How much do you pay into you pension?

ikr2

OK. I started work aged almost 28 (an over- long academic career I'm afraid).

I worked 2 years for my 1st employer and reckon the local authority pension fund was worth around 7500 when I left at the start of 2001.

I now have a non-final salary occupation pension with my private sector employer. Between myself and my employer contributions are at 18% (8% from me 10% my employer). That's £385 a month.

I also took out a Stakeholder Pension nearly 3 years ago and pay £65 (inc. tax relief) a month into it. In the first 14 months the damn thing actually lost value but recovered a bit last year. BTW I've re-pensioned this with Cavendish to keep more of the management fee.

So my total monthly contribution to pensions is £237.50, topped up by £214 from my employer - a grand total of £451.50 a month

I've been part-time for 9 months, although my pension contributions remain at the full-time rate until the end of the financial year, so I haven't had to worry about that yet.

What's really going to complicate things is that I might be going self-employed (still part-time) at the end of March. That means I don't have any employer's contribution to my pension fund and will have to find the money from my own wages. My Stakeholder will become the only pension fund that I contribute to.

I've had a look at the IFA's Pension Caclulator and this seems to suggest that I would get a lump sum, plus a weekly income of £240 (in today's money) if I retired at 60, plus any state pension that would kick in at 65. This is nicely over 50% of my current equivalent full-time salary. I do need ot check the value of my existing pension funds here!

Does anyone know how much pension funds have actually grown over the past 5 years? All the calcs assume 7% but that seems too high to me.

So I am actually looking at reducing my pension contribution if and when I am self-employed. I'm estimating that £200 per month is what I should be aiming for as a weekly income at retirement. That would allow me to save £75 per month in contributions, which would help me make my freelance rate a little more competitive.

This all assumes 7% pension fund growth and 2.5% inflation........

Mmmmmm.

And there is an upper limit of £300 per month to stakeholder contrbutions. Not quite sure what happens if you want to put in more????

dunstonh

Does anyone know how much pension funds have actually grown over the past 5 years? All the calcs assume 7% but that seems too high to me.

Well, there are a couple of thousand funds available. It would be pretty hard to list them all. Personally, I'm running at over 14% a year. The wifes' is running at 16% at the moment which irritates me no end . 7% is a reasonable figure if you are balanced/adventurous. 5% would be playing it safe.

I do read with interest that you "repensioned" with Cavendish. Probably saved about £10 a year but you havent focused on where the money is invested and that is where the money is lost or gained.

How you have managed to lose money in the last 3 years is most surprising. What funds are you in?

So I am actually looking at reducing my pension contribution if and when I am self-employed.

You are aware that when you become self employed, your state pension entitlement will decrease as you will no longer be eligible for S2P?

And there is an upper limit of £300 per month to stakeholder contrbutions. Not quite sure what happens if you want to put in more????

There is not an upper limit of £3600. It is a percentage of your earnings with a minimum allowance of £3600. If the percentage of your earnings is higher, you can go beyond £3600. From April 2006, that limit is potentially a lot higher.

lipidicman

Pal wrote:

Yes, he means index-linked Gilts. Deemy believes they are a great investment. I am not so keen as I believe he has done his numbers wrong, but I have never plucked up the emphusiasm to figure out the details and argue with him.

By all means look into investing in them, but remember to do your own research and learn what you are investing in before parting with any money.

Deemy, care to give me some pointers so I can do this research? I think I may have asked before, but I lost the response in the board software change

ikr2

dunstonh wrote:

I do read with interest that you "repensioned" with Cavendish. Probably saved about £10 a year but you havent focused on where the money is invested and that is where the money is lost or gained.

How you have managed to lose money in the last 3 years is most surprising. What funds are you in?

OK I was doing it from memory.... it's not as bad as I made out

Year 1 30/4/02 to 30/6/03 increase 7.1%.
Property fund increased by 33.7%.
"SW Newton Managed" Fund decreased by 11.8%

I don't have the June 2004 statement to hand but from memory the funds both gained. I take your point that I really need to look more closely at which funds I invest in.

As for the repensioning, I should save more as the pension fund gets bigger. The Management Fee is 0.8%, but Cavendish are rebating their commission back into the fund, so I am getting up to 0.1% a year back.

dunstonh wrote:

You are aware that when you become self employed, your state pension entitlement will decrease as you will no longer be eligible for S2P?

