To think I am fucked for retirement?

[Realstudd]

despite a decent job and income, I am absolutely rubbish at anything financial. I don’t understand pensions etc.

i became a single parent last year and I have one dc, 9. I am 42. I have 3k in savings but these are used for car stuff or emergencies and never get beyond 3k.

i looked at my pension pot the other day and it says 2,400… I’ve been paying in for over 9 years, 8 percent of my salary. My salary has always been over 35k and for a few years has been over 50. I don’t get how the pot can be so low?

the only positive is I have 140k left on my mortgage which I overpay so could be paid off in 6 years. But what good is that really if I can’t afford the bills! I feel like an idiot for not having planned ahead, I guess I will lose my home and have to go into rented to pay bills when older? What do people do? I go from feeling insanely stressed about it to accepting that that’s just how it is but I can’t picture my future anymore. What do you do in this situation?

I was in a similar position to you re not understanding my private pension. I put off seeing a financial advisor as I thought it would cost a fortune. It was the best thing I have done in years. I was paying too much in fees (admin etc) and he discussed my overall financial situation regarding my family (parents, likely inheritance etc), and what may or may not be feasible to think about. My family are very open about inheritance and I know where I stand apart from the obvious unknowns such as parent needing care, etc... I have a low requirement of lifestyle for retirement. I not bothered about holidays, travelling etc. For me, I decided to take 25% of my pot now, to top up my (very part time income), as I have lost a couple of close friends to cancer way too young (50's). I am asset rich and cash poor and therefore I would like to dip onto my pot early, and to work part time, so I can see and treat my kids (now young adults) and their partners to meals out etc.. I decided if I wait until I'm 67, my health may be compromised and that's a risk I'm not willing to take. I'm not bothered if I have to sit and watch TV in my 80's and live very modestly. I'm not wasting my healthy years which are hopefully the next 10 - 15.

Don't panic! There are thousands - if not millions - of people in the same boat as you, dare I say mostly women. I'm one of them (except I'm older and my employer pension contributions are much lower!), and I'm trying to get to grips with sorting it out. Better to do it now than in another 10 years.

I've found two old pension pots and am now researching consolidating them and choosing what sort of risk I'm ok with to decide where to move them to. It's taking me ages because it's very far out of my comfort zone but I know it's important.

I keep reading how we need to contribute half our age as a percentage of salary ideally, so I'm going to start putting in about 10-15% more each month into my current pension pot too, and possibly move it to a different risk type to hopefully increase returns. I can't afford more than that really as need my salary elsewhere.

I'm also thinking that we may be able to downsize at some point and release some house equity if we need to. We aren't overpaying our mortgage at the moment as our rate isn't too high.

I’m terrible at this but have you actually phoned them to check. Is this the amount per year you would get if you stopped paying into it today? So if you continued for another 25 years it would be worth significantly more with the early year being worth the most.

do you get an annual statement?

sadly 8 years isn’t an awfully long time to pay into a pension. Would you get a lump sum on retirement?

gove them a call and ask

Haven't read all the comments but this can't be your entire pot if you've been paying 8% a month, on 35k+, over 9 years. Plus your employers would be contributing.

As said in the early comments, it could be your projected annual payment on retirement. That would obviously grow the more you put in.

It could be that this is the entire sum but with just the pension company that you're currently with in your employment now. You need to find the other 2 companies you had pensions with in your previous employment. You can combine pots, but you'd probably be best speaking to someone with expertise about that.

There is no way you only have 2.4k with your contributions.

One other thought, and this is just a thought, is could your pension be investing in high risk investments and losing?

I know my pension puts my money into low to high risk investments, and we choose what we want based on the risk we want to take.

I don't know enough to say that could be a possibility, but it might be worth checking with your provider.

