Does this sound right? Seems low

ThomTomato

Hi all,

Been lurking a while, first post,

I am a member of what I thought was a very generous pension scheme, but have just received my first annual statement and the prediction looks a lot lower than I had assumed.

There are 2 parts to the scheme; 1) I put in 3%, company put in 17% 2) I put in 3%, company put in 3%. I can put in extra as AVCs, but no additional contribution from employer. I do not currently pay AVCs. Should I?
I am not clear on the difference, but scheme 1 is called 'credit account', scheme 2 an 'investment account'.
Both are managed for me, that is, I can state how I invest (i.e. %in cash, % in x fund) but opted for the easiest option, as I don't have any experience in investments.


I have been in scheme 1 for 12 months and scheme 2 for 6 months.
I earn £32,000 and contributions are all as salary sacrifice.
I am 32 years old.

The annual statement I have just received states that my expected pension will be £11,600 (not including state pension).
Scheme 1 states that I have benefited from an increase of 5.5% this year.

I also have an expected circa £700 per annum from a (deferred) defined benefit scheme, though I expect that wil be worth less by retirement, given inflation.

I realise that £11,600 is still a good amount, but it is somewhat less than I had thought given a total of 26% contribution.

Does this sound right to the experts out there? I've tried to give as much info as possible. Apologies I'm a dunce when it comes to pensions.

bigfreddiel

It looks fine to me

fj

ThomTomato

What I'm struggling to understand is, (and I understand it's just a 'rule of thumb') the general consensus is that one should contribute 25% of salary to achieve an equivalent of 2/3 final salary scheme. 2/3 of £36k is £24k. I expect my assumptions ate wrong and the forecast is right, just surprised that's all. I am unlikely to stay with current employer until retirement so it's a moot point, but it's just highlighted to me how what sounds like an amazing deal is really just 'ok'

taking_stock

hi thomtomato,

the bottom line is that it is an extremely generous scheme. if the resultant pension doesn't sound impressive, it's important to remember that this is a projection, based on a numberof actuarial assumptions - and often quite cautious. at your age, with your contribution level, it would definitely be worthwhile taking the time to learn about different investment classes and risk (investment, inflation, shortfall etc etc) - possibly with a view to investing in some more adventurous assets.

kidmugsy

"I do not currently pay AVCs. Should I?" If they too would get the advantage of salary sacrifice, it might be attractive. But it depends so much on the rest of your financial affairs that no reader here can know.

ThomTomato

Sorry, the £36k is what I've been told my salary will be next year (touch wood with promotion), 2/3 of 32k being just over 20k, which is still more than the £12k predicted

ThomTomato

taking_stock wrote: »

hi thomtomato,

it would definitely be worthwhile taking the time to learn about different investment classes and risk (investment, inflation, shortfall etc etc) - possibly with a view to investing in some more adventurous assets.

Thanks Taking stock,
How do you learn about this kind of stuff? I read a lot of posts on here but obviously nobody states what you should buy into. Dubious about IFAs as not sure how that works with a company pension

ThomTomato

kidmugsy wrote: »

"I do not currently pay AVCs. Should I?" If they too would get the advantage of salary sacrifice, it might be attractive. But it depends so much on the rest of your financial affairs that no reader here can know.

Thanks. At the moment I don't think I need them, I get a monthly bonus that puts my annual salary above the higher rate tax bracket. I only started the scheme 2 when I realised that it would put me under the limit. I'm bordering on the edge right now. I also pay into a share scheme at £50 a month. Next year I will be about £4k into the 40% bracket. Assume that's when AVCs come in use

mark5

Although your contributions are good, at 31 you were a little late starting your pension so have some catching up to do.

What would your pension forecast be if you had been making the same contributions from your early 20's ?.

When I was 18 my dad tried to talk me in to starting a pension but I didn't, I'm 31 now and also have some catching up to do.

ThomTomato

mark5 wrote: »

Although your contributions are good, at 31 you were a little late starting your pension so have some catching up to do.

What would your pension forecast be if you had been making the same contributions from your early 20's ?.

When I was 18 my dad tried to talk me in to starting a pension but I didn't, I'm 31 now and also have some catching up to do.

True! Unfortunately I only started my current job last year. My last employment had a final salary scheme but worked on an average of last 3 years. I was there 4 years and my salary was £18k, £18.5k, £20k, £27k (graduate scheme), so may as well not have bothered.

It's only now I've seriously started looking at it. Was hoping to retire at 60, but looks like that was just a pipe dream... (my estimate is based on me retiring at 65)

ThomTomato

Thanks everyone. Was worried that something was wrong on my statement, sounds like it's right but youve given me more things to think about.