Really, how does a person on sub 15k get a good pension pot?

snowqueen555

Because no matter how I mess about with the online calculators (yes I know they are rough guides), my contributions will not be enough.

I am 25 and am trying to apply for my company pension but its been a few months and HR are taking their sweet time sending me the new pension papers, as the older and better one has been scrapped.

The old rate was

I pay 2% they pay 8%
or
I pay 4% and they pay 10%

I think the figures will be a lot lower on the new plan.

But is there anyone else out there in a simlar situation of not being able to put away enough? I won't be at this company all my life, but I can't assume I will be on 20, 30k a year in the future, you can only plan for what you have now, and right now thats a low wage

Thanks

JoeCrystal

Well first of all, keep chasing HR about what is new pension scheme's terms. Hopefully, it is still a pension scheme which employer contribute to it. (Never refuse free money!). And even though you may leave the company, depending on the pension, you may be able to transfer it.

One point to bear in mind when working out potential pension income, is that there will also be state pension as well. (But who can say that these will still exist in forty years).

You are fortunate that you actually thought about retirement provision this early. :j

To give you some realistic idea what sort of percentage of salary need to pay into a pension to give you good income (2/3 of the final salary). I often came across two different quoted amount, first of which that it is "halve your age" (12.5% in your case) percentage of your salary. Or secondly, twenty to twenty-five percent of your salary.

With these in mind, one could argue that there are quite few people do not pay in enough contribution only to find out they are not getting what they hoping to get when they retire.

Marine_life

snowqueen555 wrote: »

Because no matter how I mess about with the online calculators (yes I know they are rough guides), my contributions will not be enough.

I am 25 and am trying to apply for my company pension but its been a few months and HR are taking their sweet time sending me the new pension papers, as the older and better one has been scrapped.

The old rate was

I pay 2% they pay 8%
or
I pay 4% and they pay 10%

I think the figures will be a lot lower on the new plan.

But is there anyone else out there in a simlar situation of not being able to put away enough? I won't be at this company all my life, but I can't assume I will be on 20, 30k a year in the future, you can only plan for what you have now, and right now thats a low wage

Thanks

I don't know what line of work you are in but don't assume that what you earn now will always be the case.

Sometimes you need to move to make progress, whether that be in career terms or geogrphically. From when I was 25 to when I was 35, I changed jobs three times and moved to another country. Each time it made a really big difference both in terms of salary but more importantly in terms of the prospects for further advancement.

Its easy to be overcome with inertia (stay in the same place) and not do anything but your major positive is you are already thinking about your future. My advice would be not to think about just your pension but think about your future as a package.

Rainmaker_uk

It also depends how much you will need to retire on.

I have worked it out for you on 14k 4% + 10% and it comes to 7045 per annum in todays money (taking account of inflation).

If you then add the state pension to this which you would be entitled to at 67/68 then your income would be circa £12k per annum which is actuall only 2k less than you are on now.

One would also expect that you will get better jobs and wage rises over time. Also it is likely that you will be the outright owner of a house when you retire - which will mean no rent or mortgage payments! So actually you may be better off then you are now!

:T


On another note if you were to delay taking out the pension for another 5 years your contributions would get you only £4950 per ammun + state pension

dunstonh

Really, how does a person on sub 15k get a good pension pot?

Simple, at age 24 you really only need to pay paying around £50-£100 pm indexed with inflation and pay rises.

Beware of contribution calculators that dont factor indexation and calculate a level premium. These will by default provide a lower pot in retirement and indicate you are not paying enough. However, you obviously need to factor in indexation yourself when paying. Unfortunately, a very large number of people do not. e.g. someone that started paying in £50pm in 1988 and is still paying it now is not going to get a good pension.

nearlyrich

I started with a small contribution at 28 probably then around £20 per month increased it every year joined every employer pension scheme I was invited to join and just over 20 years later I have a decent amount in my pension pots. I know lots of people who have "never been able to afford any pension contributions" now aged around 50 they hink they have left it too late to start so will go from decent wages ( negligable savings because they "can't afford that either") to state pension when they retire. As you have thought about this early whatever you can afford is a good start and trust me you won't miss it too much.

snowqueen555

Thanks for the advice guys. I didn't think 25 was too young, many of my friends have pensions from 17 years etc so I was getting worried I started too late!

