Building up pension challenge

[Dashel]

Hi all,

One of the things that I have financially gotten around to looking at properly during Lock Down is my pension or lack there of.

I have a work place pension which is easy to log into and to make one off payments to, so I thought that now would be a great time to start trying to build up this pot as it’s not like I am spending normally, with hardly going out, no holidays or weekends away or meals out.

I wondered if anyone else out there would like to join me for support and to hopefully increase our pension pots to help have a more comfortable retirement?

A pension thread on here a few months ago, leads me to believe that I’m probably not the only one who has left it a bit late. I started this year with a work place pot of £3k so not going to keep me in a comfortable retirement unless it improves significantly.

Any money that I pay into this pot does get the 20% added to it (short of a lottery win I won’t be exceeding the £40k limit for the tax benefit) so I am hoping that I can finish the year on at least £10k but in an ideal world it would be more.

Thanks for reading and it would be great to have others for support and encouragement!

Just to add to the DB pension scheme discussion, I work in a school very part-time and have access to the LGPS. I only pay in £20 a month at the moment from my salary, but I am able to pay in £7000 a year if I wanted to, unmatched. When I worked for the council (same scheme) they would match a certain amount (think it was 5k lifetime)

Anyway, for each £1000 of my own money I add, I'd get 100 back as a pension. So for an idea for SAHMs, possibly worth considering a small job with a council/school somewhere whilst the kids are small and topping up your pension from that?

I'm not in a position to pay the extra £7000 per year in at the moment, so the dribs and drabs I am saving is being invested elsewhere where I'm hoping it will grow faster. I have a LISA with a token amount from when I was self-employed, that is that is growing very nicely too. When this pandemic is over, and I can work more hours I will look at this more seriously.

Check who you have as your nominated beneficiary. Pension is setup when you start work and you may have never selected a beneficiary or your choice of person may now be different. Get in to the habit of checking that every now and then, especially following big life events. No one wants to think about death but people do die, so if you did die you want your pension to go to someone.

Review your pension fund choices. Some of the default funds are rather conservative. The younger you are the more risk you can take, generally speaking.

I am trying to pay 1/4 of my take home pay in to pension. It's my current challenge. I've got a defined contribution scheme at work where minimum auto enrolment level is done... then I use a SIPP where I get more control.

@MrsWombat really interesting... I am a solicitor and have often thought about what else I could do. I am not a high earning one and my firm pay out the minimum in benefits such as pension.

Where would one look for civil service jobs?

My DH works for a firm with a generous pension plan - they match up to 10% and it is done via salary sacrifice so the NI goes in too. He has a large pot - about £500k. I currently have £170k in pension and LISA.
We both want to be able to retire in our late 50s with an income of £30k at least - we think we will need a pot of at least £1million to be able to comfortably achieve that.

Like I say though, we have been throwing money into our pensions for the past few years and are about to take on another mortgage so the rate we can save will slow down - but not stop like before.

I also think we should probably put some more into ISAs in case they move the pension age up again (I think we will have to be 58 as it is which is around when we would want to quit).

I got a job with a LGPS company In my early 40s precisely because of my piss poor pension pot. There's a 2 year vesting period to meet and then I just need to stay there until I retire - although every year I stay I accrue more than I would have elsewhere, I guess. I can access this at 67.

I have a small private pension - think the pot is about 25K. I can access this earlier (currently) so am paying £50 a month into it. I'd like to join the challenge with the goal of increasing this to £75 at first (excl gov contributions).

My state pension contributions are up to date, so fingers crossed that will still be an option in 25 years!

Defined benefit pensions can be taken early...currently 55 and soon to move to 10 years before your retirement age. Early retirement is possible....but the pension is reduced by about 4% per year for its entirety. It’s not surprising, because you receive the money for longer.

Sometimes people think defined benefit pensions have no flexibilities. Well they don’t in terms of what you and your employer pay in for the standard payouts, but they do in terms of when you take it out. They also have options to have larger accrual.

