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 😩

"Are your diamond shoes too tight?" is another one!

I agree as well. It's petty and immature to snipe at people who may be in better economic circumstances.

And frankly, I used to run a program helping people with their personal finances. I can tell you that most people who struggle much past age 30 have made their own problems. Yes, some are truly disadvantaged and ill-equipped to find a decent livelihood due to mental, emotional or intellectual disadvantages.

But MOST people who don't have anything put by made imprudent choices, are self-indulgent and don't prioritize saving. We always found ways to change their spending and allow for savings. It's a mentality. There were people on low wage who did save, and people with higher-than-average household income who had zero to show for it.

I'm the bread winner due to my husband's health (ex military issues so his only income is related to that, and I work in the field so what hes entitled to is maximised along with military pension, not huge) I'm not a massively high earner but I'm putting away what I can. So ironically I could well be financially worse off than some of the posters who today only came in to snipe/stir, but I called them out on it because as many of you have said we all are trying our best if we have any common sense, and should be supporting each other 👍 so am glad we seem to have cleared out the ones who only came in to cause trouble- I've also personally got some very useful info from the thread, so I think that's what this should all be about 😊

@Pensionworry1 keep doing what you’re doing. I put every pay rise in my pension because I don’t want to rely on being able to get the same salary if I leave and because I won’t miss it. Same with bonus. It soon mounts up … honestly, just a small increase in what you put in makes a big difference in 10-15 years!

I'm not suggesting an alternative - investing in a pension as early as possible is really worthwhile. I was just pointing out that it's not quite as impressive a sum as it first appears.

It isn't a race to the bottom, you are right in that it isn't really enough. Just because most people also don't really have enough doesn't mean you should throw your hands up and do nothing. Time is on your side and for compounding, that is incredibly valuable.

I am in my late 30s and got switched onto pensions a few years ago. Definitely check what yours is invested in, mine was in the default fund which was really conservative so I moved it to higher risk funds that have been a bit more variable but seem overall to be performing well for me. This far out from retirement we have the luxury of being a bit riskier, my plan is to move back towards the more conservative, default fund in my 50s.

You may also want to look into a Stocks and Shares ISA. I have one which I just stick £100 a month in with a view to it being my early retirement pot. It's only got 16k in it at the moment but the hope is 25 years time it may be the difference between retiring a couple of years early or not!

Think about your finances outside of pensions too. Is the mortgage going to be paid off before you retire, can you downsize etc.

You are getting your head around it now and so I'm sure you're going to be just fine. That's my hope for myself too! Unfortunately I don't think people our age can rely on there being a state pension by the time we get there.

Look up Rebel Finance on Facebook and YouTube for videos about how to plan for retirement, it’s a 10 video course that goes through everything starting at how to review your budget to increase your “gap” and therefore to put more towards investing in your pension. It also goes through how to compare funds and get yourself in an appropriate fund in your pension to optimise its growth potential. That and the fees will make a big difference.

if you were under 40 I would have said start a LISA…!

start small and keep going. Every pay rise put at least 1/2 the pay rise into your pension. Then you notice the difference less.

Full time is from 35 hours. Which is £22,222 so not 25k

Another one is meaningful money podcasts. There are an awful lot of them but they repeat topics and the most recent ones are of course most up to date

talks about pensions, but also about how , also to put aside in savings first ( and the best way to do so), then the pension ideas. Other things like budgeting etc

in summary a pension is the most tax efficient way to put money aside but it (should be) licked away so you do need savings 1st / as well

martin Lewis / money savings expert is excellent for a range of ways to make the most of your income and, efficient spending. This should free up some ways of having more free cash and simply make you more financially savvy. Every little can help

OP you’re being very sensible considering this now. The number of people thinking 33k is a lot or ok, shows how many people either have zero understanding of pensions and return rates or are burying their heads in the sand about their own personal situations. You are correct, £33k is not a lot and £240k sadly isn’t going to be half of minimum wage in returns per annum, assuming 4%. Given in the future we are likely to go means tested, everyone should consider even the smallest of increased payment now to benefit them in retirement.

Obviously you can only pay in what you can. Best things are to consider:

1. the risk profile of your pension pot - if a company scheme they’re usually very very safe and the returns are a lot lower. You’re younger so consider increasing the risk as that’s likely to give better returns and you’ve got the time to do. My work pension is ‘safe’ but ever year I take the funds and place them into my private pension which is medium risks and the returns are significantly better.
2. Consider salary sacrifice so you’re pension goes out before tax and you’ll get ‘more’ for your money
3. Maybe consider investing your bonus in stocks and shares ISA if you’re comfortable following the market (again more risk as shares can tank but returns are really good)
4. use ChatGPT! Put in your earning, projected earnings etc and ask it for advice on how you can up payments etc. It’s really interesting.
5. If possible ensure you’re mortgage is paid off before retirement

good luck!

Find a way of getting to 15% contributions plus employers contributions & your bonus. It may not be today but make it your goal.
Ensure you are debt free and your mortgage is paid off by retirement.
Then you are in good shape.

Why is it not enough, add in state pension and hopefully you will have finished paying your mortgage, it seems fine to me. Mine is similar and I'm even planning early retirement.

You mention you pay into a share scheme. It doesn’t attract the same tax relief as a pension does and investing in single company shares is far more risky.
i would divert that money to your pension.
Also ensure your pension is invested in a high % of equities which gives better potential for returns over the longer term.

Because the state pension is unsustainable in its current form so we cannot bank on it. I was born in 1987 and am not factoring in the state pension into my planning because I am going to likely be in my 70s before I get it....if at all.

OP's £33k now is projected to be £240k when she retires. That's maybe £11k or £12k a year, which considering inflation isn't going to get you a lot in 25 years time. If she gets the state pension too she'll be fine, but it's a big "if" for people in their 40s and younger. I wouldn't want to be relying on it given it is already unaffordable for the country.

