Concerned that my pension pot is on the lower end of what it should be...

[hyperbole001]

I'm 36 and have to be honest, I haven't given a great deal of thought to my pension. I probably started paying into one from 2009 onwards, but have had various jobs over the course of my employment history, and until recently hadn't put any effort into trying to track them down. Naively, I had assumed that the govt would be able to do this by simply using my NI number but doesn't seem to be a straightforward as that.

Anyway, from those I've been able to track down and have contacted, I've estimated that my pot is currently sat at around £26k. Does this see on the low side for my age, and should I be consciously trying to increase my contributions?

@titchy

You might want fewer holidays when you’re in your 80s but your outgoings could easily be considerably more. Who do you think is going to fund your old age care? It’s not something the government seems keen on. I am anticipating having huge social care costs in my later years.

Generally when retirement planning, the older you are the less you spend your money on.

Care needs need evaluating as well of course, but 4 hours of private care a day costs around £70 a day, which is less than £4k a year and once you need carers several times a day you won't be gallivanting abroad a couple of times a year or spending £10k every five years replacing your car.

If you go into a home then it's largely irrelevant how large or small your pension is cos you won't see any of it.

£70 per day is £25.5k per year, not £4k.

With an ISA you always own the investment so will at least get back whatever you put in ( though inflation will reduce its value).

Only if it is a cash ISA, which is a terrible idea for a long-term investment.

@Manycupsoftea

people without pensions of their own are funding these very good public sector pensions out of their taxes.

i guess private final salary pensions don't affect others, and they're mostly closed these days.

public sector pensions, on the other hand, if funded out of current private sector taxpayer monies on top of national insurance contributions, instead of more schools, healthcare etc... is highly infuriating and unfair, especially if there is no security of state pensions.

Indeed. And that is why there will be more reductions in their promised generosity before many of those expecting to receive them retire. With our education, social care and healthcare systems on their knees and the economy doubly screwed by Brexit and Covid, the continuation of these benefits from unfunded schemes being paid from tax will become untenable before long.

Private sector pensions have been raided so many times and final salary/ defined benefit pensions are already far more generous for tax purposes eg. the way the lifetime allowance is calculated for them. I don't think those funding their own private sector pensions will or can be expected to tolerate any further taxes on their own pension contributions/ withdrawals - as is often suggested - until the issues around publicly funded defined benefit pensions are addressed.

@2bazookas

https://www.isa.co.uk/isa-blog/posts/2020/november/14/is-my-stocks-and-shares-isa-protectedd**-/*

You link just shows the basic information that S&S ISAs are covered by similar protections to pension funds. It doesn't mean people will get back at least what they invest as the PP claimed, for the same reason that's true of a DC pension fund - the exposure to stock market valuations!

It’s so annoying that pension companies make it so hard to track old pensions down. It should be easy with you national insurance number.

@Howdidigetsoold

It’s so annoying that pension companies make it so hard to track old pensions down. It should be easy with you national insurance number.

I don’t think it’s unreasonable of pension companies to expect people to keep track of their own money.

There is plenty of free pension tracing support too.

If you want to trace via NI number, you’re basically saying you want to government to have a service paid for by the tax payer. Just because your payment goes to one pension company, doesn’t mean it won’t change to another after you’ve left that company - with mergers for example. So it’s not just a case of linking your NI number - it’s about tracing the changes post hoc too.

I don’t want to pay - indirectly via my taxes - for yet another government service to do that, when the simple answer is that people keep up with their own finances.

Legislation can help - for example, DC have to provide an annual statement.

@Cocomarine I'd argue that the govt should provide a service that allows you to trace your pots via your NI number. Each year we hear about the ££££'s lost in pension pots that have been forgotten about.

20yr old me believed pensions were traceable via an NI number because that would have clearly been the obvious solution. Gone are the days when people have 2-3 employers over the course of their working career.

Though clearly 20yr old me naively overestimated govt services (HMRC) if the recent test and trace debacle was anything to go by.

Also the PC companies should be able to find current addresses through NI numbers if they haven’t heard anything from people in years.

It’s easy to lose one when you have been working for years / changed companies / addresses etc but the NI number remains the same

OP you are thinking about all this at a really good point ie in your mid thirties not a decade later. Some very good points made above but I'd make a couple more

• you are absolutely right to track down your various pensions from previous employers, it's important to know where they are and what they are worth
• any defined benefit scheme entitlements, even if for small annual sums, are very valuable and usually worth hanging onto.
• it may well be a good idea to consolidate your defined contribution pots, firstly to make them easier to track and secondly so you know what fees are payable
• You mention ISAs as a savings vehicle (good) but bear in mind that if you pay money into a pension you get an effective tax subsidy of 25p for every pound paid in because of income tax relief. This is the case whether you pay through payroll or from net salary. You don't get the same subsidy on ISA savings

-so if you pay £100 per month in through payroll your take home pay only falls by £80

• if you pay in £80 yourself the pension provider claims 20 and adds it to your pot
• both kinds of saving grow tax free but you can't take money out of a pension before age 55 (for good reasons!)