Some people working in local government as in defined contribution, not defined benefit pensions. The former are not as good. I wonder if what MrsWomabt (Great name by the way) is defined contribution and not defined benefit, because in defined benefit you cannot reduce your contributions as you describe. Based on what your salary is, there is a set % o£ contributions and you’re either in or out. You cannot, in such schemes, only pay in £20 per month. That would be a feature of the defined contribution pension. This is the one where the outcomes at the end are not fixed.

@WombatChocolate I pay around £20 a month because that's 5.5% of my salary. I work very part-time at grade 5.

Oh and I only used the example of someone in defined benefit pension who earned £43k, because the accrual rate is 1/43, so that salary adds £1k to the pension each year...a nice easy figure to work with. Yes, lots of people working in the civil service will earn far less than that...it’s if jobs in the £20ks esp at admin level. So their pension might be growing by perhaps £500 per year....but still better than what they would be seeing in defined contribution.
And as your salary changes (hopefully goes up) what is added to your pension changes as 1/43 is a different absolute amount. If you get good career progression, in the latter years, you might be adding far more.

However, the very best to be in, is still the defined benefit final salary pensions...public sector workers who had their jobs before any move towards defined benefit career average (2007 for civil service, 2015 for most others) have recently discovered after the McCloud judgement, that they can remain/return to final salary until 2022 when career average will kick in. What final salary means is a less generous accrual rate (often 1/80) but it’s based not on 1/80 of each individual years salary, but 1/80 of the highest salary (best 3 years in last 10 or last year of work) multiplied by the years of service....so it works as if you ALWAYS earned your best salary, rather than accruing each year individually, so at a lesser amount for the years your earnings were low, usually at start of career. The other big gains of final salary are usually that the pension age is 60 or 65 rather than state retirement age, plus there is an automatic lump sum too. Too late now for anyone joining these organisations to get into those gold-plated schemes but lots of people who are already in them and were moved over to career-average in 2015 havent realised the McCloud decision means they can have an extra 7 years in the (usually) better scheme than they realised. Lots of public sector workers in their late 40s and 50s will find they can afford to retire at 60 instead of 67/8 because of this...a lovely surprise to come for many.

Mrs Wombat, apologies...my mistake. Yes, I can see if you are extremely part time, your contributions would be very low.

One thing I think people sometimes forget about defined benefit pensions is that many workers are paying very big chunks in each month. For a full time worker, even on a lowish salary, it can be several hundred pounds and perhaps much more than they would choose in a defined contribution pension where contributions are flexible. Sometimes public sector workers moan about it and some even pull out as they want the money for living and mortgages etc (unerstanadable, but staying in better if at all possible) but if they can get into the pattern of accepting the money has gone, in the same way as we accept tax has simply gone, it will be building nicely. The contributions can often feel large, but they are actually achieving far more than they would in a defined contribution pension anyway, and that’s what people forget when it feels painful.

MrsWombat, the extra unmatched contributions you can make...yes the defined benefits pensions have these. You pay more in to guarantee an extra X amount of yearly pension at retirement and it costs more if you’re closer to retirement. Some people think these don’t represent great value, but they are a way to boost your salary. I sssume you’re referring to this, or are you talking about options to buy AVCs - additional voluntary contributions, which might be invested?

I was overpaying my mortgage by £400 a month so I'd be mortgage free by 55. After seeing a pension advisor he suggested I use that £400 to pay into my pension pot instead. By doing that I get the extra £100 from the gov, and £100 tax relief. Plus the lump sum I can take at 55 from my pension more than covers the remaining mortgage. So it's a win win for me

@Fleurchamp take a look at Local Government Lawyer for legal Jobs in local government

It isn't as well paid as private practice but on the other hand where I work I have huge flexibility to do school hours and pick up the rest of my work when the children are in bed etc.

Happy for you to Pm me if you have any specific questions.

@WombatChocolate Yes, it's the unmatched contributions. I really regret not taking the matched contributions when I worked for the council. My school isn't that generous.

