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’?

I think you could very, very easily be up at the LTA of £1.07m by then.

For example, your current pot of 100k might rise to 100 x 1.05 ^ 20 = 265k
Meanwhile you're paying 18% of 110k for 20 years, which on average will have 10 years invested
18% x 20 x 110 x 1.05 ^ 10 = 645k

Put the two together and that's 910k. And that's assuming 5%pa investment returns, and no salary increases. In reality you might well get pay big rises over 20 years and higher returns.

Civil service, I'm on £65k at 35, if I choose to remain in the CS and don't retire early it's very likely I would exceed the cap.

accountant here - and i have been sticking money into pension since 22 or so. and any bonus paid etc. And its probably around £750k now at nearly 50.

therefore with growth, it would maybe grow to £1m in next 15 years?
so ar present, i don't have incentive to pay in lots due to the cap and tax hit. but now that has gone away and i could pay more in - which may inventvise me to work more (as i have gone part time) and therefore pay more tax/NI.

Private sector DH close to retirement has been putting bonuses etc into his pension. However, it is a minefield. Last year he had a massive increase in his pot due to making good returns on some tech stocks, ridiculously high. Suddenly had a panic. Now he has pretty much lost all of that gain. It is market driven, and when you get close, it is a very fine margin of error, and dependant on something you can't control. So removing a hard cap makes sense.

It's a pretty much meaningless policy anyway surely? My stakeholder pot is projected to hit the current cap on a 'medium' performance of the market, but as soon as a new government comes in they could just reverse it. So I wont be making financial decisions based on this change.
I do think it's a change that's needed though - from an nhs perspective particularly. I have a rare ish long term condition which they struggle to recruit specialists in. I'm worried that once they all retire at 55 there will be no one to look after me!

The contribution rates are meaningless in a defined benefit pension.

To answer your question OP it’s all due to the DB pension and how it works.

Once you earn over a certain amount you can't contribute much to your pension so this is limited really

to be clear - i don't think there is/was a huge issue of well paid accountants and lawyers deciding to go part time at 50 to avoid pension going over the cap. i wasn't paying a ton of tax (as putting most into pension when at 100k level to avoid the PAYE withdrawal hit) so tax taken won't really change.

but clearly its an issue with doctors at the top - we need them. But i suppose altering it for one set of workers and not others just leads to critism.

Op didn't ask about db in her initial post. Not sure if she did since, but that's what I was answering ... how to get to £1mil. on a salary of 100k.

I bet her employer doesn't pay in anything like 20% towards her pension. She'd be a lot closer to her goal if overall 30% of her salary with compound interest over 25 years was being paid in.

“but clearly its an issue with doctors at the top - we need them. But i suppose altering it for one set of workers and not others just leads to critism.”

The mechanics are hard too!

I chucked a lot into pension in my 20s, and it's surprising how it mounts up. With compulsory pension savings through work, all of my friends kids that work in the City seem to be on course to have saved a million by their late 40s.

@Avacadoandtoast your pot won't just be made up if the next 20 years of contributions though. There will also be capital growth.

Not only criticism but almost certainly claims under the Human Rights Act!

You really can't have a different set of tax/pension rules for doctors that isn't applicable to barristers, tax accountants, dentists, city bankers, etc.

The nearest they could do was to bring in a law saying that the pension caps don't apply to defined benefit schemes which is where the problems lay.

After all, it's not about people paying into pensions all their working lives. It's about a pension being dependant upon your final salary, like a lot of public sector schemes (although no longer open to younger workers), whereby promotions late in life can make a massive difference to your pension.

A £1m pot would only buy an index linked annuity for around £30k per year. So it's not actually a huge pension, compared to many public sector DB schemes. The multiplier used enables those in DB schemes to obtain pensions of roughly twice the annual income than someone can in a DC scheme, before being hit with punitive taxes. So to be honest just for the purposes of simple fairness, it makes sense to raise the LTA threshold back up to where it was a decade ago (not even increased for inflation in that time). If we want people to self-support in retirement pension savings should be encouraged.

OP is your 18% including your employer contribution? Ideally I think you probably want to increase savings to around 25% in total, with 20 years left to save.

I gave a question for knowledgeable posters. Newer teachers or like me who have maybe 3 years of the original scheme and 10 of the new tps, we are still a dB scheme right just not final salary but CARE?

I don’t think increasing to 25% is necessary when you’re on a higher salary… it wouldn’t have been recommended before this week as she would hit the LA and be penalised (and maybe still with a labour government).

My earning requirements will drop significantly with no mortgage / childcare / university costs and so a £30k pa pension would do me nicely, and I don’t need to target 25% of my salary to get that (not least because that would mean putting nearly £30k pa into my pension for more years than I am likely to be drawing £30k pa out…)

It would depend how you want to live in retirement. Research suggests that a comfortable income for a single person, assuming mortgage paid off, is around £37k. That research was done prior to the recent inflation also. And it's also worth considering you need a larger pot to achieve the same income should you get hit by ill health and need to retire earlier.

www.retirementlivingstandards.org.uk

I don't think it makes sense for the LTA to be set at a level where it's not possible to achieve what research says is a comfortable retirement income without breaching it.

OP asked "where am I going wrong?" The answer is that she isn't going wrong anywhere but instead it is mostly thanks to defined benefit pensions that some workers build up these massive pots.

contributing a 18% of my salary a month I will be no where close to the lifetime allowance by the time I retire.

What rate of growth do you expect your find(s) to achieve. The lifetime cap was on the total value of your pot, not how much you have contributed.

Yes, earn nearly 6 figures and will be a million miles off

I read this change only affects 7000 people. So not very many of us.

That might be true today, but changes in laws around mandatory employer pension contributions a decade(ish?) ago have pulled people into pensions earlier making it more likely that they will get to £1M than those retiring this year. The continued push back of retirement age and age you can access that pension (was 50, then 55, will be 58) lengthens investment growth on the other end as well.

also, as many poster have mentioned, you need at least £1M to have a comfortable retirement. Most people should really be aiming to exceed that, not figuring out strategies to stay below that threshold.

They created a new set of rules for judges... Who were facing the exact same set of problems...

Final. Salary hasn't been available to NHS staff for a while. We're were all forcibly moved onto a new scheme in 2015.

Yes, still a DB scheme