Parents think I don’t have enough money in pension

[Helena1985h]

Talking to my mum and dad about pension today. I’m 35 FYI.

They asked me how much I’d put away as were saying they wished they’d focused more on their pensions when young. I logged in and had a look and I have just under 55k.

They seemed to think that was way too small, and they’ve properly freaked me out TBH. Is that really not a lot at my age? I sort of assumed I was doing okay!

In fact I've just frightened myself! If you'd retired in 1980 and lived forty years until 2020 starting off with a £13k pension you would have needed it to be £57k by the time you died to have the same purchasing power

That index-linked annuity might have been a great source of comfort.

www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator

I do get frustrated that people don't understand that paying into a workplace pension usually means you are getting FREE MONEY. Every month. Firstly from the tax rebate - so as a basic rate tax payer, if you want to put £100 a month into your pension, you only put £80 in. The government gives you the extra £20. Every month. Then, there's your employer's contribution. So, if that £100 represents 5% of your monthly pay, and your employer also contributes 5%, you're getting an extra £100 a month, £1200 a year, absolutely free.

Add in compounded growth over your working lifetime and that's worth a fortune.
Over 30 years, you'd pay in £28k. But with your free money, plus compounded growth of 5% (very conservative investment growth), that would be a pot worth £101k. So, before you say I can't afford £80 a month into a pension, ask yourself if you can afford to lose £73k of free money.

CAVEAT: completely accept these are illustrative numbers and many people can't afford £80 out of monthly pay. But many can, and choose not to because they don't understand how pensions work.

@PoloMintHum

OP I think £55k is OK but it's definitely worth putting a higher % of earnings in.

I dont understand why posters are saying 'I have no pension', snidey comments etc. It's important for women to pay into pensions, no need to sneer at the OP.

Also perfectly valid for those who've put lots into their pensions to discuss it - this isn't a race to the bottom for women.

👏👏👏

@AuntyBumBum

That's not prudent, it's bonkers. Nobody buys annuities atm because the rates are so ridiculously low. With drawdown £500k give a much better standard of living in retirement than the figures you gave, it just requires people to have self-control.

And over several decades, quite a lot of luck on the markets and the economy and someone to manage the strategy if they lose capacity! (Or ideally a short life expectancy )

Hmmmm. Yes there are risks. But all of the people I know in the industry are agreed that you'd have to be exceptionally unlucky in a number of different ways simultaneously to make an annuity better value at current conversion rates. If the rates reasonably reflected the level of risk then I'd say it is a prudent choice for the risk averse (as most pensioners are): hence most pensioners previously purchasing annuities when conversion rates were a reasonable approximation of the risk involved. There is a reason why most of them don't now. This may change however, as interest rates increase.

[quote AuntyBumBum]In fact I've just frightened myself! If you'd retired in 1980 and lived forty years until 2020 starting off with a £13k pension you would have needed it to be £57k by the time you died to have the same purchasing power

That index-linked annuity might have been a great source of comfort.

www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator[/quote]
But (if drawdown had even been an option 40 years ago) the money still invested would have continued to grow with the compound growth effect until it was drawn down, which would mitigate that effect substantially.

@RJnomore1

Actually it’s probably a better time to do exactly what you’re doing and clear as much mortgage as you can imo! That’s future proofing you from rate rises.

Bad advice!! Interest rates are so low. You're better off putting money into pension than paying off mortgage.

@WildRunner

I do get frustrated that people don't understand that paying into a workplace pension usually means you are getting FREE MONEY. Every month. Firstly from the tax rebate - so as a basic rate tax payer, if you want to put £100 a month into your pension, you only put £80 in. The government gives you the extra £20. Every month. Then, there's your employer's contribution. So, if that £100 represents 5% of your monthly pay, and your employer also contributes 5%, you're getting an extra £100 a month, £1200 a year, absolutely free.

Add in compounded growth over your working lifetime and that's worth a fortune.
Over 30 years, you'd pay in £28k. But with your free money, plus compounded growth of 5% (very conservative investment growth), that would be a pot worth £101k. So, before you say I can't afford £80 a month into a pension, ask yourself if you can afford to lose £73k of free money.

CAVEAT: completely accept these are illustrative numbers and many people can't afford £80 out of monthly pay. But many can, and choose not to because they don't understand how pensions work.

I agree in substance but this is an odd way to express it wrt the tax-free contributions. Pension contributions are tax-free because the money is taxed when you withdraw it. By then it has grown substantially so the Government actually get far more tax with that approach. It would be totally unjustifiable to tax the money being paid in with income tax and then tax it again with income tax when withdrawn! So the 20% tax break isn't "free money", or the Government making any contribution to your pension pot, they are simply deferring the tax so you can save the money before it is taxed and it will be taxed when you withdraw it after retirement. It's totally fair that people get income tax relief on contributions given they'll pay income tax on withdrawals.

Totally agree about people not maxing out any employer contribution though: that really is free money and it's madness not to take it unless you really cannot afford to match their contributions to the required level to get the highest % they offer.