Many employers match some of your contributions eg if I pay an extra 1,2 or 3 per cent of my salary in my employer matches it. So if I earn £30k a year gross and pay in 3% (£900 gross or £720 after tax = £60 per month, my employer matches that £900. So I get £1800 added to my pension that costs me £720.

You mention ISAs as a savings vehicle (good) but bear in mind that if you pay money into a pension you get an effective tax subsidy of 25p for every pound paid in because of income tax relief. This is the case whether you pay through payroll or from net salary. You don't get the same subsidy on ISA savings

This is true but the caveat is obviously that money in an ISA has been taxed already so can be withdrawn tax free, whereas pensions received in retirement will be taxable. So while currently it's more tax efficient to contribute to a pension scheme, that isn't future-proofed. It looks likely that public spending will have to increase significantly as a proportion of national income over the next few decades so presuming that the exemption from pensioners paying NI, or general income tax rates or allowances/ thresholds will remain comparable to today when inflation adjusted is probably rather optimistic.

This is true but the caveat is obviously that money in an ISA has been taxed already so can be withdrawn tax free, whereas pensions received in retirement will be taxable.

I recently found this out - had no idea. Assumed they were entirely tax free.

No. They are subject to the same personal allowance and tax thresholds as earned income. The only difference is that those over state pension age currently pay no NI but I suspect that may change in time, given it (in theory) is to fund many of the services for which they are the heaviest users.

With pensions tax relief is given at the tax rate that individual pays at the point of contribution, but when withdrawn tax is paid. With ISA savings it's the other way around. Pension tax relief is currently more generous but as I said, we have no certainty on what subsequent Governments will do and Governments of all colours in the UK have form for raiding pension savings by changing the rules with no warning, which is despicable when this is an area when people must plan over decades.

With an ISA you'll pay more tax up front under current rules but you crystallise the tax charge at the point you invest as you've paid it already, so no nasty surprises in years to come (aside from the usual investing issues regarding the investment itself fluctuating in value!). Unless of course they change the rules on ISAs as well but I don't think that's politically feasible as it's already taxed money. As with all investments, it's prudent to diversify to hedge the risks and have some of each.

With pensions tax relief is given at the tax rate that individual pays at the point of contribution, but when withdrawn tax is paid

This is also the reason that it'd be ridiculous to make pension contribution tax relief a flat rate as effectively you'd be asking higher earners - who already pay way more tax to support lower earners - to effectively have some of their pension contributions sliced off as well and contributed to the private pension pots of lower earners. While still paying the usual rates of tax on their pension contributions received in retirement with no compensating reduction to match the extra tax on their contributions. It's not a viable answer to the problem.

*pension withdrawals received in retirement

Of course, a number of people have far in excess of that in retirement. The WHICH site suggests around £42k is needed per couple for luxury retirement, which includes a range of long haul regular trips, new cars every couple of years and new kitchen/bathrooms every 10-15 years. Even then, this is just £21k per person and bearing in mind many can get full state pension, less than £15k needed in private pension per head.

I agree with much of what you've said however, such averages are fairly meaningless. Due to Brexit our currency has been massively devalued and this trend is expected to continue as the long-term effects kick in. Unfortunately for pensioners many of the essentials that we need are most sensitive to exchange rate fluctuations: food, fuel etc that we import as we cannot be self-sufficient in these at present. So it's likely inflation/ devaluation will erode much of what many of us have saved over the coming years.

This is why actuaries are paid a lot. Of all economic forecasting it is perhaps one of the most difficult fields given that there are so many factors that may influence the calculations; they are projecting a long way out into a very uncertain future given geopolitical issues plus climate change, and when making long-term predictions very small changes in assumptions result in massively different outcomes. And that's without the "unknown unknowns".

I think all anybody can do is describe their best possible assessment or possible risks and upsides based on current info then we all just have to save as much as we can, diversified as much as we can to hedge the risk as much as an individual can. Anybody claiming any certainty about projections in 20+ years is a charlatan or delusional.

It also very much depends on whether they still have rent to pay, or a mortgage not paid off? Do they have dependent children still (average age of a first time mother in the UK is now over 30 so many will still be providing for children in their 50s/ 60s in one way or another)? What health costs do they have? Which area do they live in? Cost of living (even housing aside) varies massively. Will their house need major repairs e.g. new roof etc?

These factors make the average fairly meaningless really.