Pension companies generally send a wodge of paperwork each year or maybe an email, though Scottish widows have always sent me paperwork so you probably have that somewhere. Your other pension companies probably also send it unless they haven't got your current address

Is it in the employers default fund? Usually you can choose which fund or style of pension you pay into. Depending on ur circumstances and risk appetite maybe you should go for one with more equities in it? Sometimes the default funds are more risk averse with more bonds but that can mean less growth. So maybe when you were younger it would be been better in one of those? Maybe ur employers pension scheme people can give you some guidance and you may then choose to put it in a higher equity slightly riskier fund???? And then move to a less risky more bonds one later? Or there may be a fund that does that 'lifestyling' for you. Sorry if this has already been mentioned.

Aaaaaah sorry I made a mistake. I meant when you were younger maybe you shouldve been putting it into a higher risk more equities fund with less bonds!!! Sorry. Basically I'm over simplifying but by being in a fund with lots of safer type investments eg bonds and cash, it probably wont grow as much as with one with mainly equities. Over the long term I would personally do more equities and then try to make things less risky when approaching retirement.

I think the £2400 is what OP would get each year if she stopped paying pension now, so based on what she's paid on up until this point. It was 8 percent of £35k for many of those years so not paying a lot in. Then there are pension costs.

Perhaps email the HR department from each company and ask who the accounts were with. You can consolidate them into one account. I moved a tiny amount into my current pension just by filling out an online form. Don't know why I didn't do it earlier, was so easy to do.

As a previous poster has already said, if you are bright enough to have earned a decent salary like yours, I promise you are bright enough to learn about your pensions.

You need to stop panicking and put some effort into educating yourself about how they work, there are lots of resources online. Do some reading, you will thank yourself later.

From what you have said, I would guess you have more than one pension pot as you have had a few different jobs. You get a pension with each job, often they will be with different providers. I suggest you trace them all and go from there.

Aviva have recently launched a free service called Find and Combine. They will not only trace your old pensions, they will also gather relevant info on your behalf from all of the providers and then present you with their findings, in order to help you decide if you want to combine them together or leave some where they are. Combining all of your pensions isn't always the right thing to do, as some pensions have features and benefits worth keeping. https://www.aviva.co.uk/retirement/pensions/pension-consolidation/

Once you know how much you have and where, you can educate yourself as much as possible before deciding if you need to do anything. Financial advice is a very good idea, but not necessarily essential.

It sounds like you have done all the right things - you have earned a decent salary and always contributed to a pension and you will be mortgage free a lot sooner than most people. You also have 20 years or more of further pension contributions ahead of you. You will find you are in a much better position than you think.

Just stop wasting unnecessary energy on panicking and take some time to arm yourself with as much information as possible. You'll be fine.

@trussedchicken really supportive and helpful post 👍

Doesn’t sound right that.

I keep reading how we need to contribute half our age as a percentage of salary ideally

That's when you start. If you're age twenty and just starting out 10%, if you're age 50 and just starting out 25%. But if you're age 50 and have thirty years in already you don't need to do 25% really.

But it's only a rule of thumb . It's far better to work out what you'll need and work backwards from there, based on your current earnings, to where you are today and work on filling the gap.

Pensions don't earn interest.

It is what it is. Asking what is the point is a bit silly really.

That's ONE of your pension pots (as far as we can tell). If you have three the same, that's going to be c£3k a year isn't it. If the state pension is just under £12k (which it is) then your £3k increases your income in retirement by a third. I mean, it's better than not having it, and I think that's the point.

And when you look at figures always look at all figures as at today's value, there's no point at all worrying about what it will look like in future.

But, you've got many years still to save, and you'll have investment returns. You would probably find it easier to track if they were all together, so start looking into that. And look to see if you've got any other old ones.

As others have said - panicking doesn't get you anywhere. There are loads of links on this thread to help you sort it out.

Pension pots invested in the stock or bond markets earn investment returns. Money in interest-bearing accounts earn interest. The word "interest" is used as convenience in these demonstrative examples but it's the same thing.

If they achieve an average 5% return on investment per annum it's the same thing.

