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?

They've changed it.

That’s a good point. I could consider stopping paying into my original pension pot and save more instead. I struggle to save currently due to COL.

Why will your state pension be reduced because of your NHS pensions? Mine won’t so I’m curious as why you expect yours to be

That post really illustrates Lynne Truss's points as discussed in 'Eats, Shoots and Leaves.'

The poster was disagreeing with the OP and should've written either:

Doesn't sound like a lot? Are you taking the pee? (Questioning the OP)

"Doesn't sound like a lot." Are you taking the pee? (Quoting the OP)

I have no idea about the pension stuff though! 😆

It is highly unlikely that you will want to continue working f/t (or at all) until you are 68 so you will need to get forecasts for retiring earlier and the years before the state pension kicks in.

I spent ages chatting through a really complex financial investment situation with ChatGPT. Thought some answers were odd. I then had to remind it that the current year is 2026, not 2023, before it would give me more accurate info. Never assume!

Could you tell us how much approx you’ve been contributing towards your pension each month? Me and DH are predicted around £20,000 pa combined and we’ve been paying in for 25 years.( This excludes state pension). So to get £57k you must have been paying in a lot or misreading something?

I mean fair play to you if it’s accurate. We pay in around £100 each and then get employer contributions on top. DH used to work for the NHS and paid in £300ish for 15 years. We’re very concerned that our pots seem low but we can’t afford to increase it at the moment.

I think if it's defined contribution then it's better to know what the "pot" is now and do your own projections.

£57k, someone said is equivalent to £1m in your pot. I'd say it's more than that, more like £1.4m.

I tend to work on a 4% assumption, so £1m is £40k pa. In today's money.

I do all my pension assumptions in today's money because you don't know what tomorrow brings.

I actually cost mine on a 3% return, I've got c£700k, so by my own reckoning I can draw £21k pa. Not loads, but enough. Especially once state pension starts. Plus I don't need the capital so I can draw that as well as the growth if I want to.

Having over £1m on a £45k salary seems a lot. So it's worth checking what it all means.

And if you have got that much and you're struggling now, reduce your contributions and take home a bit more!

It won't.

State second pension might be.

Mine is LGA pension, some of it is final salary and it's projected currently to exceed my current wage

I think the person who said are you taking the pee thinks 57k is your pension pot to buy an annuity with. I interpreted it as 57k per year income from the time you retire, for the rest of your life (with at least the state bit index linked). Which is a great pension. Or they are just being a bit of a b!

Are people genuinely saying that £57k pa isn't a massive pension? I wish mine was that much 😂

Love a not so humbled brag 😂

That probably won’t be a lot in 20 years time.

That said, my mum’s pension is huge. About £5000 a month. She earned about £60-70k at retirement in the mid noughties as an accountant, so quite a high earner for the time.

I could probably never dream of earning that much at my actual job.

Firstly, the OP says it is a projected combination of both state pension and their private pensions (DB and/or DC). I reckon with state pension at around £12,500/year, the projected balance of around £44,500 is what they are expecting to earn from their pot (if DC) or from DB entitlement per year or a combination of both - very generous, either way. I suspect this is projected to happen at around state pension age (so at 67 years) and may assume similar levels of current contributions up until then. If that were to be the case, then there is a possibility they would be paying tax at 40% by then as well. I’ll treat those projections as merely estimates, as with 20 years to go, a lot could change.

I think this is supposed to mean:

"op, you seriously think this doesn't sound like a lot?? (as op had asked). Are you taking the piss? Of course it's a lot! What are you on about??"

Correct me if I'm wrong!

Some of the pension investment schemes are doing very well at the moment - my little one is returning 35% year on year so it may not be so little when I do retire. I am aiming for 61 at the moment with it but we shall see how it is doing may just leave it there. I took my lump sum and have that invested elsewhere but frankly should have left well alone

I think the poster was being sarcastic ..

I think the only sensible thing to do would be to find a good IFA from a respectable company who can go through what you have & advise you bearing that in mind.

One thing that struck me is that you've been putting plenty of money into a number of pensions for years now, and you have to consider that there's a limit on the maximum you can have in your "pot" and still have the tax advantages.

Another is that you seem to have a mix of DB and DC pensions i.e. final/average salary and contributions based. Depending on a number of factors it may be worth some consolidation - this could be very dependant on who these pensions are with and who you current employer is e.g. certain DB pensions can NOT be transferred out except to others in the same "family", so an armed forces or NHS pension may be possible to transfer to a current Civil Service one, but not out to anything else. Whereas most DB pensions from private companies can be transferred out using a notional value of the pot.

Some employers take good care of their employees pensions and ensure they are managed well, but some (especially smaller companies) just off load everything to one of the newer pension companies that sprung up when it became mandatory to have a company pension available - these tend to be pretty generic and low cost to the employer but are equally not the very best for those very reasons.

Can you explain what sort of pensions you have, OP? DC or DB?

I think it’s relatively common. I know my mum earned about 50k before she retired and now takes home the same amount per month, between her state pension and LGPS pension, that I do on a 60k salary.

I absolutely love how clueless you are about your pension, OP. Honestly, I have been the same. One thing I must tell you is that if you take any money out of your pension pot sooner rather than later, it triggers the MPAA. This means that instead of being able to put away up to £60K/year in tax-free pension investments, this is limited to £10K/year (used to be £4K). That might not matter at the moment, but if your circumstances change it can become significant.

www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

Yes it’s not failsafe - the other one it does is to tell you that you can take 25% of your pension tax free, without applying the cap (which is £268,275) - my pot is estimated to be quite big so it was overstating how much I’d be able to take. If you’re very clear with the prompts and assumptions though it is a quick way of doing the maths.

@Oldtowel If you have a defined contribution pension, a good way to know if you are on track is to benchmark it against your own salary.

Age 40: total money in pension = 3 x salary
Age 50: total money in pension = 6 x salary
Age 60: total money in pension = 8 x salary
Age 68: total money in pension = 10 x salary

10 x salary is the recommended sum of money to retire with.

Though if you meet those targets, you will have done extremely well; there are very few people who meet them.

I answered this above - not necessarily. Certain pensions are protected, if you started paying in before Nov 2021. I will be able to access one of mine from 55. It’s called protected pension age - you can Google for the details.