I'm aiming for £40k in retirement, to include the state pension. I started my pension at 22 and am on track for this on early retirement at 62 if I continue on the same salary or higher. Your employer contributions can make an absolutely massive difference to the pot and that's why I'm in a good position comparatively speaking.

How much will you need in your pension to receive £40k per annum?

@PuzzledGiraffe agreed but income tax applies in bands so it isn't quite as binary as that given that the individual annual exempt allowance for income tax is just under £12k. Totally take the point - part of the HM Treasury policy intention of increasing the ISA allowance was to offer an alternative.

It's not necessarily a deciding factor for someone who has access to an employer sponsored pension scheme or Nest.

But the tax allowance has increased from c. £5k to £12k in a decade or so. There's nothing to stop Governments reducing it again. Or simply using fiscal drag as they usually prefer to, so that they can technically claim there isn't a tax increase even though there is. If the personal allowance was frozen at £12k in nominal terms until you retire for example, that has a huge inpact on the real inflation-adjusted value of your post-tax pension income. Basically investing in pensions we are at the mercy of Governments who may change the goalposts for tax on pension contributions, withdrawal, or even on NI and income tax rates/ thresholds and my point was simply that people should be aware of this risk - particularly given the current UK economic outlook and geopolitical situation.

@bumnote

I'm aiming for £40k in retirement, to include the state pension. I started my pension at 22 and am on track for this on early retirement at 62 if I continue on the same salary or higher. Your employer contributions can make an absolutely massive difference to the pot and that's why I'm in a good position comparatively speaking.

How much will you need in your pension to receive £40k per annum?

You'd need to be pretty much up to the lifetime limit for pension saving of £1.1m (state pension also provides £9k per annum in theory, once you're 70ish, if it still exists by then). But those figures are based on annuities which nobody buys any more. People need to be able to manage their money and use drawdown to make the most of their pension pot.

Also don't forget that much of pension pots consists of compound interest. Nobody with a £1m pension pot has paid anywhere near that into it. The savings you make earlier in life have the biggest impact as the compound effect is far greater. It's all about continued saving from 20s onwards to get to a good situation. Even then, nothing is certain.

I am considering starting pensions for my children now as even small contributions made for them as children will be worth so much more than large contributions they might make later in life.

I'm in a defined benefit scheme so each year I can see exactly how much I will get on retirement - I don't see the total pot as such as I won't be required to buy an annuity. I also make additional contributions to ease the actuarial reduction for early retirement.

@SantaMonicaPier

I'm in a defined benefit scheme so each year I can see exactly how much I will get on retirement - I don't see the total pot as such as I won't be required to buy an annuity. I also make additional contributions to ease the actuarial reduction for early retirement.

Great. If the treasury can still afford to pay for your (probably) unfunded pension scheme when you retire. You may find the terms are changed before you do, if it's a public sector scheme. If you're paying less than 25% of your pre-tax salary into your pension in a public sector role it's probable that the salary multiplications being promised to you as pension are not actually covered by your contributions and they're just hoping that taxpayers can/ will pick up the tab when you retire, for the huge deficit. Big gamble IMO.

[quote teelizzy]@PuzzledGiraffe agreed but income tax applies in bands so it isn't quite as binary as that given that the individual annual exempt allowance for income tax is just under £12k. Totally take the point - part of the HM Treasury policy intention of increasing the ISA allowance was to offer an alternative.

It's not necessarily a deciding factor for someone who has access to an employer sponsored pension scheme or Nest.[/quote]
Also you get the £12 allowance now if you take the cash as earned income and put it in an ISA. Now £12k tax free per year is guaranteed. In 20 or 30 years, who knows? Pensions are tax free to invest in and taxed when you withdraw money. ISAs are paid into from taxed money and withdrawals are tax free. So you pay the tax rates at the point of taxation either way, just with pensions you gamble where they'll remain the same but with ISAs don't have to. That's why pension tax relief has to be slightly more generous: nobody who understands maths would invest in them otherwise.

More than 35% of my salary is going into my pension between me and my employer. I honestly don't consider a public sector pension a big gamble.

@FrownedUpon

That’s really low & won’t get you very far in retirement. Can you work out how much you’ll need a year when you retire. I want 35k a year so am working backwards from that.

Presumably your mortgage will be paid off, so you probably won’t need as much as you need now. I think you’ll definitely need to up your contributions though.

That’s a big amount for a pension. Do you plan to travel the world every year, of bathe in champagne daily🤣🤣? My pension is about 1/3 of that and I live quite well. No mortgage or loan payments, nice car, travel when prices are low, children now independent financially. It’s surprising how much money you waste when you’re working full time too. I’d easily spend £10 a day on coffees, lunch, snacks!