OP, you need to stop obsessing over what is shown on your financial services dashboard. It's just a snapshot. It means that if a person retired today with what is in your pot, they would get an annual income of X. It doesn't mean that is what you actually will get 20, 25 or 30 years from now. It's bells and whistles on their website. You aren't retiring today so ignore those numbers.

As we have tried to tell you, your workplace pension pots will grow over the years, and they will not only grow by the amounts you contribute, but by the returns they achieve in the markets.

Get a reputable financial advisor ASAP. They will explain this to you. They will tell you about the investing options. Generally the younger you are, the more aggressive the options you should choose. As you near old age, your money will need to be moved to more stable investment choices that don't fluctuate in value as the stock markets move.

The advisor also will tell you, based on the interest rate of your mortgage vs the average annual returns in the stock market, whether it makes more sense to prepay your mortgage or increase your contributions to your workplace pension. They also will tell you of the tax relief you might achieve by increasing pension contributions, which will make your income go further.

None of this is rocket science. It is nothing to be frightened of.

Phone the HR departments of the entities you used to work for. Tell them you are gathering information for an upcoming meeting with a personal financial advisor and that you need to know your pension status. They get these inquiries all the time and will direct you to the internal or external pension manager. Who in turn should be able to provide you with the account information.

You really need to get on top of this. Money invested today is worth a lot more in the long run than money invested 1, 5 or 10 years from now.

It's not the same thing as interest at all and it's really misleading to talk about pensions like that.

As I'm sure you know, your investment can go up (for example) 50% one year, then down 75% the next year. Compounding has zero relevance here.

I have an investment that went up 130% during Covid (was purchased in Feb 2020), it's now "only" up about 40%. Where is my compound interest please, where do I apply for it?

Market investment can be volatile in the short term but the long range trajectory is upward and for the purposes of discussing compounding and the time value of money the semantics are irrelevant.

No one in their right mind is going to put pension monies in an interest bearing savings account at age 40.

The point is that wise investments grow significantly over time. If not we'd still be living in caves trading animal skins.

@VanGoghsDog while strictly speaking pensions are not sitting in a fixed interest savings account. They are invested in the stock market etc , which long term operates as an annual return of above 5% of course there are yearly fluctuations but over the 20+ years to OP retires it will generally out perform having it in an bank savings account and so the calculator does help. Give a rough approximate value obviously OP needs to get full figures from her provider

Those things are true, I never said they weren't. But they reinforce my point that "compound interest" isn't a factor in pensions and it's misleading to suggest that is how they work.

None of that changes what I said.

while strictly speaking pensions are not sitting in a fixed interest savings account.

Not "strictly speaking", they are NOT. You can put some of your pension in cash if you want to, but it's pretty unusual these days (used to be more of a thing when people bought annuities, to ensure less possibility of losses near to retirement).

It annoys me when people talk about pensions, which tend to be invested in markets be that equities, bonds etc, but then go on about "interest" and compounding. Neither of these things apply. As I have shown with just one of my funds (which is actually in my ISA, not my pension, but the point is the same) - it went up loads in 2020 (unexpectedly, everything else was going down), then went down again. It's still up overall, 4.5 years since purchase, but there was no "compounding" from that original 130% increase. It simply doesn't apply.

We are all aware that pension funds can lose money. We can't pretend it's all nice and cozy with annual 5% increases compounding year on year, it's just disingenuous to frame it that way.

Unless you think it's better to treat people like idiots, like the pension industry used to!

My point was that generally money invested in a pension while it goes up and down generally outperforms a savings account so seeing what that type of monthly investment would earn in an interest paying account does give a reasonable indication of what her pension pot might me. There doesn't seem to be any evidence that over 25 years or more she would have been better off with it in an interest paying account,

@VanGoghsDog

You're getting mired in semantics. Most of us know that investment returns are not "interest" per se but in trying to explain to a beginner that gains compound as the years go on, it's a shortcut to use the simpler term.

Isnt there a tiny element of compounding due to dividend returns being reinvested?