What % of salary should be paid into a pension?

ferry

Hi all
May be a silly question and the real answer may be "as much as possible",but is there a certain percentage of an annual salary that is 'recommended' be paid into a pension?

Just curious?

ReportInvestor

I assume you're talking personal pension / stakeholder defined contribution pension.

What is your age?
When do you plan to retire?
By how much would you expect your salary increases to outpace inflation to retirement - 1%?
What % of your final salary do you expect on retirement?
Do you want your pension index linked?
Do you want partner benefits on your death?
Does your employer contribute a % and if so what %?
What do you think will happen to annuity rates between now and your retirement?

As you can see, it's complicated in the post defined benefit pension age.

dh may have an IFA "rule of thumb" and I'm sure we can come up with a rough figure between us.

dunstonh

I dont have any real rule of thumbs any more. Since I have used software to review shortfall planning for so many years now, the old rule of thumb have become a little obsolete.

I guess the old one of, if you have no retirement planning at all, then take your age, halve it and that is the percentage you should be paying towards your retirement planning.

Its crude but its a starting point.

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If ferry doesn't want to reveal personal info publicly (eg age), then I am happy to give him my ideas via Private Message.

Deemy

ferry wrote:

Hi all
May be a silly question and the real answer may be "as much as possible",but is there a certain percentage of an annual salary that is 'recommended' be paid into a pension?

Just curious?

You should aim to save approx 15% of your salary, though it does not ALL have to go into a pension i.e. cash ISA's

macca64

Why do people recommend cash isa's for retirement planning? I know that they are tax free, but the best return you are likely to get is 5%, but depends on where interest rates are going to go. Surely if your investing for retirement and looking at 15+ years investment, then cash is not the place to invest? Surely the stock market, provides better returns over a 15+ year period than a cash isa???

Reason for asking also is wondering if I'm missing something, as I pay approx 9% of my salary to my pension but have not used my cash isa allowance for this tax year.

dunstonh

Why do people recommend cash isa's for retirement planning?

Only Deemy does.

ReportInvestor

And why does he recommend saving 15% of salary without knowing the OP's age and existing pension arrangements?

It's worse than meaningless.

Deemy

ReportInvestor wrote:

And why does he recommend saving 15% of salary without knowing the OP's age and existing pension arrangements?

It's worse than meaningless.

I go with with the information that OP posted .. have to make do with what I'm given

I'd guessed that the OP is early into their earnings career, hence a good idea to get used to saving a decent amount of which 15% is !

And it IS afterall what the OP ASKED for.

The question IS What % of salary should be paid into a pension?

So I answered it

Deemy

macca64 wrote:

Why do people recommend cash isa's for retirement planning? I know that they are tax free, but the best return you are likely to get is 5%, but depends on where interest rates are going to go. Surely if your investing for retirement and looking at 15+ years investment, then cash is not the place to invest? Surely the stock market, provides better returns over a 15+ year period than a cash isa???

Reason for asking also is wondering if I'm missing something, as I pay approx 9% of my salary to my pension but have not used my cash isa allowance for this tax year.

Don't pay any attention to DH.. has too much to learn


because cash ISA's are 100% SAFE and flexible enough that if you chose to at a later date to dump the money into a pension fund - you could !

ALSO - Say your retired, the income from your cash isas is tax free whereas your pension income will be taxable! And hence if you have a 50/50 split saying between your cash /shares isa's and your pension then only half of your income will be taxable !

There are many, many other advantages - Namely that the money is always yours ! I.e. with a pension you have to by a certain date by an annuity and depending on the exact terms of the annuity, if you die on day 1, you lose the lot !!!!

Whereas that would never happen with the ISA's which would be passed onto your relatives.

There are more reasons aswell...

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Only kidding, DH is very knowledgable... or so Ive been told

dunstonh

because cash ISA's are 100% SAFE and flexible enough that if you chose to at a later date to dump the money into a pension fund - you could !

Why ignore equity ISAs?

ALSO - Say your retired, the income from your cash isas is tax free whereas your pension income will be taxable! And hence if you have a 50/50 split saying between your cash /shares isa's and your pension then only half of your income will be taxable !

So invest in an area that will grow at say 5% over the years compared with a typical 7%. Then have 5% tax free income compared to an annuity at 6.3% income taxable (above personal allowances and tax free band)?

Over 30 years, you would expect the difference in 5 to 7% to account for nearly double the final value and that doesnt take into account any tax relief on contributions.

Whereas that would never happen with the ISA's which would be passed onto your relatives.

Very true. You would have far lower income in retirement and suffer financially but at least your relatives could benefit from your death.