I often hear about higher-paid staff members opting out of the scheme and definitely agree it's a bad idea. I'm assuming they are renting not with a mortgage though so have more expenses. We've got a 50/50 option where you contribute half for half the benefits which would probably be a better idea if they had cash flow problems.

I know this is probably a 'how long is a piece of string' question, but how much should I be aiming for in my pension pot?
DH & I are both 40, with £125k ish in each of our pensions. I've no idea if this is good or not!
Still working full time and hoping to retire by 60.

@NotPennysBoat

I know this is probably a 'how long is a piece of string' question, but how much should I be aiming for in my pension pot? DH & I are both 40, with £125k ish in each of our pensions. I've no idea if this is good or not! Still working full time and hoping to retire by 60.

Totally depends on how much you’ll need to live off

Rule of thumb for a good standard of retirement is 2/3 of your current salary

Then assume a pot will draw down (pay your pension) at about 4% a year.

So say you earn 30k. Need a pension of 20k. Subtract the state pension of 9k so your private one needs to be 11k. 11k divided by 0.04 is £275k

Clearly if you earn more and need more the required pot is bigger. And I’m ignoring inflation

Yes, inflation is the killer. People forget that their pot at 60 or whenever they retire, will face perhaps 25-30 years worth of eroding inflation.

Annuities could be bought which were inflation proofed, but they cost a vast amount more.

It’s a hard topic to think about when you’re in your 40S and the pot isn’t looking great. But it is better to think about it now and start addressing it than in your 50s or 60s. It’s jam today or jam tomorrow esssentially.

I've found it really tricky.
I only started work somewhere with a pension in my mid thirties and I'm late thirties now with just under 10k in the pot. The maximum I can pay in is 8%.
I work part time and due to disability this is possibly the best I will ever do, although I am studying and trying to become qualified for work that pays a bit more.

I can't see how to make extra payments into my pension pot.

Also, people with my disability tend not to live very long. My mum was 63 and my gran was 65. So 68 seems unlikely for me.

With that in mind I started a LISA which would at least give me a lump sum at 60 when I will hopefully still be around.
I can't save much - around 100 a month - but apparently I will end up with around £23000 doing this, which I could put towards fixing my roof or similar. Assuming it's good timing for that when I'm 60.

This concern about longevity is another reason why I want to pay off my mortgage. It will be less hassle for my children if we own outright.

I have always either been on benefits or otherwise on a very low income so I'm not used to very good quality of life but state pension does seem very low. I hope pip or equivalent is still something I can benefit from.

@WombatChocolate, thank you for reminding me about the McLoud Judgement - as someone who was transfered from Final salary to average salary in 2015 - do you know if the schemes are required to notify members or do we have to apply? (Although as someone with a stalled career, I'm not sure career average isn't working for me!).

No need to do anything.
At the point when you retire and take your pension benefits you will be able to choose whether 2015-22 is in the final salary (or other old scheme you had) Or in the career average scheme from 2015. You will be given illustrations of the impact of both choices and be able to choose. Zero action required.

So a little update, although I will be transferring as much as I can from spare funds, I also need to get a builder in at some point so I’m not sure quite how much that will be and I need to put some money aside for that, so until that’s finalised, I am not throwing everything at my pension, plus I do want to put something aside for a holiday (fingers crossed for something later this year). We do have maximum premium bonds but rightly or wrongly we like to keep that safely tucked away, so it won’t be moved.

Money now showing in pension is £3625 this includes my January salary payment and also an extra payment of £122.51 Plus tax I made from Christmas money, survey money and Quidco money.

I have a separate side savings account I transfer these small sums to and when I have enough I log into pay it in. The minimum payment for this pension is £62.50.

I have £50 from a premium bond win in this side account and so saving for the next payment. It may seem strange a way of doing it, but it does work for me.

I have also gotten around to requesting the working from home tax break so when I get that I will transfer another £60 and I have been using up odds and ends in the kitchen and cooking cheaper meals, without wasting food that would go off. Jack Munroe carrot and chickpea falafels were particularly successful. Food shopping is an area we can cut down on, but DH will still want to eat good food, even if it is made with cheapish ingredients.

