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?

I think it's based on an annuity rather than withdrawal.

Yes that's how I read it, and an annuity without inflation protection, so the value would decrease over time.

It assumes inflation at 2% so not quite but would be at a big risk of value decrease.

I read that as meaning that they assumed 5% growth and 3.5% wage inflation, but with 2% inflation, so meaning that both would grow but at a lower rate in real terms. For the £88k itself that's from an assumption that you buy an 'annuity with a 5 year guarantee, no dependants pension and no escalation' so the annuity itself will have declining real value. At least as I read it. Still a large sum but I expect most people would go for a lower amount and inflation protection.

Ah makes sense. So the annuity would stay at 88k a year flat?

I agree with @Mia85 . It assumes 2% inflation up to the point of retirement (ie in giving the real terms value of the pot) but then gives the rate for a level annuity, which is a slightly odd mismatch.

RPI-linked is likely to be at least 2% lower (so you'd get about £64k real terms which is still pretty good TBH).

annuity rates depend on health etc so if unhealthy you might get more per year as they assume they will not be paying out for as long
pensions are generally in the stockmarket , sometimes it goes down but generally the projectory is up and on average ( over decades) the UK stock market rises 7% per year on average
to work out how much an investment will grow quickly use the rule of 72, divide 72 by rate of return and that gives you the number of years it takes your money to double so at 5% your money would double every 14.4 years at 10% every 7.2 years at stock market average of 7% it would double in 10.2 years
so if you had 100,000 today at age 40 at 5% return by age 68 you would have 400000 ie it would have doubled and doubled again, that assumes no further contributions but if you keep contributing obviously it will be much more
but if you have 100,000 today and keep adding 8% of average UK FT salary of approx 40,000K ( however made up assuming 5% employee 3% employer ie the minimum) until 68 at 5% return and assuming 2% inflation in wages and therefore in contributions your fund at 68 would be 645000
at stock market average of 7% it would be 1.04million

I'll have to do the sums. I am hoping to retire before 68 but currently have about 270k at age 46. I put 8% plus 8% employer on 160k salary plus stick bonus in if it's decent (it was shit this year sadly). I need to get a better understanding of it all really.

@ mithral you need a compound interest calulator but running it for you
assuming you contribute for 20 more years at 5% ( 7% stock market growth -2% inflation) and no bonuses added so total monthly contributions are 2100 and your wages only go up by inflation of 2%
in 20 years pot will be 1.7million (2.36 million without inflation adjustment)
in 15 years pot will be 1.2 million ( 1.5 million without inflation adjustment)
obviously you may get pay risesabove inflation you may increase % once mortgage paid off, on the other hand you might reduce as decide to go part time

link to good compound interest calculator
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

you can add own figures and juggle

I think we are both saying the same thing so not sure what your point is?

Might not sound like a lot???! It's a fortune to most.

Its a MASSIVE pension!
We are boomers, (supposedly with all the money) and our pensions combined , including state, are absolutely nothing like that. And we feel well off.

I worked part time in the nhs for 25 years and my nhs pension pays me £190pm.
Not bad eh?!!

You lost me at £57,000 not sounding like a lot.

Its more than I earn doing 2 jobs! I thought i earnt well til came on here

Don’t listen to anyone on here and get an expert independent pensions advisor to help you understand your money and when you can start to draw on it, taking pensions early may mean money won’t last until death

Yes I have already addressed that a couple of times. I didn’t mean it to sound like I don’t think it’s a lot. I definitely do think it’s a lot as my current salary is £45 so £57 would be amazing.

The reason I said that is that so many people on mumsnet seem to be higher earners. I thought I would have people mocking me for thinking £57k is a lot.

I want to say hopefully for the final time that I phrased it badly and do think that £57k is a lot.

You clearly though £57,000 was a lot as the whole basis of your post was whether it was normally to get more money in retirement than when working!

Yes it is possible. If you take part retirement and work part-time you wouldn't be paying national insurance only tax on your private pension,so therefore it is possible.

Hi Op,

I’m in similar situation myself. The thing at the back of my mind is we still pay income tax on pension income so I’m not expecting what I actually get will be less. I’ve not take proper advise though so am unsure. The last 12 months or so some private work pensions have performed really well (shame the press don’t seem to mention this!)

Yes thank you

Yes mine has definitely gone up recently. But I know it can go down. It did in Covid.

£57,000 pa for a pension is huge, your bpension pot would have to be well over £1m which is the - it would never be more than 2/3 ish of your salary at the end of your career- so it sounds a bit odd to me.
The average pension currently would be £20,000 and is falling every year as pensions get less generous. You would need a pension pot of £2m plus to get £57,000 pension- bearin mind up until recently ther was a £1m limit on your pension pot, and the law on this can bechanged back at any time. This also means very few people in the UK will have a pension of more than £30,000 currently- so whoever said £57,000 is small is making it up, or is from a different country.

They don’t quote withdrawal rates, those are projected annuities but I give you that, it still seems way too high unless they have selected a retirement age of 75+.

I also don’t think it includes any inflation proofing or survivor’s pension.

Please get some pension advice from an expert - your current pension provider or employer may offer free sessions. I had one recently (