Is it normal for my pension income to exceed my salary?

[Oldtowel]

I recently worked out my pension (combo of state, private and work) is worth £57,000 a year. This might not sound like a lot but I currently earn £45,000 a year. It struck me as strange that my pension is more than my current salary. I started my private pension in my early 20s and am now mid 40s so have been contributing a long time.

Everyday currently feels like a slog and the money doesn’t go far. I am working hard on trying to increase my income but not making much progress.

I am still 20 years off retirement so there is still hope for progression but at the moment it seems so strange that I have to wait for retirement to be better off.

Am I doing it all wrong and putting too much money in my pension pots? Or am I deluded and this is actually a measly pension?

One of my siblings had an annual pension of £60K. Their pension pot was at the max when they retired - so almost £1.3M. They retired at 65. Final salary pension.

They decided to take a lump sum of £250K (max allowed) which reduced the pension to £40K, but they also have the full state pension.

This is very rare, and usually only top level civil servants, or medical consultants- there are practically no final salary pensions left in the working world.

Sorry if this sounds like a silly question. But the OPs projected pension is £57k per year in 20 years time when she retires… however £57k in 20 years won’t be the equivalent to £57k in 2026, taking into account inflation.

Am I right in my thinking? Or does this adjust

Correct no survivors benefit or inflation protection but retirement age is 68. I posted all the assumptions from Standard Life up the thread if you're interested.

I think OP is presumably a brilliant example of how starting a pension early and saving a decent amount consistently is really worth while.

I started work pre 'A-day' (6 April 2006) when pension rules were very different. One of the rules in place then was that you were only allowed to contribute a certain percentage of your salary into your pension, and that varied by age. Those under 36 were only allowed to contribute a maximum of 17.5% of their salary. This rose to in stages to being able to contribute 40% if you were over 60.

One thing this did do was create a mindset about what a good level of pension contributions could look like. These days when all the limits are monetary amounts and the compulsory contributions are relatively low, it isn't easy for people to have a rule of thumb about what to put in.

Prompted by this thread I have looked at my pension - I look every few months. I have worked for around 25 years and started making contributions from day 1. The total value of my pension pot today is almost exactly 3 times the total contributions I have made.

So, assuming the OP currently has a pension pot of around £700k-£800k (and I know some of hers is DB so a bit different) if her pots have grown roughly similar to mine, then she would have made total contributions of (say) £250k over her working life. Or £10k per year over 25 years. Which is impressive on her salary but not completely impossible, especially because some of those contributions will have been from her employer.

If anyone wants a rule of thumb, you need to put in a percentage of your salary every year equal to half your age when you start a pension.

So start age 20, put in 10% every year. Start age 40 and you need to save 20% every year.

I think that was sacasm, for most people 57k is huge so for you to say it’s not a lot is kinda unbelievable!

Yes this has already been acknowledged, addressed and explained a few times!!!!!!!!

We don't know because OP hasn't told us! Possibly because they don't know themselves.
You are quite right to want to understand the basis of any numbers quoted, they're quite meaningless without.

actually a total of 57k in 20 years is not huge, firstly at 3% inflation state pension currently 12K will be worth approx 23k
57-23k = 34K for private pension
reversing this to 2026 it is currently equal to a pension of approx 17K today
so in todays world 12K state plus 17K private total 29K when currently earning 45K so private pension as it stands is just over 1/3 of current salary 17/45 ( 37%)
in 2046 23K state 34K private = 57k
Now for a person retiring today a personal pension of 17K on top of state pension is nice a total of 29K before tax with probably a paid off house it is not a luxurious retirement but it a nice amount above basic
for a single person it is quoted as you need about 13.4K for basic retirement 31.7K for a moderate retirement and 43.9 for a comfortable retirement
so OP is doing fine but not rolling in it

please note above doesn't account for politics of state pension just Maths assuming things stay roughly as they are

This was my dad's experience too. He retired a few years ago, he had a good professional salary but found that the day he retired his income went up. There's something wrong when your retirement income exceeds the income at the top of your career.
I've checked my projected pension, I'm 48, but the amount I've saved in my private pension will give me a combined income of around what I'm earning now, so I'm not inclined to up my contributions. I won't need that much money when I retire, I need it more now while I have DC to support.
Can you do a lump sum drawdown to maybe invest into something different? To me it seems pointless if I get through paying the bills now to be wealthy in 20 years.

She was being sarcastic!

Can you do a lump sum drawdown to maybe invest into something different? To me it seems pointless if I get through paying the bills now to be wealthy in 20 years.

Not before the age of 55, no (soon rising to 57), well, not without paying crazy amounts of tax.
What different investments would you wish for though? You can (usually) change your pension investment strategy if you prefer.

People saying it is crazy to have a higher projected pension than salary: it depends if the pension income is the aim, or family financial planning.

An alternate approach is to view the 25% tax free lump sum as the target rather than the end salary. It's a very good way to invest.

Also DC pension pots were exempt from inheritance tax, so were a really good way to pass on inheritance. That stops next year.

Finally: early retirement or semi retirement could be the aim, or concern.

What you have to bear in mind is that £57k today is a massive pension, but it won’t be worth the same in 20 years time. £57 k 20 years ago would need to be £95k today to have the same purchasing power.

inflation eats away at everything.

It would take me 8 years to get 57k in what I currently receive in pension payments. So yes, 57k is a lot Ffs.

If you don't need the money, it does not make sense to receive an income of more than £50k or whatever is the higher rate tax threshold at the time (it could still £50k because of the perma-frost in the tax thresholds and fiscal drag ) as you end up being a high rate taxpayer and give the excess back to the government at 40%.

As OP earns £45k, she is currently a lower rate tax payer. Essentially she saves 20% tax going into pension but could end up paying 40% out for anything coming out of pension above the higher rate tax threshold.

£57k pa when you're retired doesn't sound a lot? What do you do?!

99% of these comments could have been avoided if you just provided the breakdown of how you arrived at £57k per year.

57k in 20 years time will not be a "lot"
average UK wage in 2005 was £24,000
20 years later it is £37,400. That is a 55% increase in 20 years during which time inflation rose by nearly 90% so to keep 24k in line with it s original spending power it would need to have risen to £45,600

your projected pension is obviously a reasonable sum, but it is not "a lot"

They were being sarcastic.

You need to understand how that’s expressed. If it isn’t taking inflation into account, you can halve its spending power