So now all I need to do is save up 300K--is this for real?

[Coffeetree]

An article from This Is Money showed up on my feed this morning. Basically someone with £290K in pension pots at 50 years old, asking whether they're on the right track for retirement. The rest of the article was various investment advice. Generally the advice was "You're nearly there."

I read these articles and I feel like someone is playing a joke on me. I usually feel very very privileged in that, at 52, I have a mortgage that I'll hopefully be able to pay off in 4 years, plus about £50K in pensions. No inheritances on the horizon. I've worked in charities my whole life, then became single about five years ago, hence not much saved.

So, after paying off my mortgage, I then need to buckle down and save up 300K? That's not going to happen. My plan is to keep working and then go part-time or contract when I reach retirement age.

Am I the only one who thinks these "retirement advice" articles are really out-of-touch?

Wow you are either saving a lot or it is a very generous scheme.

Mine amounts to over 1k per month saving with my contributions plus employer contributions. But very few employers double 8% of employee contributions. I am much luckier than most, as I imagine you must be too.

Exactly. We can all complain about a pension (including one I have that is worth £13k) but we don’t know the facts. On my £13k I paid in £60 a month and stopped it after a period of time! But I can go around now saying pensions are crap and I have a £13k pot. It’s the detail that’s needed. Also if the pension was really so poor why isn’t the boyfriend complaining and moving it to another fund? Let’s all stop being so passive and take control.

@Teateaandmoretea I am - both my employer and I pay signifcantly more than 8% contributions.

As I said earlier I also make additional voluntary contributions and part of my aim whem moving jobs is to ensure a decent pension scheme - that comes from my days in the civil service where the generosity of our scheme was drummed in to us.

This is the big difference between the UK and the Scandinavian / Northern European economies. In the UK NI has just been treated as a tax and spent. In N Europe their equivalent has been used to establish a fund which is used to pay pension. Their standard state pensions are far more generous (as were ours until the late 70s) because there is money behind them. Occupational pensions are strictly regulated, so people can generally afford to retire.

I started keeping a record of what we spend monthly around 10 years ago, and have used this project forward 20 years into our retirement (which we have just started). It's been a really useful exercise, and even better, gives me a sense of control over our destiny! Just a simple Excel spreadsheet for both, which I update monthly but dig in deeply around twice a year - I actually enjoy doing it.

It's been a really useful basis for discussion with DH, for our plans going forward.

We have found that one of our investments has performed really poorly over the last six years, giving literally less than 2.5% compound interest; our IFA and charges are as much as our growth. We need to address this pronto and find the knowledge and courage to make our own decisions!

We were bullied into starting a scheme by our accountant when we were early-40's - very grateful to him now!

I really hope that with the Government proposal that children need to study some form of maths until 18, there will be a big focus on personal finance. Learning about pensions, loans, mortgages, tax, savings etc would save so many future problems. Of course it is also the parents responsibility to help educate their children, but as evidenced on this thread many parents find these topics confusing too and it’s far easier to file it under “too hard, don’t understand” and worry about it at a later date, by which time it’s too late.

I’d highly recommend the Martin Lewis Money podcast on BBC Sounds, which is an extended version of his Radio 5 segment (it’s on summer hiatus at the moment). It comes out weekly and is usually about 45 mins so easy to listen to on a walk/drive/commute.

I consider myself reasonably financially sophisticated, and I still got a few useful things I hadn't considered from Pension Wise. Not least being some specific questions to ask a paid advisor. In terms of the time it took, probably an afternoon including prep for the phone call, the call itself, and following up. So unless your time is ultra precious, a no brainer.

@BarbaraofSeville precisely. I pay around £450 a month into my public sector pension. And of course thats on top of the several hundreds of pounds national insurance and several hundred pounds tax every month. The deductions on my payslip amount to around £1500 every month. Yes it would be lovely to have £450 extra spending money every month - but I'd rather live more frugally and stack that away in my pension. If someone is paying significantly less into a pension, or has even been daft enough to opt out of a public sector pension then obviously they're not going to end up with much of a pension

I really hope that with the Government proposal that children need to study some form of maths until 18, there will be a big focus on personal finance. Learning about pensions, loans, mortgages, tax, savings etc would save so many future problems.

I agree, but I also think that it shouldn't be branded as maths. I'd rather see something much more rounded, like citizenship almost.

Here's the basics of employment - recruitment, acas etc. Here's the basics of voting and government. Here's the basics of renting, mortgages etc. Here's the basics of finance and pensions.

And most importantly of all, this information WILL change in your lifetime - here's how to look for advice.

@thecatsthecats yes you are right that it may be better to frame such conversations at school as part of the "personal/social" education topic, but discussions around how interest works using loans and credit cards as examples can definitely form part of the maths curriculum.

Yes, that's totally true. But what makes it difficult is the emotional aspect of finances. Really you only need the basic numeracy skills of a ten-year old. However people make poor decisions because they don't trust the system, or they're ashamed about debts, or they're ashamed of their low income, or they trust the wrong people, or they spend compulsively etc etc. Myself included.

we were told at college in the mid-90s that we will not be able to rely on state pension and should start paying into a scheme as soon as we start earning.

but I realise it's easier said than done...