Er... no.

Thanks for the info about the contributions limit. I had a feeling that I wasn't reading that right.

dunstonh

Year 1 30/4/02 to 30/6/03 increase 7.1%.
Property fund increased by 33.7%.
"SW Newton Managed" Fund decreased by 11.8%

Ahh, that tells me you have the Scottish Widows stakeholder.

The Newton managed fund is a combination of investment areas. It isnt a full equity based fund. There is some downside protection so when things go down, it is unlikely to do down as much as a pure equity fund but the same is true when things go up.

As for the repensioning, I should save more as the pension fund gets bigger. The Management Fee is 0.8%, but Cavendish are rebating their commission back into the fund, so I am getting up to 0.1% a year back.

Scottish Widows do not have a tiered charges reduction on their stakeholder. Clerical Medical, Legal & General, Scottish Life and Norwich Union do (although the NU stakeholder is now pants and CM funds seem to consistently underperform other providers). The Scottish Life PPP is possible to get as low as 0.4% withouth using Cavendish.

Quote:
Originally Posted by dunstonh
You are aware that when you become self employed, your state pension entitlement will decrease as you will no longer be eligible for S2P?



Er... no.

Hope that hasnt scuppered your plans to reduce your contributions. S2P is the new name for SERPS, in case you were wondering. You will still have your SERPS/S2P that you have built up but you just wont get any more added whilst you are self employed (you wouldnt have had any whilst you were in the local authority pension either).

Remember that most pension projections do not assume increasing pensions or spouses benefit. These reduce the annuity rate down but are desirable options for many.

ikr2

dunstonh wrote:

Scottish Widows do not have a tiered charges reduction on their stakeholder. Clerical Medical, Legal & General, Scottish Life and Norwich Union do (although the NU stakeholder is now pants and CM funds seem to consistently underperform other providers). The Scottish Life PPP is possible to get as low as 0.4% withouth using Cavendish.

I'm sorry but this is where pension-speak becomes a little beyond me. Can I ask you to explain the above a little bit more? What is a tiered charges reduction?

Does this mean that SW charge an 0.8% annual management fee, whilst Scottish Life charge 0.4%? Can I transfer over to the latter? Is that personal pension - as opposed to a stakeholder?

Ian
(now out of his depth!)

dunstonh

Some providers will lower their charges when the fund value gets above a certain value. This is tiered charges. Scottish Widows have a flat charge that remains the same regardless of value.

Scottish Life is a PPP as they offer funds with higher charges in addtion to their internal funds on stakeholder charges. If their product is taken on zero commission and you take into account their tiered rates, you can get the effect of deductions quite low. They do have a stakeholder version but its just the same as the PPP but with less funds available and a few of the options removed (like the potential 120% allocation on the transfer value = 20% increase on funds transferred).

I have to admit to having a bit of a soft spot towards this provider at the moment. Good product, big fund range and very good charging structure. Service is extremely good as well. However, do not read this as a recommendation as that cannot happen on a public forum like this. Its just an option to investigate.

ikr2

Thanks for opening my eyes a bit!

davidcampbell

hope im not hijacking the thread but on the "how much do you pay in " subject .....

i was reading today that most "experts" suggest you should be paying in approx half your age as a percentage of your salary? is this right? i should in theory then be paying in around 12% of ym salary which is around twice what i can afford.

where do they get this figure? it doesnt appear to specify what sort of pension that would accrue??

DC

Pal

Most generic pension contribution recommendations are aiming at a pension of 50% to 66% of your salary at age 65.

Remember that the 12% if from gross salary so it includes tax relief. In other words you should be contributing 12% of your net pay, and tax relief will gross it up.

I don't know if that formula is reasonable. My personal view is that a contribution rate of around 15-20% of earnings is ideal for most people if they start in their early 20s, although most people will tend to save less than that and need to catch up later in life. In the end though you can only save what you can afford.

If you can afford it and have the willpower, how about contributing about 6 to 8% to a pension for now, and then increasing your contributions each year by putting ALL of your next couple of year's pay increases into it as well? In a few years you should hopefully be up around the 12% mark with no noticeable change to your lifestyle.

The other alternative is to try and find a job where the company contributes to a pension for you.