My pension isn't good enough, is it?

[concernedchild]

I'm 24. Been contributing into a workplace pension for about a year. That's the standard 8%. I then contribute an extra £90 into a SIPP - with the tax relief I get on that it works out to be about 10% of my pay after tax, all in all I'm contributing about 15% of my gross salary into a pension pot.

My pension (across the two pots) is only £2300 or so. My Aegon pension only seems to be going up with the contributions I make, I'm not seeing any growth. My Vanguard SIPP has grown by £100 on top of what I put in to it.

It's estimated I'll need something like £1m to retire. How the hell am I ever going to meet this???

It's only been one year. That's the nature of investments over cash savings: the value increases/decreases/stagnates. Hopefully in the longer term the value will increase more.

Your salary will go up over the next 40 years.
Your pot will grow from your investments.
Most people don't have anything like £1m on retirement.

It sounds like you are doing pretty well. Make sure you have accessible savings as well.

It’s only been a year, and you have another 45 years of your working life to go. I wouldn’t panic just yet.

You are still very young!

You are doing the right thing by having a pension pot and getting started early.
Remember that your earning potential across your life is likely to increase and there will be times when you are able to add more into the pot.

The more you add when you're young, the longer the investment has to grow and the easier you will find it later.

If you were starting to think about it at 40, you should be worried. But you have many years of earning and your investment has years to grow.

If you invest into a passive global equities give you should hopefully get around 7%. That will double your money every 10 years.

If you're putting in £2300 a year, you'll have around £35k after 10 years, £100k after 20 years, £240k after 30 years and £500k after 40 years and £1 million after 50 years.

The government will probably increase the pension age to at least 70 by the time you retire, so that would be 50 odd years of work.

As your wages increase, try to increase your payments and you should be able to retire early.

You need to think long term. The stock market has had some difficult years recently with Covid and the war in Ukraine but you've got 40+ years to retirement. Also most people aren't retiring on a pot of £1 million. My (single) relative who retired last year had a pot of £150k, owned their own home and gets a full state pension. It's tight but doable.

At your age your pay is going to be quite low relative to what it will be. The actual value of your contributions isn’t the most important bit; establishing the habit of putting 10 - 15% away, every month, regular as clockwork is the big thing.

The miracle of compound interest will kick in as the years go by, and one day you’ll think “actually, that’s a shedload of money!!”

Something I would do, however, is look into the funds where your investments are, and see what the management fees are. This is something most people don’t do, but it can make a huge difference. An index-linked set of funds will perform just as well (better!) over time than managed funds, and just the lower fees will mean you get a lot more back. 0.1% is not unusual for index linked, while managed funds can be more than 10x that (with no corresponding improved performance).

You are putting a good percentage of your salary into your pension and you have started early. Every time you get a pay increase increase your contributions. You're being sensible, that's all you can do. Check though if having a SIPP is definitely better for you than making AVCs into your workplace pension, might need an IFA's advice to know for definite.

FWIW I'm 53, I have a high income and I'm not going to have £1M in my pension pot by the time I retire. The average pension pot in the UK is far below £1M, most people will never afford to save that. So save what you can but try not to worry too much.

Baby steps! You're doing great and 15% is OK given how young you are. You can escalate from here if you want - for example, if you get a pay rise of 3% next year, keep 2% as salary but put and additional 1% into your pension. You'll be getting to some big numbers very quickly.

At your age, I would be logging on to my pension provider and changing to a higher risk fund.

I've moved mine into a Sharia fund because it looks to return around 13% per year. (https://markets.ft.com/data/funds/tearsheet/summary?s=GB00BFZNFH05:GBP)

You are so young that you have time to ride out any stock market downturns and the compound interest on that will really help.

£2800 at 11.4% returns, over 41 years of work, would give a pot of £836,891 even if you didn't invest a penny more. You'll be fine, as long as you take educated risks.

How do I choose the rights funds? When I'm home I'll be able to log onto both and post what funds they're in but I'm just not sure what I'm doing, with any of it.

It's normally an option on the pension providers website.

However, I must point out, that investments can go up or down. All I'm suggesting is that you do your own research and decide what level of risk you're happy to accept. I am not giving you financial advice!

@LoveSkaMusic oh no definitely not! I just have no idea where to even start - my parents became well off later in life so they didn't really fuss with this sort of thing, they got lucky and it all happened at the right time for them

Sorry, your maths is incorrect.

£2800 at 11.4% returns, over 41 years of work, would give a pot of £234,126.

@ThisOldThang - Not sure what I did wrong then. I used the growth calculator on https://markets.ft.com/data/growthcalculator

Oh and I said a starting pot of £2800, when I meant £2300 in my previous post. I'm not doing well at this today!

This is how you become well off later in life! 😁

the stock market over the last 40 years has given 10% return on average
over the last 100 years it’s returned on average 10%

after one year you can’t predict what it will do for definite, but it’ll likely stay the same. Up your risk

have a plan B

I think you might be interpreting things wrong. The graph on the left shows an initial investment of £10k.

Using a scientific calculator, it would be. 1.114^41 x initial investment.

You’re only 24!

Please don’t let the pensions industry wind you up unduly about this. Stick to what you’re doing. don’t worry about something so very far in the future.

Not sure how you managed that.
I ran the same numbers, with the same calculator and it came to around £195k.
You also have not put any inflation. Which affects it massively.

I've just run it again from my phone and got back the same as you.

Goodness knows what my laptop was doing, or what I was doing for that matter!

False alarm, OP. It does serve to demonstrate what compounding at a higher rate can do though!

I'm off to hide in shame now 😂

I’m 24 and I put £10 towards my pension each month. I think you’re doing amazing🤣

You're 24! Worry your pension isn't good enough when you're 50. And read up on compound interest

It really doesn't make any sense to me. I've tried so many times but I just don't get it

Also, ignore everyone saying "you are 24, dont worry about it yet"

This is the best time to start.
What is your Vanguard sipp invested in?