I have written to my old pension scheme to request a statement as well.

DH has had confirmation of his increased pension contribution of an extra £275 a month plus tax.

So I feel it’s a good start to the challenge. I also haven’t spent anything as I haven’t left the house apart from a walk or two 😭

I know that this won’t magic up a massive pension pot overnight but you have to start somewhere!

That’s great @Dashel. You’ve inspired me to get on top of mine again. I’ll review them today and see what I can add.

Still wondering about the extra part time job thing - I can’t justify walking away from my little business as I love it and I’ve spent years building it up and I’ve just started to eat more. It’s jam now or jam later ...

Might revisit the extra part time job at the council or similar (yes I know I should be so lucky), in a couple of years.

@PensionsYes, I know that my old council had some very part time jobs pre pandemic like admin clerk to parish councils who did 10 hours a month, but I don’t know about the how the pension scheme would work for jobs like those and how much you could overpay or even put say 100% of those wages in.

I am going to speak to DH about more decluttering items, which I can sell on Facebook at the right time.

It’s a tough one knowing how much to live for now and to invest in the future. I would be up for cutting right back for a couple of years and throwing it all at the pensions, but DH will only go so far before he protests. If I suggested having a dry year to save on alcohol costs it would not go down well! He would argue that a bottle of wine a week and the occasional gin and tonic is much deserved.... I think it’s money that could go into the pension... I’m not going to win the argument I know. 😄

Well done @Dashel I actually think you have the right attitude- I used to be of the mindset that I needed to save so much there was no point saving at all but then I got a statement through for a "lost" pension in 2017 - I hadn't updated my address but they found me. It was for a job I had from 2002-2009, it was a defined contribution scheme and I do remember setting it to get the maximum amount matched as my then boss was very vocal about it! It was worth £50k then and has grown to £70k with me doing absolutely nothing.
It was that which prompted me to look again at what was going into my pension - the bare minimum. I started out like you, putting £100 (the minimum investment) plus whatever bits and pieces I put aside over the month. Then when we paid the mortgage off I started putting £1k in.

We are moving next month and will have a mortgage again - I will keep topping up my pension though but I don't know how much as yet. I am a bit impatient for things to settle down so that I can work out how much spare we will have. At least I have a good base to start from.

It is a balance now vs future - who knows what will happen. I still want to enjoy life now and have holidays as we might not be healthy enough to travel in retirement. We also have small DC and they become more expensive when they get older and so I feel we need to squirrel away now.

DH's pension is done via salary sacrifice (my firm do not offer it) and he sets it to the most his firm will match (which is quite generous) and so I think he will have to watch out for the lifetime allowance - a nice problem to have.

Is it worth getting a private pension as well as a work pension. My work pension is relatively easy to adjust monthly, but I cant see any option to add in money other than when i get paid. My DH pensionis an absolute pain to increase even the monthly contributions.
My current plan is we both increase work based pension AVCs, at the same time build up some decent rainy day savings, pay for some garden stuff. Then either chuck even more money into AVCs or take out private pension.

I've been reading up on pensions all week and it's scrambled my brain. I started work in NHS just over a year ago and will only accrue 15 years pension. I have no other pension and i dont own my home. I just want to know if it's worthwhile remaining in the scheme, but i cant get my head around it .

If you did want to do a private pension fund, Vanguard's is quite straightforward - choose which year you plan to retire, they round it up in 5 year blocks, then put your money in either as a lump o sum or monthly. If there's a long time to go, the. It's invested into stocks at a higher ratio. As your pension date gets closer they take it out of the 'riskier' side and put it into bonds.
I've found it very easy to understand and have started them for my young adult dc, paying in a smallish contribution each month.
I have two work pensions in addition but am old enough to remember the Daily Mirror pension scandal so prefer not to put all my eggs in the same basket anymore.

I feel it is always worth staying in a work pension scheme, even if it's just the basic contributions, you get the employer contributions as well.