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???

This. The whole point of starting a pension as soon as possible (as the OP has) is that compound interest over 40 years gives you a lot more than twice as much as the same amount contributed each month over the last 20 years of employment.

@CandidHedgehog I think my panic is coming from not understanding it all. I'm going to get researching

I think you're already doing the right thing. All I would change is your investment allocations from 20% passive equities to 100% passive equities.

In a similar position so thanking you for the thread, and for the advice given.

Try this calculator.

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

At £150 a month at 3% interest (hopefully artificially low) after 40 years you would have £139,753.47.

The same contribution and interest rate over 20 years would give you only £49,641.53.

You can see how compound interest gives you much more in the former case.

I found the meaningful money podcast really helpful in getting started and explaining the basics.

Really don’t let it stress you, you are so ahead of the game even thinking about it at your age. Just take your time and learn what you need to slowly. You don’t need a financial advisor, the important thing is just that you are contributing, optimising which funds etc. happens gradually.

For now I’d throw it all in a vanguard life strategy 100% equity or a global tracker fund (you can get these through Aegon, I have my pension in Aegon and it’s split between an Aegon fund and a vanguard one). Then take your time researching if you want to pick your own funds more selectively but the key is to start putting money in and be consistent.

You're doing fine investing 15% a month. The thing is that because you're young your salary is very low. 15% of a smaller number is, pretty obviously, a small number.

I stuck your figures into the HL Pension Calculator and you're on track to get about £9k income when you retire, if you take the full 25% tax-free lump sum (which would be £50k), from a total pension pot of £201k. That is not a lot.

BUTTTTT

If you salary were to go up to £39k (the UK average for a full time wage) you'd basically double that, and end up with a pension of about £19k.

Assuming - and this is the big issue with current pension planning and forecasting, but it is the assumption, so I'll make it too - you own your home and have paid off your mortgage when you retire, this is probs doable. It's certainly acceptable relative to your salary.

Don’t give up work when you have kids.

You are doing well so far…you’re only young. You could also look into a LISA if you are able to save any more. For every £100 you put in, the government adds another £25.

This. The most significant factor in women having worse pensions than men is giving up or scaling back on working when the children come and not making any arrangements with the family finances to compensate.

It’s worse with an unmarried partner as you have no claim on his pension if you split.

Myabe look at changing your fund otherwise carry on. Focus on moving up and earning more as quickly as you can, that will be the biggest investment you can make to your pension. Earning more! Then also take advantages of other products like a LISA.

I work in pensions and investments and I would highly recommend speaking to a financial adviser (most offer a free initial meeting so there would be no upfront cost), you can then sit down and discuss your objectives ect and then can go through a PERSONALISED recommendation.
you don’t need to know about all the different funds (believe me there are thousands you could consider!) and a FA would be able to help you choose the funds depending on your personal risk appetite. For someone who is 24 you sound very mature and sensible already thinking about your future but trying to self manage your own pension is time consuming and could result in losses (if you choose funds you don’t understand and dont continuously manage). Having an adviser takes the worry and stress away. Yes you would pay a small annual fee (which could be taken from the pension fund) but could provide better results in the long run.

You are absolutely doing the right thing thinking about your pension early. So many people don’t start thinking about it until it’s too late! Aegon have a number of available funds. You are usually put into a default fund which is medium to low risk. Look at their members website to see your options. When you’re young you may want to put a decent amount into high risk funds which may have higher returns. Also, think about whether you can afford to put more into the pension. People think if you put the max matched amount in then it’s probably going to be ok. You’ve noted that to get your ideal pension pot you need to do more. So put more in! I put about 25% of my salary in, plus a chunk from my pension. You can usually set up additional payments via payroll, either as an ongoing % or as a one off lump sum. Ignore the people who say you’re too young to worry about it. Do what you can now to make your money work for you and you’ll have less to do later.

We live in a capitalist society. They don't teach you in school that once you have capital, the capital will act like a magnet for more capital.

A friend's father (richest person i know) once said "Money always shits on the biggest pile."

You need to build capital by regular investments (which you're already doing) and make the money work for you (e.g. switch to 100% passive global trackers such as LGGG).

That's all you need to do.

If you can put in more, that's great because the money you save and invest now has the longest time to compound.

£100 invested at age 20 is the same as £1600 invested at age 60. Both amounts should be worth £3200 at age 70 based upon your investments doubling every 10 years.

@concernedchild there will be someone at your work whose job it is to manage the pension. See if you can speak to them - they won’t be able to give you advice, but can talk to you about making additional voluntary contributions and how the company default works. People who do this tend to take their responsibility for employee funds very seriously and will review performance and fees that employees are paying at least annually

Why are you investing into a SIPP? an ordinary personal pension would suffice. SIPPs generally have higher charges and they are mostly for the purpose of holding property and other high worth investments within them. Does your employer offer matching of further pension contributions, if they will match your extra contributions this is usually the best option. You should have access to your aegon pension account online and should be able to contribute into this on an ad hoc basis. Aegon has a multitude of funds at all different risk levels. With the long term to retirement you can afford to invest in higher risk funds. It’s only been a year on a very small sum of funds, average growth rates are anywhere around 7%pa. So your £2k has probably done this.

At 24, I simply invested into my workplace pension and accepted the low-medium risk which had been recommended for me. It has performed fine. Now aged 50, i know a bit more and have taken more control of my investments.

Its commendable that you're so keen to understand it all and, by all means, do some research or get bespoke advice. But please don't worry about it..! There is no need for you to get so involved in the individual funds unless you really want to. Most people don't understand this stuff. The fact that you have a pension and are making contributions is more than a lot of people do.

A SIPP is still a personal pension and the majority hold vanilla non specialised investments that are just as cheap as a personal pension. Plus they normally have access to most of the market rather than a limited selection. Hence they are becoming more popular compared to the expensive workplace schemes or government backed ones that have high fees and limited options

Lets be clear: 10-11%pa investment returns would be nice, but are quite a high figure to use. 7-8%pa might be more realistic.

Also, don't forget inflation, so if you need £1 million to retire today you'd need more like £3.2 million to get the same standard of living in 40 years' time, assuming 3%pa inflation.

However, I'm not sure you need quite as much as £1 million! You could probably get a reasonable living off £600,000 especially with a State pension too - though exactly what that will be in 40 years is anyone's guess. It has existed for over 100 years though so I would be surprised if there isn't something or other around in 40 years time too.

The bottom line is with 40 years to keep paying in I wouldn't worry at all about your current pension account balance - just keep investing and getting employer contributions and it will all build as the years go by. If you are stuck how to invest there should be a default option you can use.

I have no idea what your career is but if you ever have the opportunity, public service pensions (police, civil service etc) are generally seen as gold standard (at least for now).

I'd chill out a bit - you're 24 and putting into your pension - just keep doing that!! I'm a LOT older than you and don't have a private pension at all - i'll just cut my cloth!