How much will I need in my pension pot to retire?

[Litlgreyrabbit]

I know it’s an ‘it depends’ scenario, but I just don’t really understand how pensions work and so need to ask this (probably rather basic) question:

I’m currently in my 30s and am projected to receive £37,000 annually when I retire. At the moment, that sounds great to me. However, in thirty years time this income most likely won’t fund the nice lifestyle it will today? Will my pension increase with inflation, or do I need to be looking for ways of topping it up? My pension is a local authority defined benefit pension.

Many thanks.

That seems a lot to have accrued by your 30s - are you on a very high salary or is this a projection assuming you contribute at current salary until retirement (not familiar with the details of your scheme, but the statements for the similar NHS one only show what you have built up so far, they don't project forward)?

In answer to your question, the amount built up so far is increased by the CPI rate of inflation each year.

This may be useful https://www.lgpsmember.org/your-pension/paying-in/how-your-pension-is-worked-out/

Thanks, yes this is a projection. The actual value of the pot is something like £10k right now, but the website projects £37k by retirement if I remain employed full time.

Thanks!

What type of pension scheme are you in? A defined benefit or defined contribution? What % do you and your employer contribute?

if it’s DC then with a pot of £10k in your 30’s I find it extremely unlikely that this will translate to £37k per year.

i read that to get £25k PA you’d need a pot of around £500k?

If that's the illustration provided by the pension provider, they usually adjust for inflation - so the £37k would be equivalent to what £37k can buy in today's money.
Check the smallprint - they will list their assumptions somewhere.
Well done though, sounds like a decent pot.

If the OP's in her 30s then she has 30+ years of paying in still plus 30+ years of investment growth on the contributions already made. So I don't think that sounds impossible/implausible.

She literally put this information in her OP.

Yes it will increase with inflation. I work for the Local Authority & it’s a fantastic pension. Each year you should get a statement through & the projected amount will have increased with inflation.

Are you planning to have children and take time off work or go part time for any period of time before retirement? Because that will make a big difference to your pension

The posts above about pension provider illustrations including inflatiin, and inflation growth on invested pots don't really apply to the LGP scheme. DB pensions have their own rules.

Rather than relying on any projections they give (which will assume the same grade throughout), you can work it out easily yourself if you want - and account for any plans you have for promotion.

To what you have now, simply add 1/49th of your expected salary for every year you work in future. Do this all in today's prices, because the whole thing will go up in line with inflation.

Thank you!

With this part: “To what you have now, simply add 1/49th of your expected salary for every year you work in future. Do this all in today's prices, because the whole thing will go up in line with inflation.”

Will that sum give me an estimate of what will be in my final pot? And how can I extrapolate from that what I will get per year?

Thank you!

Will that sum give me an estimate of what will be in my final pot? And how can I extrapolate from that what I will get per year?

There is no final pot for a defined benefit pension. You get an additional amount of your salary each year, depending on your salary . So if the accrual rate is 1/49 annd you earn £49000 one year, you get £1000 per year added to your retirement income.

There’s no pot. Your annual pension statement is literally telling you what you’ll get at retirement age if you continue working full time at the same salary (£37,000). It’s a great pension. Each year the amount will increase according to that years inflation rate.

I Thought I’d boost my pension when kids got older and no longer finically dependent carried on working more hours had to than tightened my belt poured it all into pension planned to finish at 60

looks like labour are going to fuck my plans over wish I would of enjoyed the money at the time or worked less hours

so u can plan with the best intentions but there’s no guarantees

As others have said, a defined benefits pension (final salary or Career average) does not give you a "pot" like a defined contribution pension does.

You are in an enviable position as you wont need to work out at retirement (or before) how much you will have or need to live on.

If your pension is projecting £37k pa then that is really good. With the State Pension on top you are looking at £50k pa.......more than most people earn when working.

Final salary schemes used to give you around 50%-60% of your income at retirement. Career average schemes now give less, but will still give you around 40% of your final salary. This all depends on how long you work for the company - the above figures assume a 40 year career with the same employer.

It's worth checking if your authority or scheme administrator runs any learning sessions re pensions, once you've got your head round them it's not as complicated as first appears and can help you understand the impact of going part-time, promotion, early retirement ect.

However, Defined Benefit schemes are becoming ever rarer so do consider it could close before you get to to normal retirement age and you could be put into a Defined Contribution scheme for your remaining years which could impact your estimates.

It's not just about what your pension pot will give you -you also need to work out what your potential expenses will be...which granted will be a guesstimate at this time. What if by retirement age your outgoings are £40k pa and your income is only £37k...state pension is a thing of the past, you lost half your pension pot in a divorce, you bought a money pit of a house...all supposition of course...but there is more to retirement than just your predicted pot.

Hi, I worked in council payrolls with some pension overlap so here goes:

• Yes 37k a year is a projection based on current salary continuing to contribute
• It is a defined benefit scheme so employer contribution is not relevant to know.
• In a DB scheme like this you don't really have an individual 'cash pot' with a value like you do in DC schemes, so avoid thinking about it like that. DB schemes are more like one huge pot that everyone in their has a varying sized claim to, in the future.
• The amount you have built up already does get a cost of living amount added each year to it so should keep up with inflation mostly. Should be a line each year on your annual statement.
• Stick in the scheme and do not do 50-50 scheme unless you cannot afford to stay in otherwise. Do 50-50 rather than leaving scheme if you are tight on cash.
• Stay in it and you will be better off than most other retirees. I would assume it would be enough for you unless you want a top footballer's lifestyle in retirement.

There is a lot of good advice here so I won't repeat it but there is one extra feature of the LGPS (I think it is all of them, it is certainly a feature of the GMPF).

You can pay additional voluntary contributions into a DC scheme with Pru and the whole thing is bundled together so (assuming the rules stay the same) you can take a 25% lump tax-free which can be the DC pot. This means you don't need to reduce the DB pension to take some pension tax free.