Should I add payrise to pension

[Moanyoldcow]

I have a fairly normal employer provided DC pension with Scottish Widows.

My employer contributes 8%, our standard contribution is 6% but I upped it to 8% a few months ago. I've just found out we're getting a 2% pay increase this year and as we're managing ok with my current salary I was thinking of just upping my contributions to 10% so I'd get 18% a year.

Does this sound like a good use of the funds? I'm 40 and my pension isn't all that healthy - probably about £25k and I'm starting to get worried.

Any advice would be greatly appreciated.

Yes, though you may want to look at increasing emergency fund, if you don't already have around 6 months of expenses available.

You are doing great, living on less than you earn. Keep boosting the savings, be it pension or elsewhere.

I think you would be better off putting it into an ISA, the limit is now £20k. You don't want all your eggs in one basket.

£25k a year or £25k in pot all told? if its the former then its about double mine!..
I have added my payrises to my pension AVCs every year now for the last 10 years .. its grown into quite a nice pot ( but not 25k a year sadly) and ill be retiring soon.

Thanks both. I don't have a particularly large surplus at all so I could definitely look to building that up first.

£25k all told!! If it were a year I'd be ordering a diamond suit!!

Split it? So an extra 1% to the pension and the other 1% to your take home pay to save.
You're doing better than me, I'm mid thirties and just setting about starting one...

I'd up the contributions to the pension pot. 25k in total at age 40 + your normal contributions really isn't going to accumulate enough by the time you retire for you to live off it... unless you have some DB pension from elsewhere?
As a rule of thumb you want to have contributed 15% (you and your employer) each year throughout your working life, in order to accumulate enough to keep the same level of lifestyle post-retirement. Obviously it's just a guideline, it's dependent on your salary, economic assumptions, when you retire etc.
You DC provider should have an online illustrator that projects your pension pot at retirement and annual income. They typically do it on a few different assumptions, e.g. best estimate of investment return, a poor investment return etc. Have a play around with that, work out what level of income you need after you retire and back solve for the % contributions you need to put in now.

Thanks everyone. I'm currently working part-time as I have a young family but will be going back full time when the kids are at full time school and so will hopefully be able to really ramp up contributions then.

I think I will but it all towards pension at this stage as we're really not talking a large amount but I feel like this will be the best use.

Like god knows how many other people we'll be downsizing when we retire and possibly moving out of London so hopefully that will release a fair bit of money too.

You are being very sensible by upping your pension conts. £25k at 40 is on the low side if no other pension assets elsewhere. I have upped my contributions recently to 10%. I am fortunate to have a v generous employer contribution which takes my total conts to 27%. I still worry that this still isn't enough to build a decent size pot as I started pension saving only in the last 10yrs. The more you can put away now the longer it has to grow. Investment performance can make a significant difference to your outcome.

You may also want to think about where you are invested. If you are in the default fund you may want to consider your attitude to risk and look at slightly higher risk funds. Theory being is that in the growth phase of saving you can afford more volatility in return for higher performance in the long run. I've moved mine to higher risk funds as I still have 25 years until retirement so happy with risk.

And don't forget with the new pension freedoms you have more ways to access your money now from 55.

I think you would be better off putting it into an ISA, the limit is now £20k. You don't want all your eggs in one basket.-

An ISA and a pension are a set of rules that invest in EXACTLY THE SAME THINGS. For goodness sake understand the rules. The pension is tax efficient (far beyond an ISA), but you can't access it until SRA.

The amount you're investing is sensible. Education about pensions would seem the most logical next step.

An ISA and a pension are a set of rules that invest in EXACTLY THE SAME THINGS.

Yes it's the same type of asset, but not the same investment decisions. If you have a fund manager in your pension fund who cocks those investment decisions up then kiss your retirement comfort goodbye, as a lot people did during the financial crisis.

For goodness sake understand the point I'm making before you over react

Really? You can buy EXACTLY the same funds with a pension and an ISA. You need to educate youself.

I may have an advantage with 16 professional exams in personal finance, but the fact you don't doesn't defend the fact you're writing absolute bollocks.

I'm not over reacting BTW, you're writing shite.

Just in case there is doubt. Invest in an AVIVA pension, AVIVA invest not a single fucking penny of your money. You can have 100% in Vanguard (for example).

Invest in an AVIVA ISA, invest 100% in Vanguard.

£80 in an ISA
£100 in a pension

Same fund, different rules.

At 40 a LISA. Lifetime ISA. Topped up almost like pension going in, tax free coming out.

You can buy EXACTLY the same funds with a pension and an ISA.

In theory. In practice, your pension fund (unless a SIPP) is likely to be highly constricted by the funds that are actually available for you to choose. I'd go for an ISA any day.

I'm sorry, but that is TOTALLY misleading.

A pension is a set of rules.

An ISA is a set of rules.

SIPP, PP, GPP - all the same.

It really does make me worry about how much most people understand about the most common financial products. The rules are what matter, the time you can access, the tax etc.

Very, very concerning - I'm not being sarcastic, I genuinely find it worrying.

The main consideration between ISA and pension is: time i.e. When will you access it. Charges are the next.

Anything else on your mind means you don't understand what you are doing.

dontcallmethatyoucunt I was hoping you'd be back to clear that one up

patience of a saint me

I have upped my contributions recently to 10%. I am fortunate to have a v generous employer contribution which takes my total conts to 27%

Envious of all these high employer contributions :-(

My employer only contributes 4%!!!! How crap is that?

Wish I had known what the pension % were when I was choosing which grad scheme to accept 10 years ago.

hipster I'm self employed, so my employer contributions are even lower...

My employer before my current one did 3%, rising to 4% after 4 years. I've got more in 2 years here than I did in 6 years there (although I've had a payrise too).

I need to get serious. DH has had an excellent pension for the last 15 years - Local Govt and then University so I'll have to just sponge off him

I'm self employed, so my employer contributions are even lower

I take your point, but you should be charging enough to include your own and your 'employers' pension contributions. I realise that's easy to say, but if you were employed, you would HAVE to have a pension under auto enrolment. Don't shortchange your future.

You are right, of course, dontcallme. Easier said than done though.