This is a terrible pension position isn’t it?!

[haengry]

I’m 38. I just got a letter from my private pension with the annual update and it says my pension value is currently 28k. For context I have been paying in since I was 25 and my employer makes a contribution too. We each pay it 4% a year so 8% in total. My starting salary was 30k and I’ve been on 60k the last two years and then in the fifties a few years prior to that. Surely it should be more? Does that literally mean I have 28k to my name if I was to retire tomorrow?!

I think the rule of thumb is based on the age you are when you start to pay into a pension, not the age you are now.

E.g. If you start paying in at age 20 then 10% is what you should pay in for the rest of your working life, but if you don't start till age 40 then you need to pay in 20%.

This is good advice.

More sound advice 😊

Anyone wanting to understand more about saving for retirement or personal finance in general I'd recommend the Meaningful Money podcasts and YouTube videos.

Ah ok. Hmmm. I started a bit late and wasn’t putting enough in at the start but for the last few years I’ve been putting much more in than half my age… Thanks for the clarification.

Thank you sorry to be dense but what would it look like on a statement? Would it literally say indexation? And do you mean indexation I.e increasing in line with inflation? Thanks

Best thing I have done is contribute to my work pension so I get the ‘free money’ from my employer. But every so often, once or twice a year, I transfer the balance to my SIPP so i can manage the money myself. Transferring money to the SIPP is very easy, an online form which take 2 minutes. I like being in charge of my money and get a much better rate of return than I would with the work pension but I’m still getting the ‘free money’

Some pensions are limited to qualifying earnings, rather than them paying 5% of 60k they pay 5% of that band which is about 5-45k so 5% of 40, meaning you get about 1/3 less in your pension than you would expect.

Genuinely baffles me that people don't prioritise pensions. Teach children at school age and get them paying in 10% from 18. Also set up a junior ISA for them. The state pension age will rise and rise and is peanuts.

I pay in 28% currently plus bonuses, my employer 10%. For tax efficiency alone it's a no brainer. I'd put in more if I could.

Yes, sorry, your pension pot is very low but you can act now to improve it and you'll have another 30yrs in the workplace to help you out. Don't panic.
For context, I'm a bit older than you and on about the same pay. I didn't really get my arse in gear for a pension til I was 30, and didn't start earning over 50k til about 5 or 6yrs ago. Yet my pot is a lot bigger (not megabucks, but not terrible either) but only because my contributions are a fair bit more than yours, and my employer contributions are very generous.
If you work for a large(ish) employer they should run pension events via HR, or the company that provides your workplace pension may send you info about events. Otherwise get advice from organisations like Pensionwise. Martin Lewis also has good advice on his website.
There are things you can do to increase your contributions without significantly affecting your take home pay.
You could also look at having a private pension. I set one up a couple of years back, and while it's only very small and I don't put in very much at all it is worth having it to diversify where the money is invested. I use Scottish Widows.
I know you're a single parent, which affects how much you can realistically afford to put in. But as your child/children grow you'll have to fork out less for extortionate childcare - and that will allow you to save more.
In addition, I set up a Lifetime ISA (LISA) before I turned 40. This is absolutely worth doing as the Government will top it up by (I think) 20pc if you don't touch it til you're over 60.
I use Hargreaves Lansdowne for my LISA and a stocks and shares ISA - the latter only has about a grand in it as I know fuck all about investing 🤣
I'd not worry too much, but you do need to act now. £10 saved now will be able to grow so much more than £20 invested in a decade's time.
Good luck. It is confusing but you're doing the right thing by thinking about the future.

You have got 19 more years before you can touch it and even at 8% that’s another £5k ish a year going in, more if you have pay increases.

A pension calculator showing £28k investment with £400 a month going in at 5% a year growth would give a pot or £330k in 25 years.

Do you have kids because if you do, presumably you are losing child benefit if over 60k.

If so you may want to consider salary sacrifice back down to £50k to keep you under HRT and get the child benefit back (assuming partner doesn’t earn more)

Higher rate tax payers with salary sacrifice options really should look into it.

@Ilovemybike88 that's interesting that you transfer from your employer's pension to your SIPP. I'd like to do this but last time I checked it wasn't allowed.

I think I will check again!

LISA - Govt adds £1,000 if you put in £4,000 every year until you're 50. If you own a home you then can't access it without penalty until 60.

Good work on the pension, I'm a huge fan, pay yourself first 👍

Does anyone know how to claim the additional pension tax relief when you earn over £50k? Ideally without having to do a tax return

Your employer does it in PAYE or you do it via tax return, no other way

@5thCommandment paye is the 20% only I believe

HMRC says you can write to them I just don't know what to say

If you are a higher rate tax payer, the second part of the 40% can only be claimed back by doing self assessment.

I mean it says this on the site

If you pay Income Tax above 20% (England, Wales or Northern Ireland)
You can claim additional tax relief on your Self Assessment tax returnn_ for money you put into a private pension of:
• 20% up to the amount of any income you have paid 40% tax on
• 25% up to the amount of any income you have paid 45% tax on
You can also call or write to HMRCC_ to claim if you pay Income Tax at 40%.

I just don't know what to say in my writing to them - which documents or calculations to include

@slithytoveisascientist that's not correct, I'm a 40% tax payer snd contribute 38% to my pension, my employer does it all through PAYE.

I can confirm that this employer does not. Only basic relief. Not higher rate tax payer relief.

That is why I'm asking. I don't want to do 4 years of tax returns when apparently a letter will suffice.

Does your employer offer salary sacrifice? You don't need to do a tax return if your contributions are made via salary sacrifice.

Plus the £10,600 p.a. state pension, assuming they've got enough years of NI contributions.

@WhatWouldTheDoctorDo I don't know - I know the pension payments are taken from salary for a nest pension and nest claim 20% relief and have told us we need to apply for the rest.

HMRC state this can be done with a tax return or contacting them.

I just want to know what information to include in that contact.

I have a question if anyone can help.

I pay into a workplace and self-invested private pension. If I move into a higher tax band I know the higher tax relief is automatically adjusted through PAYE (I think??), but how would it work for my private pension?

Who is your pension provider for the workplace pension? DH has nest and they do not claim the additional tax as a higher rate tax payer - we have to do that

So it might be worth checking