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!

Save what you can afford to, you still need to live now.
I am finding that although I can save I am not sure how I will afford the big bills that come with running a house once retired. I hopefully will have state pension & I will have my not very big pot of money so will have no access to benifits.

I got a job with a LGPS pension at 40 solely because my pension pot was laughable (in a bad way). Look at local council and university vacancies if that's a strategy you want to follow. I have been there 3 years and am guaranteed 3k pa in retirement. That's a nice boost to the state pension, and if I stay there for 15 or 25 years, I'll be more than OK.

A question for the pension experts here - if I have a spare 50 quid each month, am I better putting this into my old private stakeholder pension or into my LGPS one as an additional contribution? I can't work it out.

I'm same age and have a similar amount. I thought it was more than average and quite decent. Well it is for me especially as I've been working part time for the last 5yrs after having children.

You are still fairly young in terms or retirement so there's plenty of time for you to build it up and your current investments
Will grow over time too.

The amount isn’t relevant on its own. What is it in relation to your current salary?

By 40, you should be targeting a pension pot of around twice your current salary if you want to be retiring with an income that’s around 60% of your salary

Your pot will double roughly every 12-15 years (say 15 to be on the safe side) and you want to have around 4-5 times your salary in there when you get to retirement age

So obviously £55k is good if you’re on £20k a year but less so if you’re on £40k

I'm a similar age and have £200k. My Dad always went on about pensions, and I'm glad he did, otherwise I wouldn't have opted in in my 20s, and put additional contributions in. Her parents are doing it from a place of concern and wanting to help. I think pensions aren't always something you think about when younger. Or I certainly didn't.

The tax relief thing I didn't understand, until my current work provided a free financial advisor session on joining. As someone has said upthread, a basic rate tax payer gets 20% in top ups. If you're a higher rate tax payer, you can get 40% top up. And anyone on over £100k can get up to 62% back on any additional contributions to a pension (as you get part of your personal allowance restored).

Play around with a compound interest calculator - they are so useful and you can google one easily. I'm not keen on annuities as many have said, but read up in the safe withdrawal rate of 4% and see if that's comfortable for you. Generally the advice is to have an aggressive growth strategy whilst young (so stocks and shares portfolio) and to rebalance this towards some bonds when approaching retirement age. Watch out for fees - this erodes your gains and some are really high. The government has a site where you can track old pensions down and then you can consolidate them.

Looking at my pensions, a huge amount is investment growth each year so it's really worth starting as soon as you can

I’m 40 and have £47k, definitely doesn’t feel like enough but I didn’t start earning enough until my mid-30s to put away more than pennies, and then I was focused on getting on the property ladder.

Property is so expensive that it does feel a bit either/or: save for a deposit, or maximise your pension. When you’re young, pension seems very far away, but the need for a roof over your head feels very immediate.

@Gufo

I got a job with a LGPS pension at 40 solely because my pension pot was laughable (in a bad way). Look at local council and university vacancies if that's a strategy you want to follow. I have been there 3 years and am guaranteed 3k pa in retirement. That's a nice boost to the state pension, and if I stay there for 15 or 25 years, I'll be more than OK.

A question for the pension experts here - if I have a spare 50 quid each month, am I better putting this into my old private stakeholder pension or into my LGPS one as an additional contribution? I can't work it out.

I believe you can pay in to make up for missing years. Or, set up a LG AVC which (subject to caps etc) you can take as a 100% tax free lump sum when you retire. (or reinvest and get an annuity).

I should have added; put it in the LGPS, not the private one.

[quote Helena1985h]@Rangoon thank you, I’ll do some more research on compound interest as don’t fully understand it right now TBH.

We’ve been very focused on paying off the mortgage too so far but I suppose as interest rates are low now this would be a good time to put as much as I can away![/quote]
You’re correct OP! If you can borrow money at 2.5% p.a. and think you can get 3% p.a. in your pension pot say, then your money is better in your pension than paying off your mortgage. Plus you get tax relief on your contributions, so if you’re a basic rate tax payer a £100 contribution only costs only £80. And the investment return is largely tax-free. Talk to an adviser irl.

