Saving half your age towards a pension. Does this include workplace contributions?

daztraction · 20 November 2017 at 3:48PM

There's a rule of thumb that says that you should save half your age as a percentage of your salary when saving in a pension. So, for example, if you start at age 30, you should save 15% of your salary each year until retirement age.

My question is, does this rule of thumb include employer contributions? In the above example, if my workplace contributes the 5% part, should me contributing 10% of my salary cover the "half your age" rule making 15%?

I've seen this rule a lot mentioned a lot, but I cannot see any mentions of how much a workplace contribution makes up this "half your age" rule.

(I know that each person has their own idea of how much they need etc., I'm just interested as a rule of thumb.)

Mnd · 20 November 2017 at 3:53PM

Yes I think it does

andrewf75 · 20 November 2017 at 4:14PM

It clearly has to include employer contributions. That is the only way most people could get anywhere near that amount!

Malthusian · 20 November 2017 at 4:37PM

If you can save 15% on top of your employer contributions, and a) it's tax-efficient to do so b) it would improve your standard of living in retirement c) you won't miss the money now, then by all means do it.

But yes, in as far as the rule of thumb means anything, it includes employer contributions.

daztraction · 20 November 2017 at 4:40PM

Good to know, thanks! For me, it's the difference between saving nowhere near enough and comfortably contributing more than enough, and happily it's the latter.

dunstonh · 20 November 2017 at 4:43PM

It also assumes you are using risk based investments of a medium risk or higher basis. If you use cash or low/cautious risk investments then you need to compensate.

Remember its only a crude guide to get you thinking of the ballpark figure. Variations in your retirement plans mean you need to work the figure out better (such as earlier than state retirement or you being responsible for the whole retirement income and not split over you and spouse)

daztraction · 20 November 2017 at 4:54PM

Yeah, cheers, I was just after the answer as a crude guide.

Triumph13 · 20 November 2017 at 5:12PM

Don't call him a crude guide, we don't want him banned again!:rotfl:

bostonerimus · 20 November 2017 at 5:33PM

The contribution amount does include employer contributions.

However, I don't like that rule of thumb as it's better to contribute as much as you can as early as you can so the money can compound longer. Anything that makes you feel good about lower contributions early in a career isn't particularly good in my opinion.

AnotherJoe · 20 November 2017 at 5:59PM

I think the benefit of the rule of thumb is that at least it helps you understand if you are in the right ballpark. I suspect there are many people who believe that merely contributing to a pension, however little, is sufficient.
Also, I suspect few people have the freedom to save much more than the rule of thumb, so there’s benefit to having a “rule” that encourages more to pay more than a few to pay less.

badmemory · 20 November 2017 at 7:06PM

I suspect that there are a lot of people on autoenrolment who think they are doing the right thing & give no more thought to it. That is what I thought about it when I first heard of it - as in this is great. I suspect there are going to be a lot of people very disappointed when they reach retirement age & find they have been putting into their pension less than a third of what it needs to be.

It will be interesting to see if any politician (of any flavour) has the guts to stand up and speak out about the reality.

Saving half your age towards a pension. Does this include workplace contributions?

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