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?

Well done for saving so much for 20 years….. and another 20 years more.

If you assume state pension is roughly £12k of that £57k (in today’s terms) you need a pension/annuity paying £45k a year. So a private pension pot of £1m. Whilst it’s tax efficient keep paying into your pension pot!

With 4% inflation that equates to £26K ‘buying power’ in 20 years time. Obviously you can increase your pension over that time.

Thank you that’s appreciated. Yes it’s would be good to go part time at some point. I don’t want to work full time for 20 more years.

It will be taxed, too.

I don't think any of us can tell from the info you've given whether keeping contributing at this rate is a good plan. On one reading, you've already contributed enough to be in a higher tax bracket in retirement than you are now, so contributing might only make sense to the extent you are getting employer's contributions. On other readings you'll be doing well, but only if you keep contributing at this rate.

You're absolutely doing the right thing to get a handle on this now but it's not really possible to tell from the projections how you're doing. If I were you I would look at what's currently in each pension and understand how it's invested (or how accrual and inflation protection work if it is defined benefit) and use that to make decisions on what to do.

Given the salary you are on now, and deducting a single persons state pension, that would be possible, assuming no further contributions are made. So to have achieved this you must have been paying in circa £8000 to £12000 per year on average (as your salary increased) in employee and employer pension contributions. Your projected pension pot at the moment would be circa £900,000 to £1.1m now, assuming no further contributions get paid into your pension scheme to get that much upon retirement.

However you are thinking about this the wrong way around. This is a projection of what your pension pot (assuming annuity not drawdown) will be worth in 20 years time, its not worth that now. If you could, and you cannot, if you were to take your pension now it would be significantly less. So you current salary is say

If that is not how much you have been paying in, its a lot less, then recheck your figures.

But yes for someone of your age that is a good pension but don't forget that in another 20 years, your salary of £45k with even 2% inflation per year will be something like equivalent to an income of £66K and your projected pension (without further contributions and your state pension) is £57K so whilst it sounds good now, you need to keep paying in to end up with a retirement income that matches your final retirement salary. Also fund values can go up and not down.

Finally, one last consideration. If you have any of the following pensions, this section does not apply:

• Defined Benefit (DB) / Final Salary / Career Average pensions
• Public sector pensions (NHS, Teachers, Civil Service, LGPS, Police, Fire)

These pensions automatically include a spouse’s pension, and your own pension is not reduced because of it.

However, the following does apply to:

• Defined Contribution (DC) / personal pensions

If you want your partner/spouse to receive all or part of your pension income after you die, and you choose to buy an annuity, then:

• You only make this decision when you retire, at the point you buy the annuity
• Adding spousal cover reduces your own annuity income, because the insurer is guaranteeing payments for two lives, not one. Typical reductions are:

50% spouse’s pension → your income drops by ~10–20% 100% spouse’s pension → your income drops by ~20–30% This reduction does not apply if you use drawdown, because your spouse simply inherits the remaining pot.

Projection of retirement income or Projection of retirement pot?

Can I ask who your private pension is with? I leave work this week so will have to sort my own out as I’m not moving to another company been there 12 years and even though I contribute the max amount I can it’s so small!

Mine is 55k per annum plus state pension at 68, so around 67k which will be plenty.

I think she will be getting £57k in today’s money - ie it’ll be more than that.

but a) it absolutely will be assuming she keeps up contributions at current levels and

b) state pension doesn’t kick in until. 67 so she’ll need to draw down more to fund the years until then, which will erode the pot

although I would be interested to see the current values of the pots as the op doesn’t sound too sure

That's great pension, you're ahead of the game for sure. How big is your total pot? Are you planning on waiting until 68 or take it earlier?

Don’t forget that’s a gross figure so you’ll lose 20% in tax

I agree - pension projections are usually given in today's money. Some people are assuming that's the actual figure she'll get per year in 20 years' time, which wouldn't be worth a lot by then due to inflation.

Mumsnet is such a bizarre place sometimes.

A pension that pays £57k a year (in today's money) is a very large sum of money, and it's far above average. What planet do you live on?

Maybe they thought this was the total of the pot..

I will be rich when I retire, which I find quite crazy! Large lump sum from a 40yr plus civil servant pension. But I will need to use some to pay off my mortgage as i’m only just starting my mortgage at 49 due to living in the south east for 25yrs until my kids left school, meaning I can finally buy in the north. That’s if I make it to 67, I may retire before then on less as I should be able to afford to pay my mortgage (dependant on the rates) on my pension as mine will also be over 50k, plus large lump sum. May increase again if I get anymore promotions in the 18yrs I have remaining. As i’m a single parent, i’ve never had huge amounts of spare money as rent here is so expensive.

@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.

Hello OP.

Make sure you do your homework, because indeed these figures are unusual.

The normal scenario is that people receive less money as a pensioner than what they did when they were employed, but that's offset by not having to pay a mortgage and not having to pay money to commute every day.

To me, it seems unusual that someone in their mid 40s, earning £45k, would be receiving a pension expected to pay out £57k a year.

A few things to check...

(1) Are the projected values in today's money, or future money? If it's today's money, then £57k is a very high sum of money to be receiving yearly from a pension. However, if that's the value expected to be paid out in 20 years' time, well, £57k will be worth a lot less in 20 years compared to today.

(2) What have your pension contributions been like? It's good that you started early 20s, but have you been paying in 10% per year? Or substantially more than that? If a lot more than 10%, that would explain why your expected pension value is so high.

(3) Is it defined benefits, or defined contributions?

There are some pensions with a protected age of 55 if you started paying into them before Nov 21 - I have one (an Aviva policy starting with TK fyi), so I can access it from 55 whatever the rules change to in future.

Thanks, was about to say this. Also the state pension may not be triple locked by then. COL may well have decreased the value of the pension but get out early IF you can afford to and manage without the state pension.

My husband has one of those. He can get a lump sum at 55.

That sounds like an awful lot! How much did you put in with APC, if you don't mind my asking?

Are you a drug dealer? International money launderess? Member of the Royal Family?

I don't think it is normal for your pension to exceed your yearly salary. Unless you were chose well-performing self-select funds for your DC pension at the start (very few people do self-select), the detault fund is usually quite conservative in terms of growth.

What percentage of AVCs are you making out of your salary?

Projections are usually based on low, medium and high rate of growth. Are you looking at the high rate?

What is your projected retirement age? If the sum includes state, do you plan to work till at least 67?

Look at the assumptions e.g. do they assume you will be contributing based on the same percentage with a yearly salary increase of x%?

This will help you decide if it is achievable. If you are planning on retiring early, do consult an IFA who can walk you through the figures.

It’s a great amount now, but will it be in twenty years?? As it’s projected, you don’t actually have that money now. And 57k will be less with inflation Xo

I find ChatGPT really helpful in running the different scenarios OP. One thing to consider is whether it’s beneficial to reduce pension contributions to enable you to pay into an ISA now, which can be accessed at any time (and so can be a bridge if you retire before you can access pensions, or to top up pensions) and where all gains are tax free, but obviously depends on whether you’re benefiting from employer matching, salary sacrifice etc.

I think it must be £57k in future money, so yes that might be worth diddly squat!

It’s complicated to explain all the pots but the biggest one was originally a work one with me and employer both paying in. When I changed employer I was auto enrolled into their pension scheme.

However I kept up my own contributions to the original pension as well. It’s built into a substantial pot because I have had it for so long.