Pensions

[ManchesterBea]

Hello everyone,

I'm trying to get a sense of where I should be with my pension. For various reasons; employers not needing to provide pensions due to contracts, and being self-employed, I have very little in a pension pot. I am early 40s.

Due to my income, I do have disposable income I can save, and I would really love to get my pension pot to the average for my age.

However, I can't really find much information online!

If you have a pension pot, do you know how much you have in it? If you're around my age.

I'm on track for full state pension. I'm already mortgage free. So I'm lucky in that respect!

I'm currently saving 500 a month into pension. (But this has only been for the last couple of years!)

£500 a month with no employers contribution is unlikely to be enough.

I’ve had pensions since 18, never not paid in, some are public sector and worth a lot and I’m currently putting the best part of £1100 a month in at 46 (£400 of that comes from my employer).

Worth finding a pensions adviser if online advice isn’t helpful. Money Saving Expert is always good for breaking stuff down as well.

Thanks, do you know how much your total pot is?

Do you know what income you would need/like to have and what age to retire? If so you can then work backwards.

There will be pension pot calculators that show drawdown assuming rates of investment.

Aviva have very good pension calculators on line. You don't need to be a customer or buy anything, anyone can use them and you can adjust all sorts of things to edit the calculations.

I don't work for Aviva.

Not in those terms.

Old civil service pension will be worth about £12k a year from 60 (final salary and 15 years service)
LISA will pay out £50k when I turn 60 (will have paid in £40k between 40 and 50)
NHS pension should be roughly £3000 a year (only did 4 years with them)
I used a SIPP when self employed and have added smaller company defined contributions schemes to that when I’ve left. That has about £50k in it (and will add current one to it when I leave in a couple of weeks - should be another £22k or so to add).
Moving to a role with a 28% employer contribution so hopefully can clock up several years there.
On track for full state pension too.

Mortgage will be paid off within the next 3 years.

First off, would recommend that you seek advice from an independent financial advisor.

Assuming you retire at 65, a £100,000 pot would result in a tax free lump sum of £25,000 and an annuity income of £4,320. You can see that the £6,000 a year you're currently saving won't get you the sort of income you're likely to need in old age.

Now there are other options, other investment vehicles, other ways of providing an income outside of an annuity, but there's a reality about how much a pension pot truly provides.

The old adage was to save half your age as a % of your income. If you're mortgage free and say 42, you should be putting at least 21% of your income into a pension and actually more if you have only recently started it if you want to maintain your income into retirement.

I don't mean to panic anyone - I'm very conscious that lots of people have nothing to spare, and will rely on the state pension, but there is a truth that you need significant sums if you want it to support you for 20 years of retirement.

As a broad rule of thumb you should be putting a percentage of your gross salary into your pension that is roughly equal to half your age when you start the pension.

So someone who starts saving at age 20 can get away with just saving 10% of their gross salary but if you start at 40 you need to be saving at least 20%.

This is only a very rough guide and assumes you will have no housing costs by retirement having fully paid off a mortgage. If you will still be paying rent during retirement you need more.

Without accounting for any cost-of-living increases, I guess I would probably want about 15,000/20,000 a year to be comfortable.

Thank you very much, I'll take a look!

Thanks @OneMoreTime23!

I wonder how much a pot would need to be to pay out 12k a year. I think that's about what I'd need on top of state.

I do have a LISA at 25k but will be around 50k by the time I'm 50. Saving 4k a year into that.

I also have income from a rental which I intend to still have at retirement, this is small though, (no mortgage)

I do have fairly significant cash savings, but it's whether to translate those into a pension, or leave them where they are. They do generate a reasonable amount of interest.

I suppose it's trying to work out where the best place for things is, I'm not very good at saving for the future, I always worry about worst-case scenarios. It's actually something I've really had to do battle with.

Thank you all for the feedback, it's interesting to hear from people. And I am taking on board all the advice!

I do feel an privileged position to have cash to move around. But the pension thing has been increasingly bothering me.

This is all really helpful!

Multiply what you want by 25x gives a rule of thumb for a pot size. As there are numerous ways to draw an income nowadays it's not set in stone as annuity vs drawdown and staying invested may change how much you can withdraw safely each year

If you are talking about an annuity, I think the rough calculation is amount wanted x 30. So 12k would need £360k but that's very rough.

