,000 - £50,000. I think that makes my fee 0.25% + £2.50.
Oh, and if you are over 50K, and you do want to get under for this financial year, then you have a week left to pay an amount into your pension to bring you under. Go check you March payslip to see the "taxable amount" and tax paid on it to work out the exact number you need to pay in.
Lots of work to do. (p.s. I'm not a pensions adviser, just a saddo that finds all of this stuff interesting!)
ukwill said:
bricks said:
The gist of my question is to understand how much needs to be paid in...
Ok - rough calcs..Existing pot £44500
Age 34
Monthly contrib £690
Annual contrib £8280
At age 64 pot value: £627k - assuming average 4% growth but not assuming any increase in monthly contrib, and not index linked.
Go here and play:https://milfordanddormorfp.co.uk/savings-calculator/
Then you can play with this to help with your drawdown strategy: https://milfordanddormorfp.co.uk/pension-drawdown-...
okgo said:
Mr Pointy said:
If that's the Telgraph article you need to delete your post before the mods see it.
What post? The upshot of the article.
Invest early in the tax year, invest a lot, invest in stocks and shares, be mindful of costs.
If you have a wife or someone else then you can get to £1m using their calculator in 14 years by maxing out the 40k allowance and investing in stocks and shares (at the higher end of the risk scale).
The investing early in the year was interesting, I've got the allowance for both my wife and I ready to go, and actually I wasn't considering dumping it all in day one, but perhaps it does make most sense.
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