I know Zurich will be my provider, and from the selection I'll probably have here (I have the old pension pack to mull over)

The adventurous funds made around 13% last year and the cautious one around 7%, what do you all recommend?

Lokolo

As you're 25 you really want to go for adventurous as the longterm gains should be greater. As you get closer to retirement you should change to lower risk ones.

somethingcorporate

snowqueen555 wrote: »

Thanks for the advice guys. I didn't think 25 was too young, many of my friends have pensions from 17 years etc so I was getting worried I started too late!

I know Zurich will be my provider, and from the selection I'll probably have here (I have the old pension pack to mull over)

The adventurous funds made around 13% last year and the cautious one around 7%, what do you all recommend?

Risk all the way!

I am invested in the company pension plan which profiles it on years from retirement. Any more than 7 years from retirement and it's all in high / med-high risk.

Mine made 35% alone last year (which is bonkers!).
Shame I only had a couple of grand in there :rotfl:

Loughton_Monkey

There are some rules in life.

One of these rules can be stated something like this: "Every person - or family - has an income. Failing early death, this income will cease at a certain time (called retirement). In order to continue a similar lifestyle after retirement, it is therefore necessary for the lifestyle lived during employment to cost less than income."

There are few exceptions to this. Someone who gets a significant inheritance, lottery win, or other substantial income from something other than normal occupational income. Also, someone who perhaps has never worked, lives on benefits equivalent to State Pension, might be excluded from this 'rule'.

This rule leads to an inevitability that very few people understand. That inevitability is that everyone must live life at a cost of X% less than they earn. Only then will they have truly 'saved' for retirement. As to the debate about the value of "X", then for the vast majority of people that would come out in the order of 20% to 25% or so. This is the average 'cost' of a Final Salary scheme providing a pension of 66% of final income. It is considered that an 'average' person with this 66%, plus the State Pension, plus a modicum of cash/other savings, with natural 'cost savings' (like commuting) that come from retirement continues to be in a similar financial position after retirement.

Of course, the lower one's income, the lower is "X". For someone earning, say, twice State Pension amount, then X is quite small. But nevertheless X exists.

So someone earning, say, £40K before tax would need to put away possibly £8K (20%). Hence he has to live on (I'm guessing) about 75% of income after tax. Someone earning £25K would probably only need to live on 85% of net. At £15K, with little tax paid, I guess the figure might be living on 95% of net income.

There will always be a debate about how 'difficult' it is to save, say 5% but in my own opinion, it is probably no more difficult than for a £40K earner to save 25%. Certainly, we would all agree that living on £15K gross is much, much, harder than living on £40K, however much you save!

But the way I look at it is that forgetting savings to start with, there are literally thousands of different 'careers', performed by millions of people all with different backgrounds and abilities etc. And, as we know, the pattern of earnings is roughly a 'normal' bell shaped curve. There are millions on or around average wage, and quite a lot lower, and a similar number higher.

But name a figure. Any figure you want. It can be £15K or it can be £150K Doesn't matter, the 'truth' stays the same. Pick any number - say £30K at random. Now line up every single person earning £30k. Some of them will spend..... £30K and they will be the ones suffering greatly at retirement. Others will do the obvious and spend as if they earned £25K. They will have a decent retirement.

Cautious_Investor_3

dunstonh wrote: »

Simple, at age 24 you really only need to pay paying around £50-£100 pm indexed with inflation and pay rises.

Hi

Surely retirement needs to be planned backwards?

I.e. the OP should work out when he wants’ to retire and on what level of income (factoring inflation) and the calculate how much he needs to contribute.

Other factors should also be taken into account such as state pension, family circumstances, inheritances etc.

Surely saying he should be paying £50 - £100 per month is too arbitrary and too much of a sweeping statement.

Plan backwards, you may not be able to afford the full contribution required to hit your goals, but at least you will know what it is.

The Cautious Investor