I have done meticulous calculations for my pension. I only started proper work when I was 35 years old. So, no NI contribution nor pension pot at all before 35 years old. Since then I work full time . I have upped my additional voluntary contribution to pension to a out 34.8% of my gross salary. If I keep on doing this, I will have £173k pot (not assuming growth at all). By the time I am 58 yeras old, excluding state pension, I will have 12.5k annually and a pot £173 k. I plan to retire round about 58-60 years old. Mortgage was paid off when I was 45.

I guess what I am trying to say, it is possible to accumulate pension even later in life, but sacrifices need to be made. I do remember when I started my job, I was hoping that in a few years time I would easily afford weekly grocet at M&S. And here I am, nearly 12 years later and we are still doing Tescos 😂

my private pension pot is forecast to be 150 000 at retirement age which will give an annuity if approx 9000 a year.
But personally I am not going for an annuity but using savings and draw down to top up full stare pension. So as others have said it isn't all about your pension.
But to get 20 000 a year annuity you would need about 300 000 to 350 000 pot .

It sounds as if you are in a position where you have some good options (given the significant cash savings and the rental property) but you need some advice on how to manage the balance. Depending on what the level is it might be worth having a session with an independent financial advisor to help you think about planning.

It sounds as if you have a decent income so are probably paying a fair amount of income tax at the moment - is that right? If so, if I were you I'd be looking at making fairly hefty transfers from cash savings to pension to maximise the tax efficiency and long term growth. You say that you are getting a decent rate on the cash but it's still likely to be eroding in real terms and the tax benefits of the pension will dwarf the interest on cash, especially if you are in the 40%+ band. Of course you'll still want some cash savings and so getting advice on the balance would help you to see the risks and potential for different scenarios.

Thanks for all this, lots and lots to digest. Thank you so much to the people who've posted what their pot is, and what their expected income is. All advice is taken on board!

Yes, I am in the 40% tax band, so I have been trying to use that efficiently, but only been in the 40% band for the last couple of years.

This research is often cited to help people work out what they might need https://www.retirementlivingstandards.org.uk Of course everyone has different needs/wants but it at least gives you a fair idea of the real spending patterns of people who are currently retired. The amounts you are talking about but you fairly clearly in the 'moderate' part of that range (including the state pension) so it sounds quite realistic as an aim but do look at what they say to see if it sounds right for you.

When you are working out what you need remember that you'll still need to pay income tax on pensions so if you're aiming for £12k 'take home' then you'll need to generate more than that gross. Also, think about whether your pension aims are simply providing for your own needs or whether you need to factor in a partner.

I don't know how I will take it when it comes to it, but I have nearly £200k aged 37 in pensions (2 workplace ones and a SIPP) I currently get in about £3000 a month through salary sacrifice which I plan to continue until my daughter is 11 and we likely send her to independent school and I will want to contribute more to that so at that point I will reduce to £2000/month and then to £1500.
I have a spreadsheet and assuming return of around 3% (I know nothing is guaranteed!) I am targeting £300k by 40, £600k by 50 and £800k by 57 when I would like to retire. I may not draw from my pension until 60 though depending on other savings. It could of course all go wrong if I lost my job or similar! And if the markets crash then a pension pot could significantly reduce in value. I worry that I don't have much except pensions and ISAs- no additional properties and still mortgaged for 20 something years.

hi OP. Yes, my pot is circa £210000 and I’m 42. I contribute around £500 PCM (including tax gross up) and will up this in years to come.

I also contribute to a DB pension via work which should pay out roughly £15k PA if I stop around 64. I’ve used lump sums to to buy additional pension in this scheme.

i also save into ISAs, and have around 60000 sitting in an index tracker. Don’t contribute as much to that but around £300 pcm. It’s a good idea to spend between pension and isa for tax purposes at drawdown but don’t get too bogged down with that.

get a low cost all world index tracker via ii/vanguard etc and put in as much as you can for as long as you can. Set and forget.

Re cash savings and the interest, you need to factor in that if you pay some of them into a pension you automatically get an extra 25% added as tax relief and higher rate tax relief too if you are in higher rate. Disadvsntage is the money is locked up if you need it so ensure you keep enough as savings to cover your needs

mid 40’s and 180k here. Self employed and only put in enough to be tax efficient, so some years more than others.

I don’t have a pot, but my predicted annual pension is about 48k at retirement plus state pension.

I need to look at mine. I have only worked part time, so mine is not enough. I have a NEST one and a Royal London one. I've upped my contributions a few years ago, but it's still not enough. But there is literally nothing I can do about it.