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’?

Good as unsustainable. Still a very good pension compared to private sector.

If you had £50k in a pension and added nothing more at all, ever, and if you got an average return the same as the historical average of the S&P500 (9.5%) then after 30 years it would be £1million.

Most of the growth is in the later years of course - that’s how compounding works.

Thats what they would like you to believe but there are many many very well off people in the private sector who will love this change, would be the vast majority.
e.g. bankers, dentists, gas and oil sector, law, accountancy, design...

Its a total lie its just to keep NHS consultants, are they are bothered about the numbers of non wealthy HCP s leaving the NHS ? nope!

It absolutely is, and makes up a key part of the total reward package...

Shame its been repeatedly devalued and has the ludicrous AA off edges, which have been largely, but not completely resolved.

My main worry is that Labour, who on every other issue are preferable to me than the tories seem to have decided that they hate doctors with the statements they're issuing, most lately that to reverse the pension changes....

If it's taken 26 years to turn zero to £500k, it will take a lot less time than that to turn the £500k into '£1m. Remember the effect of compound interest. In the beginning, you were only gaining interest on a smallish amount, now it's a large amount.

So, suppose your pension fund grows by 5% a year. Even if you put no further money into it, in 10 years time it would have grown to £814,447. After, 17 years it would have grown to £1,146,009.

The above is just a very simple illustration and doesn't take charges or the ups and downs of the stock market into account, but I think it shows how, once you have built up a large fund, even a small percentage gain amounts to a lot of money.

If you're continuing to pay money into the pot for the next 17 years, it has even more chance to grow grow and you're likely to have significantly more than a million pounds in your fund by the time you retire.

The problem with all of this messing with the system is it makes it impossible to plan for retirement. People are expected to trust the Government with their money locked up for decades. The constant moving of the goalposts destroys trust in the system and discourages people from saving. Politicians really need to back off now and just leave it all alone!

Bad enough to bave to factor in the risks and uncertainties in the economy but the successive raids through taxes, changing rules and thresholds and age limits etc. Stability is badly needed.

My DH is one of the people that will benefit from this change. He has a pot of 1.5 million and he retired as soon as he could at 55. When he left his job £2200 per month was being paid into his pension from himself and his employer.
A massive chunk of the pension pot came from cashing in a 12k per year final salary pension for just under 650k.

Isn’t the average pension pot about £37,000?

How is that the slightest bit relevant?

Isn’t the average pension pot at 65 £190,000?

At 54 it’s £81,000.

Most people in the U.K. won’t ever get close to needing this legislation.

Previous pension investment returns aren't going to go on forever & to be clear, Pensions don't attract "interest"

Pensions, generally speaking, have not made anything since the GFC, they were just recovering when Truss's budget came along & now we are facing another banking crisis, not too mention Russia out in the cold to an extent never seen before and China/US relations going down hill.

...but I think it shows how, once you have built up a large fund, even a small percentage gain amounts to a lot of money

...and small percentage losses are large amounts of money too...

The norm may well not be the returns we've seen over the last 30 or 40 years, western economies have stagnated and will continue to do so as we age.

Not for nothing so many people put what would have gone into a pension, into property.

@verdantverdure see my previous post, you were tagged. There are lots of reasons why future retirees will have bigger pots. There is also a big need to encourage people to have bigger pots, and certainly not disincentive.

@user12345678213 despite the recent downturn my average annual return over past decade is 8.5%.

the whole point of removing the cap though is uncertainty about what returns will be, with volatility (good or bad) within 5 years of retirement especially difficult to manage. We can’t do much about downward volatility, but we can remove penalties for when your returns are ‘too good’

OP, what does your employer contribute? That will have a big impact.
I’m private sector and until recently on a lot less than you, but I transferred out of a final salary scheme and got a lump sum. I’m coming up to the LTA due to significant AVC/ employer contributions since then.

Although £1m sounds a lot in relative terms, I expect it’ll need to last me close to 40 years (I’m in my 50s) and there’ll be several financial shocks in that time. It’s wrong to just talk about the LTA abolition as a tax giveaway to rich people as they just won’t earn it if the LTA is re-instated. We’ll lose the services they provide and the income tax. I’m not suggesting that removing the LTA is a good thing but it should have been lifted substantially to encourage people to save for their own retirements.

I understand your point but it isn't 'interest' that pensions earn.

i'm in the public sector & lots of older colleagues have it. Not particular high earners 60/70k now but it's because the scheme was final salary. Sadly it changed years ago.

I agree with OP, DP and I seem to be nowhere near that limit in private sector DC schemes despite earning decent wages! May have implications for the future I suppose, but currently in late forties we are nowhere near that limit and DP on £100k+.

I think you probably would get close or exceed the old limit with growth and compounding on your pot over the long term. Do some sums on a spreadsheet, taking into account your wage growth and stock market increases.

Don't forget LTA was drastically reduced (from 1.8) then frozen (@4 1.073) with the promise of no more rises in the last few years so quite a confusing mess for people.

What's even worse now is that labour said they will reverse it so there will be an even larger amount of highly paid workers retiring before that occurs to lock in the limitless LTA. Labour have triggered the opposite of the change's intent.

Not sadly for those funding it. I.e. the tax payer.

I've literally never thought about it. That's what shows you're a high earner. Most of us do not think or know about caps.

@Callmenat true 😆

What's even worse now is that labour said they will reverse it so there will be an even larger amount of highly paid workers retiring before that occurs to lock in the limitless LTA. Labour have triggered the opposite of the change's intent

I think they may do a u-turn. Representations have been made from other organisations, representing the police, teaching, armed forces, engineers, you name it, asking for the policy to be retained in order to keep older and experienced workers in role.

In the public sector you can hit it due to the way they are calculated, it doesn't mean you are earning a particularly high salary

No higher earners over £312k get the full impact of tapering annual allowance so couldn't pay in £40k a year now £60. They could only pay in £4k now £10k.

When you earn £240k the annual allowance tapers down from £40k now £60k to When you reach £312k it is £4k now £10k