Pension query

Hi all,

I saw this on BBC website today: http://www.bbc.co.uk/news/business-41580082

and I've a couple of questions.

They are saying single person needs:-
10-15k for minimum standard of living
10-25k for modest standard of living
Over 25k for comfortable standard of living

Does this mean your pension + state pension in total to get to those figures or is it your pension shoudl be those and you get state on top?

They then show a graph of how much to pay in in order to get 20k a year at various ages.

In the graph they show for example at 35 years of age you need to put in £404 which I presume is per month, does that £404 include your payment and your employers contribution or *just* what you pay yourself?

Also further down it mentions needing to pay in over 15%, again is this your payment or yours + employers?

I'm curious because my company pension predicts I will have approx £7k a year when I retire which based on my % contribution doesn't match what they say above.

I know I have a few years before i retire but just trying to see if i'm on the right track or if i need to make some adjustments somehow...

Thanks

Kev
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Comments

  • kev2009
    kev2009 Posts: 1,038
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    Just to add, I started a pension just before 25 in a private pension, paid in a fixed amount, then joined company pension and after a few years i transferred private pension into company pension and starting contributing a % of salary into it each month.

    Kev
  • Alexland
    Alexland Posts: 9,653
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    edited 11 October 2017 at 11:34PM
    Hi Kev

    The article is unclear and a lot depends on circumstances such as if you own a house or pay rent or if you have a partner to share bills. It also depends on your investment choices, fees and market performance.

    I would expect the £10k to £15k minimum range covers a person who already owns their own small home (mortgage free), pays utility bills and basic food but cannot afford to run a car (unless they share with a partner in which case maybe one car if they are in the upper end of the minimum range) and does not go on holidays and around half this income would be from the state pension.

    In terms of contributions I find it's best to work backwards from the total pot size required. So for a £7k per annum personal pension income from state pension age you would need a pot of around £210k (1/30th) in today's value (much more in future due to inflation). Assuming you have paid enough NI you will then get your £8k+ state pension and access to this minimum lifestyle.

    Practically someone in this position might start considering releasing money from their property to supplement their low income at the expense of any inheritance.

    For the £20k lifestyle (some of this would be taxed) then £8k+ again comes from the state pension then that leaves about £12k to find which would need a pot of around £360k.

    So contributing £404 per month (increasing with inflation) total including employer contribution for 40+ years would be about £200k (or more after inflation) and it's not unreasonable that with compound growth above inflation you might get to the required £360k (or more after inflation) but you would need to accept volatility and risk.

    All this is very rough but hopefully helps you get a feel for the rough orders of magnitude.

    Alex
  • OldMusicGuy
    OldMusicGuy Posts: 1,752
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    edited 12 October 2017 at 8:08AM
    Having a target is a very good idea as it allows people to visualize what they should be aiming for in terms of pension contributions.

    Take a look at this thread: http://forums.moneysavingexpert.com/showthread.php?t=2146737&highlight=the+number
    It's where people planning for retirement discuss the "number" as in the annual income they think they will need when they retire. There's some good real world examples in there.

    Regarding the article, the contributions they are talking about are the total of employee + employer, eg if they say you need to be putting in 15%, if your employer contributes 5% then you would need to put in 10% (and vice versa).
  • Mnd
    Mnd Posts: 1,699
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    If the new flat rate pension is 155 a week, how will a single person, no additional pension get anywhere near this figure of 1000 a month? With or without housing costs
    .
    No.79 save £12k in 2020. Total end May £11610
    Annual target £24000
  • Triumph13
    Triumph13 Posts: 1,730
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    Mnd wrote: »
    If the new flat rate pension is 155 a week, how will a single person, no additional pension get anywhere near this figure of 1000 a month? With or without housing costs
    .
    By the simple expedient of working for a living and paying pension contributions. From April 2019 the minimum total contribution will be 8%. Someone on the median UK income of £27k contributing at that level over a full working life with only moderate investment growth would expect to build a pot of around £250k by state pension age. 3.5% drawdown on that plus the state pension gives you something over £16k pa post tax.
  • Mnd
    Mnd Posts: 1,699
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    I realise that some (most?) people will have some additional pension either through savings themselves or auto enrolment, My worry though is individuals who have made no additional provision and seem to think that auto enrolment will provide a decent amount of pension.my wife works with people who seem to think that this will be enough
    No.79 save £12k in 2020. Total end May £11610
    Annual target £24000
  • bigadaj
    bigadaj Posts: 11,531
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    Mnd wrote: »
    I realise that some (most?) people will have some additional pension either through savings themselves or auto enrolment, My worry though is individuals who have made no additional provision and seem to think that auto enrolment will provide a decent amount of pension.my wife works with people who seem to think that this will be enough

    It may well be enough to take them out of means tested benefits which is a start and reduces reliance on the taxpayer at least.
  • Mnd
    Mnd Posts: 1,699
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    I think that if 1 was on my own, I would be perfectly happy on 1200 net per month.
    That's no debts and no mortgage. The original post doesn't say if those incomes are net and if they Inc housing costs
    No.79 save £12k in 2020. Total end May £11610
    Annual target £24000
  • bigadaj
    bigadaj Posts: 11,531
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    Mnd wrote: »
    I think that if 1 was on my own, I would be perfectly happy on 1200 net per month.
    That's no debts and no mortgage. The original post doesn't say if those incomes are net and if they Inc housing costs

    I'd say the income is probably gross, but at the lower end that doesn't make any difference in any case, also some income could be from isas which are tax free, and some benefits are also.

    I'd guess the assumption on housing costs are fairly low with a mortgage free house though council tax would be significant even with a single persons discount.
  • AnotherJoe
    AnotherJoe Posts: 19,622
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    Mnd wrote: »
    I realise that some (most?) people will have some additional pension either through savings themselves or auto enrolment, My worry though is individuals who have made no additional provision and seem to think that auto enrolment will provide a decent amount of pension.my wife works with people who seem to think that this will be enough

    I agree, I suspect there are many people who think that whats important is contributing to a pension just as an thing , rather than how much they contribute. The sad fact is that the current 1% type rates will provide a risibly small pension.
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