@AuntyBumBum

Then, however you got to £500K, you’re not swapping that for £23K pa. The point of draw down is that you draw off the interest every year - without touching the capital. So what that £23K represents is the money you can spend every year indefinitely and STILL have £500K sat in the bank.

Is that starting to look like a better deal yet?!

I’m using £23K as that’s your quoted figure. That 4.6% of the £500K though - so not a crazy figure.

This seems pretty risky to me. You could be retired for forty years or more. Who knows what will happen over that time. Forty years ago Margaret Thatcher was in power, we had three channels on the telly, Charles and Diana had just got married, and the internet wasn't even a word. There have been several enormous market crashes and recessions. Interest rates and inflation have fluctuated wildly. And even then we've been lucky because over all that period we've overall had a bull market.

Indexed-linked annuities are expensive because of the risks involved. I'd rather pay someone else to take them.

The key point I wanted to make, was that a PP was wrong to think they had to save £500K to get 20 years of £25K. That’s totally misunderstood how much of the £500K would come from tax relief and how much from growth - and even without growth, the tax relief is huge! And then, that drawdown is based on a theory of not totally diminishing capital.

I’m going to try to persuade you on drawdown vs annuity. There’s a place for both, based on world financial events AND our individual personalities.

But the decision isn’t all or nothing, and it isn’t fixed.

You can take you £500K and think, “right, I want some guaranteed money, so I’ll buy an annuity for £250K, and put the rest in drawdown.”
Then with your £250K that’s still investing (and at this point outperforming your annuity) you can think, “bloody hell the market is changing - time to move out of equities and into bonds (or let my product do that for me) - or buy another annuity.”
Pension products sometimes refer to “lifestyling” - which often means de-risking your portfolio very close to retirement (so you sent hit by a sudden large and temporary market change - like Mar 2020 Covid!). You can also apply that to when you’re in your 80s.

Personally drawdown makes a lot of sense for me, because I’m fortunate to have a DB pension so I have my fixed (but index linked) amount. So then I can take some greater risk with drawdown. And I can know I may leave an inheritance which I wouldn’t with drawdown. That’s a privilege not everyone can afford - or maybe even want, though.

I would never argue on here that someone should or shouldn’t use the annuity option. It’s about personality as well as money. Happy on £15K never thinking about money would be better to me than £18K with constant stress, for example.

What I would argue is that everyone should financially educate themselves so that they make the best decisions for them.

It would be a crying shame for the PP (not you!) who just wrongly assumed that drawdown simply meant withdrawing the capital for 20 years and therefore was a “crap outcome” from saving to get an annuity simply because they didn’t understand the options.

@GrumpyLivesInMyHouseNow

I agree with your dp tbh. 55 won't see you much at all, I'm 50 and will have over 250 by the time I'm 58 which is when I plan to retire. That will give me approx 30k pa until I'm 67, then I'll get my old age pension added to that.

£250k won't give you £30k, how do you work that out?

I work on the basis of a 3-4% return. So £250k gives you £10k. Of course, you can also draw down from the capital but if you plan to retire at 58 that's not going to support you for long. State pension is about £9k pa.

If you drew down £30k pa from your £250k then it would be gone by the time you can claim state pension, so a big drop for you at age 67, if that's your pension age.

I actually haven't put any away. I'm 30.
I'm planning to put a chunk (£30k) of my savings in next year.

We focused on paying down mortgage because of our experience of high interest rates. Once it's paid, the risk is gone.
However, if I had my time again I would be more balanced.
Now, I am 54 and dh 55. We are putting as much as possible into pension savings. Realistically we need to fund 10 years worth of retirement nice to haves, eg hols and cars. Looking at our parents, by the time they were 80, they were done.
The new state pension plus the bits of pension I have from former employers will cover basic bills.

My pension is based on service, so I currently have 23 years service so will get 23/80th of my final salary, so currently €23,250 gross per annum.

I am hoping to actually reach the max of 40 years service, and to get 1 more promotion, in my remaining 17 years as well to improve it.

