Anyone else in a well paid job and struggling to even imagine hitting pension caps??

[Avacadoandtoast]

AIBU or does it feel like only a dream to be able to hit even if you are in top percentile of earners? I am in a well paid job (over 6 figures) and even contributing a 18% of my salary a month I will be no where close to the lifetime allowance by the time I retire.

Help me - where am I going wrong? Do others contribute much more than this and require less for the ‘now’?

How much (in cash terms) is in your pot at the moment and how much (again in cash) are you and your employer putting in each month?

But you’re right- this change will mainly affect higher paid workers in the public sector. I think the penny is slowly dropping for people re public v private sector pensions.

Of course there are people who can do this. Do your calculations for yourself and your own future and don't worry about others. My brother earns over a million a year - pretty sure he'll be pleased by this budget. I have a much more average income and therefore pension contribution. That's just how it goes. I'll have enough to be comfortable, and that's fine. You are not 'going wrong', not by any stretch.

Are you comparing with public sector? What's your employer contribution rate? NHS is 20% with the employee paying an additional 12% approx. TPS employer rate is higher at 23%. Employee pays just under 10%.

So if you paid £35k into your pension for 25 years, with pension growth over that time it probably would end up over £1mil. Your employer rate is the key really, or, like GPs, you need to pay that yourself instead.

If you're talking about doctors, the money doesn't exist, not at the scale that would get anywhere near the lifetime allowance, and the money that they personally put in their pension is a tiny fraction of that amount. The rest is tax relief, employers contribution and an amount to reflect the size of the pot that would be needed to pay their defined benefit pension.

The lifetime limit was designed to stop highly paid bankers etc avoiding tax by putting all their bonuses in their pension, but it also affects anyone with a final salary pension.

For example, I have a civil service pension and earn just above an average wage and my last pension statement says I'm at around 40% of the lifetime allowance, so you can see how experienced doctors, who probably earn more than twice what I do and are a bit older, get near to this cap.

And when they do, it generates huge tax bills on money they haven't even earned and might not ever receive unless they live until their late 80s. So many doctors are retiring early rather than losing well over half their income to tax.

The pension pot calculations get easily get quite high for DB pensions- assuming that's what doctors are on. It's calculated using an equation rather than what's actually in a pot.

It doesn’t actually help very high earners much as their annual allowance is so low. You need to be in the sweet spot of having your full annual allowance and high employer contributions.

Rather than scrapping the lifetime allowance, it would have been better to exclude some or all of the notional value of defined benefit schemes.

Then you'd still have the restriction that would stop very high earners putting huge amounts in their DC pensions, and stopped the system that encourages experienced medical staff to retire rather than lose a lot of money to tax.

Very high earners can currently only put £4k a year in, going up to £10k from April.

“Rather than scrapping the lifetime allowance, it would have been better to exclude some or all of the notional value of defined benefit schemes.”

That’s a good idea

I don’t think so. People can draw down £4k from pension and still work currently, rising to £10k. Isn’t annual allowance £40k for all, rising to £60k?

Check where your pension is invested. The default is a ridiculously 'safe' option that actually went down for me when the rest of the market was racing up.
See what the options are and move it to something that gives a decent return so it grows. As you get older you can rethink it and move it again. (So still at the same pension provider - just a different selection of stocks)

Very high earners have a tapered annual allowance currently as low as £4k, so StepHigh is right. This is a separate thing to the Money Purchase Annual Allowance which happens to be the same amount. Both go up to £10k in April.

Ah, thanks! Apologies @StepHigh

No, once you gave drawn any of your pension you can contribute another 4k, up to 10k per year. You can draw down a much larger lump sum eg at 55 when first retire. Then do bank shifts and pay up to 10k from that work, or add more into a private pension.

Before you touch your pension allowance annually is 60k, after 10k to add annually.

Are you taking compounding into account? If the make high contributions early in your life, they will have decades to compound.

OP you have said you earn six figures and contribute 18%.
If you had 50K in a pension already and contributed 1.5k a month for 25 years, assuming a 5% interest rate from investments (may be higher in reality), then after 30 years you would have over a million in your pot.

Obviously you are a high earner OP and contributing a higher amount than average into your pension!

I am on roughly 110k, contribute 18% and have a pot just over £100k. Company gives allowance for pension contribution rather than topping up. Going by some of the comments it sounds like I should maybe be upping the contributions ~10%

I should say - I have roughly 20yrs to retirement (less if I got my way though!)

Interesting, thank you. You can tell I don't know much about this stuff! My point about trying not to compare still stands though.

It’s been changed for doctors to get those who have retired back to work.

Well, if you contribute £2k a month (gross) and make 4% a year (net of fees) you’ll be close to a million within 20 years.

Private sector and my pension is predicted to be 14k a year when I retire with 1 lump sum of 60-80k…..I try not to think about my pension too much as it makes me sad 😬

It's mainly defined benefit pensions, like public sector. A few private companies still have them, DH and I worked for a large private company that had one and we didn't make huge contributions, a lot of it was non contributory but even earning a quite average salary you could build up a pot of about £500k so higher earners would easily get over a million because of the employer contributions

Easier for the public sector. Big disparity between private and public sector pensions still.

I didn't contribute a high percentage of my salary, and have rarely paid higher rate tax as not been in a high paying job, but my pension pot is at the LTA limit at age 56.

Are you taking into account compounding investment growth over a typical 40 years working life? It's not unusual for a pot to grow to £1m over that timeframe with average returns for a modest but prudent earner.