Pension worry…help

[Pensionworry1]

NC’d for this…basically I was a sahm and had a late career change 5 years ago. I’m 40…My current pension is at 33k…projected at 240k. I’m aware this is not enough
now I do have a separate extremely small pension elsewhere and by that I mean about 1.5k per year once retired.

it’s also worth noting that I’m still at the lower end of my career ladder right now and have no intention on stopping here. My wage increases about 4.5%annually, my company pays 10% and I pay 5% (I can’t pay any more than this as I have a mortgage etc) I usually pay some of my bonus into my pension so I might put it all in going forward (usually about 8%)…is there anything else I can do? I suppose that’s it really isn’t it? Should I be worried? I feel like I should be 😩

. deleted as double posted

No advice to impart, but wanted to read as pensions are important. The vitriol from some is pretty astonishing.

All I know is that the state pension will have to undergo major reform or be abolished in the years to come. I predict that anyone born after 1990 will not be entitled to a penny of it and those born just before 1990 (I was born in 1987) will probably get something, pocket money perhaps, nothing liveable.

Then many, many people need to get off their arses and work full time! Crikey! £25k must be minimum wage!

I’m always amazed at how many people on this site would take the trouble to post about people having “more” than them! There will always be people with more or less money than you, it’s not a moral obligation to not make good plans for your future just because you are not at rock bottom.

Back to the OP, this is a really good calculator https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/pension-calculator and is worth spending a bit of time with, first adding the inputs as they currently are, then playing around with the projections if you increase contributions, and for various levels of inflation. Bear in mind that once you are mortgage free, any income you were paying off the mortgage can then be diverted to extra savings/ pension.

The advice to put money in ISAs instead of pensions is also worth bearing in mind. It’s especially valuable if you are a high earner and the projections mean you would be a higher rate taxpayer in retirement as income as well as capital growth from an ISA is tax free (big caveat, that is as things stand, who knows what Rachel Reeves or her successors will do), so it would be better to have part of your income from an ISA and part (up to the higher rate tax band) from a pension if you are in danger of that.

otherwise it’s more of a question of risk and reward, ISAs give you more flexibility on when and how you withdraw and you get the tax advantage on taking income, pensions give a tax advantage on the way in (the Government add back the tax on both yours and your employers contributions which means effectively you get £100 in your fund for every £80 you put in, up to a limit of your entire salary or £60k a year) - it’s hard to see an ISA giving you that rate of return, but with greater regulation and rules about when you can access the money.

At your age, you have the scope to actually make a difference so well done for getting a grip now

DC means defined contribution which almost all pensions are these days / you build a pot of money and then use that to provide a penison - eg by taking money out or having someone provide a fixed rate return. How big the pot grows and how much return you will get in retirement depend on how the stock market grows. You are often advised to assume you can get 4% of your pot size guaranteed every year without impacting its capital. Given how OP has described the pension this is what she has

tge alternative defined benefit is where the amount you will get is guaranteed up front and isn’t subject to stock market problems

DC means defined contribution. It means you make contributions each month and these are invested and you get a pot of money at retirement. There is no guarantee of a specific amount of money or income at retirement. What you get will depends on when you retire, how much you put in, where it is invested and what sort of investment growth you get on it.

my advice would be:

read up on pensions so you understand what you’ve got and what you can do with it at retirement.

try to come up with a rough estimate of what you will need in retirement. A good starting point is what you spend now less any debts. Then adjust as needed for your own circumstances.

work out what level of investment risk you are happy to take - higher risk means potential for higher returns but also more potential for big drops. There are lots of online risk questionnaires which can help you with this.

use a pension projection calculator to work out what current pot plus future contributions will give you at retirement. You will need to make an assumption on the % return - this will depend on your risk level as per previous point.

Does this match what you need? If not then the options are:

Reduce what you will spend in retirement
Retire later
Increase contributions
Increase the amount of investment risk you are taking ( I would only do this last and if no other option as you are increasing the risk of big falls in the value of your pot)

Or any combination of these depending on your own circumstances.

and remember you do have plenty of time and it’s good you are thinking about this now.

if you can afford it, an IFA can help you with all of this. They can also look at your existing plans and see if these are suitable with regards to charges and what funds you are invested in.

240 not a lot? Blimey! I am in the poor and bewildered mn group definitely

Most are and it is going to get worse. The removal of DB pensions will cause poverty for many and it is just the start. Terrifying prospect.