@Jinglebellsoncake

I actually haven't put any away. I'm 30. I'm planning to put a chunk (£30k) of my savings in next year.

Apologies if I’m teaching you to suck eggs, but make sure you do the sums on tax relief, you may be better off splitting that £30K across several years.

Still lots of people saying the Op shouldn’t concern herself because they have zero or less than her.

Just because other people are in worse poverty, doesn’t mean anyone should ignore their own impending poverty.

This thread should be a call to everyone to assess where they are with their pension provision and consider things that they can do to improve it. Everyone starts from a different place and has different possibilities open to them, but everyone has the possibility to evaluate and improve their position.

[quote gofg]@blueshoes - it's not "the occasional thread", I've only been on MN for two years and have seen numerous ones. National superannuation here is hardly enough to live a wild life on, and as I said people do have savings, pension schemes etc. However, I wouldn't have a clue how much any of my friends have, and no-one has ever asked me. Prior to Kiwisaver many people didn't have any kind of retirement savings - including me - and it didn't bother us. A lot of people do live solely on national superannuation.[/quote]
So what is your point ? That it is wrong to be clued up and provide for your future ?

@WombatChocolate

Still lots of people saying the Op shouldn’t concern herself because they have zero or less than her.

Just because other people are in worse poverty, doesn’t mean anyone should ignore their own impending poverty.

This thread should be a call to everyone to assess where they are with their pension provision and consider things that they can do to improve it. Everyone starts from a different place and has different possibilities open to them, but everyone has the possibility to evaluate and improve their position.

I agree. Fair enough not to have a pension if you genuinely can't afford to pay money in. Not sure why anyone would sneer at a woman who is trying to be financially responsible and independent and save for her future

Some of the pensions on here are fantastic, great job by the savers!

Thanks for your explanation @Cocomarine, and I do see the benefits of the balanced approach, and yours makes sense.

I suppose my main point was that a guaranteed, steady, inflation-proofed income is massively expensive to provide, and although the shift towards drawdown is temporarily and superficially attractive, at some point over the lifetime of the current cohort of pensioners it is bound to go badly wrong. It's another big expensive risk which has been quietly shifted from employers onto employees.

@AuntyBumBum

Then, however you got to £500K, you’re not swapping that for £23K pa. The point of draw down is that you draw off the interest every year - without touching the capital. So what that £23K represents is the money you can spend every year indefinitely and STILL have £500K sat in the bank.

Is that starting to look like a better deal yet?!

I’m using £23K as that’s your quoted figure. That 4.6% of the £500K though - so not a crazy figure.

This seems pretty risky to me. You could be retired for forty years or more. Who knows what will happen over that time. Forty years ago Margaret Thatcher was in power, we had three channels on the telly, Charles and Diana had just got married, and the internet wasn't even a word. There have been several enormous market crashes and recessions. Interest rates and inflation have fluctuated wildly. And even then we've been lucky because over all that period we've overall had a bull market.

Indexed-linked annuities are expensive because of the risks involved. I'd rather pay someone else to take them.

Any IFA worth their salt will be able to show you what X sum of money would have done taking all of the market crashes into account . Regardless of those it has always rebounded. The ebb and flow of the market is a natural thing . The problem with most annuities is that they die with you whereas an investment portfolio will give you (hopefully)what you need to live and will remain intact or increased in value .

You can look at historical market movement.

Imagine going to open sipps for my dds on the back of this thread, I've always had it in mind but I'm going to commit to it over this holiday.
Just opening these things is a huge hurdle but once they are set up it's so easy. Procrastination is the Enemy here. Its taken me about five years to get dh to open up a stock and shares isa!

Markets move in cycles but each one goes higher and higher.

Many people are in the fire moment, financial freedom retire early.

They live low cost and live off their capital, usually invested in low costu(usually vanguards) index funds.

People could live 40 years in retirement however, unlikely. Most people can't retire til they are 67 and that will be 70 in the not too distant future. Most likely you are funding 15 year, 20 possibly.

My parents say the same. Because they were in a different time where houses were cheap and mortgage paid off sooner. Etc.
Keep going, that's the main thing.