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 i think you should just have a marvellous retirement when the time comes and it will be lovely to have no money worries.

@Oldtowel Most people with good pensions have the choice of taking a lump sum and a reduced annual pension.

For example, someone with a pot over £1M could take 250K as a lump sum then a pension of around £40K pa.

Or no lump sum and more pension.

The only people I know who had figures like that were earning over £100K pa for many years and retiring at 65 so it's odd how your figures compute.

So, to have £47k a year in your personal pension at 69 you’d need to have around £1.2million in it. By mid forties you’d need around £800k to be on track for that.
Thats A LOT. Are you sure the maths is correct?
If it is, fair play. You’ve clearly invested in the right markets. To have a pension pot of over 17 times your salary at your age is considerably above average.

A projection is not in todays money, its saying that with the money you/your employer have invested todate, assuming there are no further contributions, by the time you retire it will be worth £57K pa including the state pension. Its not worth that now.

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

@PrettyPickle A projection is not in todays money, its saying that with the money you/your employer have invested todate, assuming there are no further contributions, by the time you retire it will be worth £57K pa including the state pension. Its not worth that now.

Actually, many calculators do calculate projections in terms of today's money. So current data states that you need £31k a year to have a "moderate" retirement and about £44k a year to have a comfortable retirement. When you put in your target annual value into a pension calculator, (for example, let's say I type in that I want £35k a year in retirement), that's calculated as a "today" value.

That's why pension values should be tracked on a year-by-year basis, so you can see the changes in the values.

Which doesn't change the point of my post at all.

It sounds great. I have got a DB pension (final salary pension) and a DC pot. I think DB pensions are like hens teeth these days, but people still do have them from the old days. The DB schemes have usually closed, so there is little chance of paying any more in, so what you get is what they quote (and you can ask for one), at the age they quote it. You can often take them earlier (55 is common) but you have to make clear that this is your intention when you get a quote otherwise they do it from your retirement age. There is a reduction for every year you take it early. State pension is all fine and dandy but you don't get it until you are XX years old (mine is 67, and I also have a reduction caused by contracting out on my DB pension, but if this was not your thing, there is £12.5k there). To get £45k from a pension pot (DC schemes) which would be your £57k, less state pension, you would have to have a serious amount of money in the pot. As others have pointed out, it might be a prediction based on you paying whatever you are paying now, but for another X years, not what is in now. However, if you have, and I google "To achieve a £45,000 a year retirement income, a single person would generally need a pension pot between £540,000 and £800,000". DC schemes also have rules about taking pension early (again 55 is quite a common rule) but yes, if you are going to have £800k in the pot by the time you come to take it, then you are in a happy place but bearing in mind how it can go up and down, and the government are constantly nipping back on this (upper limits). HTH x

Any meaningful projection will include a measure of inflation and take future contributions into account. They usually take the average long term annualised return minus inflation for growth projections.

Of course there are so many variables over a long period of time that these may end up completely off track.

One thing to check @Oldtowel is that your private pension will be invested in the market. The growth can rise or fall.

I started a private pension some years ago when working p/t. (I already have an occupational pension which I'm taking now.)

The growth forecast is dependent on the markets and it can go up or down.

I can't understand why if you're a medium earner on £45K ish your pension will equate (almost) to people I know (close family) who earned twice that and more.

A pension of £47K when you earn £45K doesn't quite stack up, but it does depend on how much you're saving.

What percentage of your salary is going in each month and how many years have this been going for?

I agree.

The state pension as we know it now may not exist or be the same when you retire in 20 years. I'd exclude it from your calculations.

My pension pot has risen £234K in the last 12 months alone. Not drawing down on it yet as living off savings and leaving my SIPP invested.

Never earned more than £70k pa and retired at 54 with £1.2m in my pension pot.

Can you tell us how you managed that?

Do you get a statement showing the pot values? If so take these and use chatgpt to ask what projections of income would be in 20 years time, in real terms assuming 3% inflation. However periods of high inflation will erode values higher.

Most people don't continue to work until they receive state pension, which is now 68 so the pension pot is used (or cash isas) to draw down an income prior to then. This will deplete the pot as likely to have withdrawals at a higher rate than returns.

However if you are saving substantially each month since your 20s, this is the Gold standard for pensions and you are likely to be in a good position. Remember you will be taxed on pension income, although not NI.

If you have a defined benefit scheme you are doubly fortunate as that will guarantee and income but it is usually reduced if you retire earlier.

That’s what I’d like to know too

Some things that really helped me:

I boosted my DC pension by putting my bonus into it in my 20s. It was a fairly large one that would have been taxed at 40%

When I was made redundant in my early 40s I put some of the payout into another DC pension to avoid a higher tax band that year. (I got another job reasonably quickly so kept paying tax they year).

Also salaries don't always go up. Career change and part time working can mean the salary drops relative to historical pension pots.

Don’t really know TBH. Transferred out of my final salary DB scheme when I was made redundant and moved my pot to a SIPP. Over the last 8 years of compound growth alone it’s increased by 77%. Add in the DC pot from my last job and the total is now £1,170,000. I’ve just turned 55.

Mmmm some people don’t live in the real world

This. I am worried you may have misunderstood.
Please tell us more about what you have.
It might be something like:

1 DB pension, previously with AVC no longer contributing that is projected at £18k pa
1 DC pot with £250k, assume £10k pa
1 DC pot with £100k, assume £4k pa
Projected full SP of £13k pa

Early retirement to reduce it is the answer (for me it would be). Also dont rely on the fact state pension will be around in current format in 20 years.

Public sector or private company?
Must be the generous public sector.

All Private sector

DB pensions don't have a pot as such, it's purely based on final or average salary not how much has been put in. All DB pensions are based on years of service, salary (whether final or average) and a rate along the lines of 1/49 for each year. So unless you work 49 years in that job (extremely unlikely!) the pension can't be as much as the salary was. And considering that at least for lower/medium grades the salary is a bit pants normally, that impacts on the end result.

Public Sector pensions are reasonably generous (not in the same league as e.g. investment banking) to make up for the crap salary. Same as how generous they can be with annual leave - many has been the year in the past where they've upped annual leave rather than giving an inflation rate pay rise.

Most people don't continue to work until they receive state pension, which is now 68 so the pension pot is used (or cash isas) to draw down an income prior to then. This will deplete the pot as likely to have withdrawals at a higher rate than returns.

Not most people, only people on a good salary to start with. If your salary is only about £30k a year then you need to keep on working up to retirement age as you won't have had the chance to build up your pension enough to retire on especially if you reduce the income by taking a big chunk early on.

Doctors too.