Op, I can understand your worry. Pensions aren't the easiest thing. £240k will give you about £11k a year, plus you'll have state pension of £12k (at today's rates).

£23k is enough to live on IF you own your home. If you don't, then coping with the rental market in old age, on that income is more worrying.

All you can do is balance your pension savings with paying off your mortgage. Bear in mind that earnings can drop towards the end of a career so put as much in as possible now

Thank you to those explaining DC and DB. I will look into it asap. Hopefully I will get a few promotions over the next 5 years which will bump me up a good bit. I am vowing to put all my bonuses into pension from now on. I put most in and then we have a shares scheme that I buy into too. So I will have that on retirement too. All going well! Pensions are not my forte at all. But I’m trying.

No it's not a lot if you're at retirement age and have that in a DC pension pot. It's around £23k a year before tax, below a minimum wage salary. State pension will likely be age 70+ by the time OP is at retirement age, if it exists at all. OP hopefully won't have a mortgage so should be ok, but for those who do or those who rent a pot that size would be an issue.

I’m in a v similar boat and have accepted that I’ll be working in some capacity into my 70s - putting the work in now to stay as strong and healthy as I can. Can you and DH downsize once you have paid your mortgage off? I think that is what DH and I will do as house worth a fair bit.

As a PP said, check where your money is being invested. If you haven’t done anything on this, it will be in a default low risk, lower return default fund. At you age, you can take more risks which means that over a long period your fund will grow more quickly. You will be able to see when you login to your fund where it is invested and can then choose a different investment option dependent on your risk appetite. Does your employer provide anyone to advise on investments, if they do then arrange an appointment.

Give over and stop hijacking the thread. OP is asking a question she doesn't need you taking over her thread FFS.

Advice from an oldie here, don’t forget to live now !!! Old age isn’t promised, yes pop some into your savings/ pension but not at the cost of living miserably for twenty plus years.
i have around £30k in a pension scheme , I’m lucky that I will get full state pension in ten years time. I’m confident that I’m safe to receive it i think means tested will be introduced but not for a good few years yet to allow work based pension to take over

You have time. My husband has just retired with a much smaller pot. He only got a pension when auto enrolment came in. I am younger and so will have benefited from auto enrolment for longer, so should have more. I found that it was once the mortgage was cleared that I could then save the mortgage payment into the pension which is starting to make a difference.

All you can do is look at ways to boost your income, particularly while you have good health, and put any above inflation payrises and bonuses into your pension. Also just keep an eye on frivolous spends.

Yes we can definitely downsize. We currently have a a five bed, although we absolutely adore this house. But I foresee it being a better decision to sell it in the future. I will wait until my DC are finished uni and have their own home to do that though… and that’s a whole other worry isn’t it?😂

I would avoid paying for a financial adviser have a look at free resources. Pete Matthew’s does a meaningful money podcast and has two books. He is an IFA and will tell you it’s rarely worth paying for advice. There is also Rebel Finance School doing a series of free courses.

DH had his pension invested in a company with high fees when I met him and we moved it to a different provider with much lower fees and it makes such a difference. Also if you can’t afford pay the fees out of your current account rather than the pension itself it will help.

We use it as incentive to declutter every now abs then and all proceeds get put in our pensions

I swapped my pensions into a managed one with a higher risk due to my age with a view to getting a higher return. The company does charge so you need to check which company you may want to go with if you don't want to do it yourself. I found works pension was very low risk but low return. Good luck with what you decide to do, it's not too late. Save what you can where you can.

Can people please stop posting this sort of rubbish? It's really unhelpful.

OP, first step is to check what you are invested in. If you haven't done this previously, it's likely to be the default fund which will be too low risk for what you want. Can you say how much is going into the pension monthly (in cash terms, not %)?

Only if you work 45 hours a week….

£12.21 x 40 hours x 52 weeks is £25,397

Another thing you can consider is every time you get a pay rise increase you % contribution. So if you get a 3% rise say keep 2-2.5% of the rise and increase your contribution by 0.5-1%.

It might not always be possible as I know things are getting more expensive but it’s one way to increase the percentage without actually going by down on income.

Otherwise you are doing everything you can and I think this is a very sensible way forward.

I’d also recommend combining pots if you have more than one as more recent ones are likely to have lower charges and better investments.

Thats totally irrelevant to the point of the post and just a rant.

Again, whats the point of that? This thread wasn't about inequality in society or who is better off than who??