A couple of posters have commented on this..... I understand WHY its low, he contributed as much as he could and what he contributed would have likely been more than he could really spare anyway. But someone working lifelong in trade (he's a mechanic) just won't have anything like 300k. A lot of people just can't afford to contribute more than minimum. 300k is just pipe dreams for a hell of a lot of people. People who contributed all they could at the time.

He joined his workplace pension because his Dad advised him it was a good idea, back when it was obviously voluntary and not mandatory. I have no idea if he was even allowed to contribute a higher % than the default. I still don't know if this would be possible. I'm public service, and they're awful at trying to explain nuances like that, I'm not trying to understand someone else's too!

However even if his pot is smalll - he has more money than he would have had if he hadn't joined the pension scheme. That is because his employer has had to make contributions as well and his contributions are before tax - meaning he paid less tax over all on his salary.

If it is a DC pension then at 55 he will be able to withdraw some or all of it for other purposes - so for example use to pay off the mortgage.

This is really underrated too.

I'm really lucky that a) I'm a natural saver/planner and b) I grew up in an environment that doubled down on those characteristics (rural, so delayed gratification was a norm for the smallest thing, grew up secure enough to know that good things WILL come if I wait etc).

My sister grew up in the same general environment though, but unfortunately for her finances a) has less of a saver disposition and b) had some early trauma that has a distinct effect on her impulse control. Same for my brother, but with a slightly different context.

I've worked with young people with substantial childhood traumas, and it winds me up no end when people talk about discipline etc - there's such a huge relationship between early experiences and your brain wiring. People talk about willpower like we've all got the same potential for it, and it's just not true. Instead, the conversation needs to be about learning habits and behaviours.

My employer pays 15%, I can pay whatever I like. Not final salary, but it is public sector.

He almost definitely could pay more. If it's DC he can increase the %, if it's final salary (unlikely) he can make "AVCs" (additional voluntary contributions). In the old days AVCs bought extra years, but now they tend to go into a separate DC scheme which runs alongside the final salary one (I know USS does this for example).

His does sound very low. But not all schemes are equal. From April 2019 only the minimum an employer has to pay in is 3%. A lot of the smugs on here get double digit employer contributions.

Personally I’ve always paid the minimum into my pension to maximise employer contributions but I’ve been lucky with my employers and after 23 years working with about 10-15 left have a reasonable amount and will deffo get to the 300k well before retirement.

Yes I’ve never opted out, I have no gaps but equally I’m not pretending that it’s been a priority. This thread actually prompted me to check how much I have - truthfully I had no idea.

Personally I’ve always paid the minimum into my pension to maximise employer contributions

@Teateaandmoretea Could you clarify what you mean here? I thought that employer contributions were either fixed or matched that of the employee. Are you saving that yours were on a scale so if you contributed the minimum they would up their % to give the same overall total %?

The one I’m currently in the employer doubles my contributions. But this is up to a maximum so if I contribute more the employer contributions stay the same. If I contribute less they contribute less. But others are different. Ours is very generous.

The thing is, you don't have to contribute the full 300k yourself if you take advantage of tax free and workplace pension schemes.

Of that 300k the gvt will contribute at least 20% (and 40/45% if you're a higher rate taxpayer) by not charging tax on it.

That's 240k, to get that in 20 years at 5%, 100k ish will be compound interest.

That's 140k. Workplaces often offer a matched scheme- mine is 12%, but even at 7.5% of a 35k salary that's over 50k.

That's 90k ish over 20 years for you to personally save, which is about 4.5k a year or 370/month.

And that's 20 years which is starting at 48 til retirement age! Figures will be much less if you start at 20 or 30.

I mean I don't claim to be an accountant so sorry if my maths is a bit off, but it's an example of how the headline figure is scary but it really isn't unachievable.

Here's a quick illustration from AVIVA of how compounding works for anyone thinking about opening a pension for a child (aka a Junior SIPP):

• Say you invest £300 a month (including the government top-up), meaning you contribute the maximum £3,600 each tax year, from birth until the age of 18 – and then you stop your contributions.
• After 18 years, £64,800 will have been invested, but the returns, less the charges, will have boosted the fund to £91,800. This assumes an average investment return of 4.5% a year and an investment-management charge of 0.75% a year.
• If this £91,800 is then held in the pension for a further 42 years, with the same investment return and charges, it will be worth about £425,000 by the age of 60.

Now paying £300 per child per month from birth is unrealistic for most people, but even if you paid in a fraction of that you can see the instant leg up you are providing for your child who would then take over making payments once they start working anyway so this would increase the amount in the pot.

This isn't compounding, this is investment growth.

There is no interest on pensions, and therefore no interest compounding. The growth comes from increases in value of the funds and stocks you buy within the pension wrapper.

They can just as easily go down. Over the longer term (like, the period you're likely to be invested in a pension) the are more likely to go up, but it's not a given. Unlike interest.

Compounding is like this:

You have £100 on deposit at 10% interest, in a year you have £110.
Next year you have £110 on deposit at 10% interest, in a year you have £121 (not £120)......and so it goes on ......

There’s also inflation. You have no idea at all how much it will be worth in 60 years time.