I'm approaching taking my pension, I wish I'd paid more attention so well done for thinking about this.

I was scared off by the predictions that said I needed to be putting hundreds of pounds a month into my pension in my 40's, I couldn't do that so I did nothing on top of my normal contributions.

I now realise that even putting another £50 a month in would have helped, there would have been a tax benefit and the compound investment over 20 or more years has a significant impact.

I agree with others, if you are part of a couple your pensions should both be prioritised, you've impacted your career and future financial position it's now time to focus on it.

Personally I'd invest your pension contribution via your employer by an amount that feels comfortable, you'll get 20% tax benefit and whilst it doesn't feel a lot, in time it will all add up.

But 10% growth is surely unrealistic? 5% seems a more likely prediction. It’s hard to find solid numbers on it by googling but see this Reddit post…

https://www.reddit.com/r/UKPersonalFinance/s/gZahrAClVY

And at 5% the end pot is only £250k which isn’t much in pensions terms… although still worth doing if you could!

I have a nearly two year old and seeing your post genuinely considered starting a pension for her (I still might) hence I’m looking a bit deeper into what you’ve said - I’m not just randomly trying to pick it apart! If it was as worth it as that I would find a way to do it.

The difference between 5% and 10% is mad - proves your point about the power of compound I guess!

@roshi42 just to provide a real world example on growth, my pension fund is up 89% over 5 years. If you leave a pension in a default fund, you are probably looking at 5% growth, yes but returns in a global tracker are much higher. Very good idea to start a pension for your daughter :).

@roshi42 as @Fletchasketch says, a lot of the standard pension funds are invested in default funds, which do produce the steady, but low, growth.

The key thing is “time in the market” and not “timing the market”, the longer you can allow compounding to work the better it will be. If you can set something up for your daughter just putting in £100 a month will make a big difference and will allow her to be able to put smaller amounts away throughout her working life.

The rough rule of thumb is that when you start your pension, halve your age and that is the % of your annual income you should put away. I was 22 when I started mine and with my employer contribution put away 10% from the start. I now put away 15% and my pot is on a good track with another 15-20 years of contributions to go.

This is a good video to watch about compounding, it’s a clip from one of the RFS weekly videos.

My pension is projecting me £52k in five years’ time IF I don’t take the 25% out as a lump sum.

It has just over a million quid in it. So that gives you a ballpark idea of what you would need in the pot.

I am now retired, but when I was younger (your age or thereabouts) I came to the view that I could never achieve the “ideal” recommended amount in a pension. There are so many other calls on your income, especially when you have DC. So I saved as much as I could, taking advantage of the tax efficiencies of pension contributions. As I approached retirement, I then had to consider how I could maximise my income. I did this by deferring taking my state pension til I was 72 (it maxed out at that point, and I kept working ( I had a business. ) I now have an income of just under £50k per annum in pensions ( keeping me a lower rate tax payer) with an additional £7k pa tax free from letting a room. My income is a mixture of state pension and a self-invested private pension that is in draw down. That means that the draw down could eventually run out, but I still have other income. The approach of drawing down a private pension is usually not discussed by pension planners, but it is an option & it works for me.
The point I am making is that you have to play the cards your dealt. I now have a much better income in retirement than I expected, but I had to delay retirement to achieve this.
At your age, I would thoroughly educate myself on pensions, and they are constantly changing due to the tax regime, take good advice & do what you can. I think you have plenty of time to catch up, and there are options.

One thing you have to remember on a pension, compared to earnings now, is that from your gross salary now, you're paying pension and national insurance. At £30K some people will pay £150 say per month, which before tax and a year, is roughly £2.5K or so, then national insurance can be around the same. (Obviously check your wage slips) so at 67/68 (i know you might want to go before then, but (at worst) an income of £30K now, for the same net income, is only £25K gross (as no pension and NI to pay.
State pension is £12K, so a £13K private pension, (state on top) can give the same income as a £30K salary now.

Please quote me if I'm wrong! But ball park figure, you'll probably be ok

Make sure you have maximum years contribution for state pension too, if not you can buy additional years.

You could contact HMRC and talk about paying any shortfalls in your National Insurance. Ask them if this would increase your pension at all, because where I work if you pay gaps in your NI, it then opens up avenues for claiming other benefits in the future, or present. No harm in giving them a ring. I realise pension is down to working and paying into it, but it's another option for you to look into.

I should also look at my pension. I'm 20 years away from retirement and haven't got a clue about my own pension. I should follow in your footsteps and look into it. Nothing wrong with ensuring your financial security when older.

I will say, stressing will only make your thought process worse. Try not to overrthink because we cannot prevent the inevitable. Focus on the positives of what you do have and what you can control.

I'd say you are young enough to take some risk with the funds you invest in. Depending on your scheme, you may only have a choice of a few funds, but steer clear of bonds and go into equities. I know the market is high right now, but you are probably 25 yrs away from tapping this and it is more than enough time to ride any short term volatility.
I put all our ISAs, SIPPS into US tech and emerging market funds about 10-15 yrs ago (when I was about your age). The returns have been way better than UK or fixed income.
So in summary equally important as to how much you put in is what you do with it. Devote a bit of time to looking into what is offered and not just allocate randomly which a shocking amount of my friends seem to do.
Also if any kids have ISAs they should be maximising the risk as they have a long long time for it to compound. My friend has his kids jr ISAs in cash (FFS!!!)

Hi,

I am not quite sure to get this. Is this private pension in addition of state pension? Or is it your final all in all state pension?

If it is low, I’d be looking to put my extra in a private ones that will earn more. Other than that…talk to a financial advisor.