Thanks @TheCatsKilledTheGonks

I understand your point and it's a fair one, and I know it's what most people are doing at the moment. But I'm just trying to imagine being 85 with a chronic but non-fatal illness, declining faculties, the pot I've been drawing on for twenty years dwindling, inflation spiraling and a market crash of 20%! And who knows what else might be going on. It's not the same as running a few risks when you're 55 for all sorts of reasons.

I do agree. With so much uncertainty with national politics and severe lack of long-term planning around the economy, food security, energy security... and then the climate issues and geopolitical issues, there are a lot of things that could go wrong! However many of those might result in the collapse of financial institutions which manage the pension investments anyway! 😬

@bestbl

I'm 40 and have zero

Same. Literally not a penny in savings 😕

With so much uncertainty with national politics and severe lack of long-term planning around the economy, food security, energy security... and then the climate issues and geopolitical issues, there are a lot of things that could go wrong

Don't forgot the ageing population, how on earth are they going support everyone, the NHS certainly won't exist in its current model

@Fruby

Gosh this just feels like a kick in the teeth for those of us struggling to pay basic bills, let alone pay into a pension!

Well, why did you open the thread?

Were you hoping to learn something or just complain?

I'm a good bit older than the OP & don't have as much in my pension.

I'm sorry you're struggling to pay your bills, many are. But that doesn't mean people can't discuss their financial situation.

With all the uncertainty and doomsday scenarios, the defensive stance is to put yourself in is to be in a better position financially than others, if you can afford to put that money aside. Short of the human race being wiped out, more money on retirement means more choices and security for yourself and your family.

I’m mid 40s and I have £0 in a private pension. I am fucked. This is because a plan I had was stolen when I was early 20s and we lost the lot and then I had a disabled child and have been his full time carer ever since.
I have no chance of ever having a decent standard of living as he will need care all of his life and I am too old to find work to earn enough to pay in.
Life can be really shit for people like me. If you can save, please do as you never know what will hit you.

@Fruby

Sorry, I actually regretted pressing send immediately after typing that comment. It was just an emotional reaction to reading this thread. Of course everyone is entitled to discuss, and it is very eye opening for me to realise this information - how different peoples money worries can be. I hope no offense was caused by my comment 😕

I posted a reply to your previous post before I read this one.

Sorry, but I wasn't really getting at you either, but maybe there is something you can gain from this thread, maybe you can put a very small amount away now that will grow over the years. Depends on your idea of 'struggling' really

@dundydee

With so much uncertainty with national politics and severe lack of long-term planning around the economy, food security, energy security... and then the climate issues and geopolitical issues, there are a lot of things that could go wrong

Don't forgot the ageing population, how on earth are they going support everyone, the NHS certainly won't exist in its current model

I think it's become clear during the pandemic, to anybody who hadn't realised a decade or so ago that the NHS is useless, that it doesn't work. Let's just hope that whatever Government we have at the end of all of this finally overhauls it to put in place best practice from the best healthcare systems in the world, mostly elsewhere in Europe: similar % of GDP and far better outcomes.

Hahaaaa who am I kidding?! They never will.

@Fruby I also replied to your post before ai read the later one. I understand your frustrations. I have been there. You are also clearly a very self-reflective person to pick yourself up on that emotional reaction and post your later comment. I really hope things get easier for you.

I don't have a pension but do have equity in property and decent savings, plus life insurance. Am entitled to civil service pension via work which I opted out of, but everyone says is amazing. This thread has given me much to think about!

@KloppsTeeth

I’m mid 40s and I have £0 in a private pension. I am fucked. This is because a plan I had was stolen when I was early 20s and we lost the lot and then I had a disabled child and have been his full time carer ever since. I have no chance of ever having a decent standard of living as he will need care all of his life and I am too old to find work to earn enough to pay in. Life can be really shit for people like me. If you can save, please do as you never know what will hit you.

Same as me. I'm a full time carer for my son with severe special needs. I can't work as I have no other family to help. His dad walked away. And I have no choice but to live on benefits. You're not alone

Genuine question - what is this obsession with pensions in the UK? I don't know anyone here who discusses how much they have put away, and certainly not in the angst ridden way I've seen it discussed on MN.

Am entitled to civil service pension via work which I opted out of, but everyone says is amazing

Civil service pensions are like gold dust. Dh works pt in the public sector and freelance the rest of the time. His civil service salary is ok compared to freelance but he uses it as a pension machine instead.

You are literally throw pots of money away.

gofg which country are you in and what do people live on once they are retired? Are you in Norway?

for you too @flamedancer I could weep at the very little carers get.

Op, I'm 30 and have 1.2k

@bonfireheart

I don't have a pension but do have equity in property and decent savings, plus life insurance. Am entitled to civil service pension via work which I opted out of, but everyone says is amazing. This thread has given me much to think about!

The pension you have declined is quite possibly the bulk of the remuneration for the job. The employer's contributions could well be worth a similar amount to your salary. To recreate the same gold-plated benefits out of your own resources would be unbelievably expensive and probably impossible. Opt back in immediately!