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’?

Private sector, started making sacrificial contributions from our very first pay cheques. Always paid the maximum the employee would contribute on. No breaks.

Mine won't, but his will.

We also overpaid mortgage whenever we could, so paid that off early.

He's at the peak of his earnings at the moment, £70k including car benefit, aged 54.

When he hits the cap, he will stop work.

I earn just over £100k and put around 12% ish in to pension (employer contributes 3% of this).

I work in finance and haven’t done my own maths, but all of my colleagues who have (and who are a similar age and pay) say that with compounding and reasonable growth that we were all likely to hit the l lifetime allowance.

Its the growth and compounding that gets you there rather than contributions.

I will easily hit the current lifetime analysis of approx £1M due to starting early and experiencing good returns on investments for first 20 years. Maxed out contributions during a couple good years, but most years not even close to the limit.

this is why the lifetime allowance is crap policy - it penalizes investment returns as much as contributions and makes it impossible for an individual to plan. investment returns are unpredictable, and my pot could have been half as big in a different economy.

also, £1M is not that ambitious of a pot. It might be more than most, but that is just a reflection of how inadequately prepared most people are. I do not expect the state pension to be around as more than a top up when I retire, and that £1M has to last 20-30 years during which time inflation might send cost of living 2-3x higher than at the point of retirement

Labour are going to take it away so things can change in an instant with stuff like pensions

But doctors, which there is a shortage of, and are vital for the health of the nation, won't earn anywhere near what top bankers, lawyers etc earn so there has to be some incentive for people to go into medicine rather than these professions.

Yes, I saw them state they would reverse it. If they stick to that position it suddenly makes my choice very easy in next ge

Based on a few online calculators, if you keep contributing as you are, your "pot" could well be worth £800k in 20 odd years, so you actually won't be that far off the now abolished £1m.
Should be enough for a comfortable retirement, though if you have spare cash, I would be upping contributions.
I would second what others have said; the abolition of the allowance is to cater for those in the public sector with DB "final salary" pensions where it is very easy to have a pension worth over £1m even if salary is not that high as the employer contributions need to be massive to get that amount of guaranteed income in retirement, IYSWIM.

I think the big trick with pensions is not to get sucked into lifestyle inflation. DH is a high earner and we save quite a lot into his pension. We don't have a lifestyle that particularly suggests he earns what he does, but we sleep well at night knowing his pension fund should hit the million mark by the time he is 65.

The other thing worth doing is looking at the MSE calculator on what your money does as take-home income compared with putting it into your pension. For us, £6000 in our pockets was equal to over £18,000 in the pension. It really does encourage you to put as much as you can away to avoid paying tax on it.

Because Labour said they would reverse it, even more will retire in the next couple of years as they will want to take the money and run, don't most NHS vote Labour, so that will work well.

My pension pot is currently at around £500k and I have about 17 yrs to retirement. I think about £1200 a month goes into pension but will need to review it. Am hoping to get to a million but it’s taken about 26 yrs to get to £500k. I have been hitting the annual limit for past few yrs as I now add in my full bonus. I just wish I’d put in more when younger. My company doesn’t add in that much, think maybe around 9%.

Wow @TheLongpigs that’s amazing - do you have a link?

Its much more difficult with defined contribution to build a huge pot, you have to add a large contribution yourself, with the old final salary pensions, ours for example was guaranteeing 2/3 salary for life (private company) so employer contributions are much more. NHS is probably similar though theirs may be even greater proportion of salary and I think they go up with inflation each year more than ours does.

Yeah we have zero chance of hitting £1m mark! We have been doing everything we can to save for a reasonable retirement and shouldn’t need to worry ourselves.

BUT the optics on this are shit! It actually seems really insensitive when many people are having to trim -or stop contributions altogether - due to the cost of living increase!

I don’t believe the Tories will get back in anyway so … I think it will be a moot point. So if you can afford it stuff your £60k a year into your pension and backdate it a few years because I can’t see this LTA bill happening at all.

I think spending the billions this policy will cost the taxpayer on better funding more disabled people back into work - you know - just to scrape a living! - would be a wiser use of the £billions!

Yes and no. In the case of GP partners, they get no contribution from the NHS: they have to pay both the employee and employer contributions themselves. And they can't vary the amount: they are either in the scheme or out. So they have to put a third of their income into the pension, only to get penalised if they then hit a million with compound interest.

I'm not a GP partner myself, but this strikes me as quite unfair.

It's a very good scheme, let's not pretend it isn't. By the way, I don't begrudge doctors this. My comment was simply highlighting the disparity between public and private sectors.

www.moneysavingexpert.com/savings/discount-pensions/

Here's the link and this is the calculation I got the other day when looking into this. Salary of £102k.

You also need to try and avoid the unofficial 60% tax rate - if you don't know about it, look it up. It's basically where you lose your tax free personal allowance (loosing a saving of 20%) and pay the higher rate of 40% (making 60% tax rate in total).

Actually, just seen it wasn't the £18k vs £6k I've attached. Will look for that one, but principle is the same.

It’s my understanding that defined benefit schemes are not worth £1m + because of higher contributions.

It’s because they are valued at 20x the expected annual pension payment plus the lump sum.

So if your final salary was £75k and your expected pension £50k, then you would be over the limit cos the 20x part alone would take you to £1m.

How is it a "very good scheme", when you have to make all the contributions yourself?

If you are in your 30s you will be paying into your pension for over 30 years. Your salary will also presumably increase over this time making your pension contributions higher.

Many more people than you imagine will hit these top rates.

Investment risk free for starters.

Hardly risk free when you can arbitrarily and - in effect - retrospectively (as once you have accumulated the pot, it is too late) have a massive chunk taken in tax, at the whim of the Chancellor. No financially-regulated private scheme would have been allowed to raid someone's investments in the same way.

'Investment' risk free. All pensions are at the mercy of the tax system and government strategy.

They aren't though, are they? Because - as outlined by a PP - the Government controls how pension value in a DB scheme is calculated.

So we don't have a situation whereby the Government decides that £1 million is the cap, and everyone with £1 million sitting in a pot is taxed, whether their scheme is a private or public one. That would be equitable.

The problem with a DB scheme is that the Government also gets to decide who is deemed to have £1 million.

Now, for salaried NHS staff, the generous employer contribution means that they still do well over all. But, for GP partners, they don't get any employer contributions, they can't vary their contributions, and many are taxed as if they have hit the cap, even if they haven't and may never do so.