Is saving 12% (total) into a pension?

[redlimpet]

Sorry if this is a daft question but I’m new to pensions and the world of work. Just started my first real job after uni (I’m 24) and opted into the pension.

I salary sacrifice 9% and my employer gives 3% on top. So I’m saving 12%. Is that enough for someone of my age? I don’t have any pension so starting from scratch.

It’s excellent and. Great starting point. If you get used to putting that % of your income away now it will become easier as you get older and climb career ladder. It’s also tax efficient.

there are some calculators online that you can stick in figures and it will give a predicted pension income etc but at your age it’s probably not very reliable… I’m 41 and earning probably 4 times what I did when I was 26. I didn’t put anything into pension then though… and regret it!

There is a 'half your age" rule that says that at the point you start paying in, you should divide your age in two and pay that. So you are contributing the perfect amount if you are 24 and putting by 12%.

It's great that you are starting early. You might also nudge it up as and when you can afford to throughout your career - the more invested early, the more time it has to gain compound interest and it could help you ride out periods where you might not contribute, e.g. mat leave.

This is a bit of a “how long is a piece of string” question! How much do you earn now, what might you earn in the future, what lifestyle do you want now and then…

But basically, yes, it’s a good amount. There is a rule of thumb that says you need to save half your age in % - so 12% is spot on for you.

But if you currently have plenty of money, do consider bunging a bit more in. Compound interest is an amazing thing! Putting more in now (assuming you leave yourself enough cash flow for savings etc) means a bit more flexibility when you’re older and potentially have less flexibility (mortgage, kids, etc), or if you take any career breaks (caring, illness, etc).

The fact that you are starting early is great, Op. I have a private pension that I started when I was 25, and only paid into for 3 years before I changed jobs. But I am so pleased that I did, I hope to retire in a couple of years and it's definitely one of the reasons why.

Yes that's good, given your age. If you were 10 years older it would be far too small. But I thought employers were supposed to put in 5% minimum. There might be an exemption for small employers but check that bit out.

It's good. I told my DS's to pay in extra whilst he is single with no DC as once they arrive it's harder to stretch your money. That's the same advice my Dad gave to me. He followed my advice for once, he doesn't very often, yet always asks for it, anyway the other day he told me he had nearly £55k in his pension pot and he's 36.

If you’ve been auto-enrolled, your contributions probably aren’t based on your full salary - so while 12% sounds good on paper, it’s probably not enough if using the “half your age” rule of thumb.

Say you earn 2k a month, 12% of full salary is £240 a month.

If it’s based on AE salary (£2k-£520), you’re putting away £178 each month, which is equivalent to 9% based on full salary.

So first of all find out if your contributions are based on full salary or AE band earnings.

I’m pretty sure if it was based on full salary, your employer would have to pay 5%. If it’s based on AE amounts, then it’s 3% employer and 5% worker.

Sorry do you need to keep increasing the % as you get older? I put in 8% and my employer puts in 10%, so 18% and I'm 35. I've paid into decent pensions since 26. Do I need to keep increasing every other year?

Sounds like a very positive step. Good for you! Your employer should also be putting in (via a deduction from your salary. If you’re very lucky you’ll get a top up- I never have)

No the half your age rule relates to when you started saving

No top up if contributing via PAYE as tax relief is at source