25 and panicking about pensions!

[pensionconf]

Hi everyone,

Hope this is an okay place to post!

To preface, I’m a very anxious person so I am sure part of this is me worrying but I’d just like some advice :)

I’m 25 and currently have the following retirement savings:

£7.5k in a Moneybox pension - this was all my tiny workplace pensions from supermarket jobs etc that I merged together. I do not contribute to this

£4k in a workplace pension - I pay 5% of my wage into this and my employer pays 3%. I’m on 25k so this is roughly £100 a month going in

£200 in a Lifetime ISA - I pay £5 a month into this. This is really a backup option in case my private pension age goes above 60 and I can’t take it when I’d like to (I already own my house so have to use this for retirement!)

£500 in a S&S ISA - not a specific retirement thing but I’ve ’earmarked it’ to not be touched until then. I pay £20 a month into this. Similar idea to above that I can use this whenever I want so won’t have to wait until a designated retirement age that might be high when I get there!

I’m worried that this isn’t very much to have at my age, when I attempted some googling it implied I’m well below what I should have to be able to retire comfortably!

Most of my £25k salary is accounted for (mortgage has gone up recently!) so it’s not as simple as throwing more money somewhere.

My vague idea was to stop paying into my LISA for now once it had maybe £1k in it, as this one is probably the least flexible? Then upping my workplace contributions. But maybe that’s not a good idea.

I am on a course at work that will dramatically increase my salary once it’s finished, but that is a few years away. Of course at that point I can afford to put quite a bit more into the workplace pension etc as I understand that’s the one that has the best tax benefits?

Any advice or tips are gratefully appreciated!

We do have life insurance that I think also cover critical illness, but it is on my list to review as it seems expensive for what it covers!

You only need term life insurance to the end of the mortgage, if you marry and have children you might need to increase it as life insurance is only needed if you have debts that need clearing ie your mortgage or someone is dependent on your income or non adult children.
I think your next priority should be your emergency fund rather than LISA 3-6 months basic expenditure depending on job security 3 is ok if in public sector 6 if work is seasonal private sector or vulnerable. If self employed maybe more still.
Don't forget to set aside some money for fun now as you have no debt except your mortgage
Don't borrow money for anything else only the wedding you can pay for, if you need a car save for it etc

You are doing great
Using compound interest calculator 12000 initially total each month 125 for 35 years assuming you never get a pay rise and never increase monthly contributions in 35 years you will have 364,000 of which approx 64000 is your money and 300000 is interest based on 7% UK stock market average.
If you take higher risk in USA s &P 500 average 10%return and increase contributions by inflation each year so 125 this year 129 next year etc you would have just over a million of which approx 110000is your money and 900000is interest

Sounds good

1 what are you invested in?

2 what are the fees on your money box pension? It’s such a small amount maybe move it to a free pension provider

You are doing fine so far and on course to continue to do so. Some things I’d think about are:

1. since your LISA won’t be payable for over 30 years I’d change it to a stocks and shares LISA and go high risk
2. Shame your employer won’t go higher than 3%. I’d consider changing jobs.
3. Review what your existing pension funds are invested in. Time is a huge advantage you can easily afford to go high risk

Unfortunately the majority of UK employers only pay the minimum 3% auto enrollment pension contributions. Many of them dont even pay it on full earnings. They pay on qualifying earnings only. Which means they dont have to pay anything on the first £6240 earned and dont have to pay anything on earnings over £50270. It is actually shocking the number of employers that do this.

That is shocking. I’d have hoped a lot would be paying a bit more than the mandatory anount, and I didn’t know anything about what you’ve said re qualifying earnings. What a shame they don’t look after their employees more.

I think me and DH are very fortunate then as I’m LGPS and his DC contributions are matched to a maximum of 10% by his employer.

Agree, it is scandalous that the government want everyone paying into pensions but dont properly hold employers accountable. Employers dont even have to enrol employees under 22 into auto enrollment. Considering a huge number of 18 year olds dont go to uni but straight to work it is ridiculous that the employer does not have to make any pension contributions for them for 4 years.

The guide is you take your age, halve it, and thats the percentage of your salary you want going into pension.

If your employer only puts 3%, you would ideally add another 9-10%.

Sadly this is not affordable for most lower earners - but remember its tax efficient. If you contribute to pension from your pre tax pay, it only costs you about 2/3 in your post tax so its really worth doing.

I probably had about that much in my pension at 25, my employer used to match 2% (pre auto enrolment). I qualified as an accountant, followed my managers advice of putting 50% of my payrise in and changed jobs to a firm that matched 8%, progressed to a manager a few years later (put 50% of my payrise in) changed jobs again and they match 4%, I’ve now got £215k in my pension and I’m 40.
Id recommend paying 50% of any big payrises in, you don’t notice it!