No pension at 30, advice please

Robbie_Macca

Hi all,

I seem to hit 30 without having a pension and haven't got a clue if it's worthwhile me starting one, or looking at other options, can anyone offer some advice? Completely clueless when it comes to this so apologies in advance.

My situation is:-
30 years, married, both of us work full time, and our little girl has started full-time nursery.
Im earning 31k, which includes a 5% pension contribution from my employer that, at present is paid into my bank with my salary.
My wife is earning 21k, and has what appears to be a good pension (she pays 8.5% of her salary, and her employees pay an additional 16%, for about 4 years).
we have a CC bill of 4k, and after all the outgoings, we have about 600 spare a month before we pay some of the CC off.

I know I need to pay CC off first, but after this should I go with paying into a pension or savings? Does my wifes pension mean that savings would be a good idea?

dunstonh

haven't got a clue if it's worthwhile me starting one, or looking at other options, can anyone offer some advice?

The basic state pension is just over £5000 a year and payable from age 68 (probably 70 by the time you get there).

So, that is the sort of do nothing position you are currently on track for. Now, if £5000 a year is enough for you then its not worthwhile. If its not enough then it is worthwhile.

I know I need to pay CC off first, but after this should I go with paying into a pension or savings? Does my wifes pension mean that savings would be a good idea?

Savings are rarely a good idea for long term planning of around 30 years. Investments are better.

At the moment, you are robbing your retirement to pay for your current lifestyle (as you are spending the money now that should be going to the pension). You only have a finite amount of income in your life. You are currently spending it now to live for now. That needs to stop. Otherwise you are looking at a household income of around £52,000 a year now dropping to around £15,000 on retirement (2x state and wife's scheme which I have estimated on assumption of 30 years service on 21k earnings). Whilst you dont need as much in retirement, that is a significant drop in income that will change your living standards and mean you spend 20-30 years of your life below the lifestyle you have become accustomed.

Robbie_Macca

Thanks for the reply, although 52k sounds pretty decent household income, it doesn't seem to go very far...after mortgage, childcare (bigger than our mortgage!). I can honestly say we don't extravagantly spend, don't go out much or have holidays... The CC is the remains of our wedding from two years ago. Our only think that erks me in terms of outgoings is that we have two cars, but we can't get away with that as we live in the sticks (Both cars are old, no finance).

Is 200 a month going to get me anywhere? I read somewhere that it's half your age that you should pay on your pension, so about 4.5k, nearly 400 a month!

dunstonh

Is 200 a month going to get me anywhere? I read somewhere that it's half your age that you should pay on your pension, so about 4.5k, nearly 400 a month!

400pm equates to 320 in pension as 80 is tax relief. £129pm comes from your employer. The rest is yours to pay (although as you are taking the 5% currently as cash, it will still feel like you are having to pay more).

£200 is a start but you are starting late and you have some catching up to do. You can forget earlier retirement unless you increment that £200 each year to get you to £500 (as you will have to play catch up).

The half age thing is a guide. You may not need as much as that. You may need more. Its designed to get you to realise the amount really needed.

xylophone

http://www.pensionsorter.co.uk/get_a_pension.cfm#60000mph

Have a read and a think and get started on your pension plan!

You should certainly be putting in your employer's contribution and aiming to at least match it?

Robbie_Macca

dunstonh wrote: »

Otherwise you are looking at a household income of around £52,000 a year now dropping to around £15,000 on retirement (2x state and wife's scheme which I have estimated on assumption of 30 years service on 21k earnings). Whilst you dont need as much in retirement, that is a significant drop in income that will change your living standards and mean you spend 20-30 years of your life below the lifestyle you have become accustomed.

Not that im saying your wrong, as I have said I'm clueless regarding pensions, but is my wifes only going to be worth 5k a year? Would of thought it was more considering that there is 24.5% going in. I think it's a final salary pension where the years you work determine the % I think. i.e. If you work 40 years(!) it means you will get 50% of your final salary. I appreciate this is a big if as it relies on my wife working there for another 35 years! Would any of the above impact on the value you have estimated? Is the estimate conservative?

BaconandEggs

is it normal for people to be able to receive their employers contributions in their salary?
how did you get 4.5k as half your age?

Robbie_Macca

30 years old, therefore 15% according to some is what should pay. 15% of 31k is approximately 4650 a year, so just under 400 a month. Im not sure, my company did something to harmonise lots of different contracts about 3 years ago, and part of this was defining the pension cont. Within the salary.

When I joined the salary included an 'enhancement' for pension conts.

dunstonh

Robbie_Macca wrote: »

Not that im saying your wrong, as I have said I'm clueless regarding pensions, but is my wifes only going to be worth 5k a year? Would of thought it was more considering that there is 24.5% going in. I think it's a final salary pension where the years you work determine the % I think. i.e. If you work 40 years(!) it means you will get 50% of your final salary. I appreciate this is a big if as it relies on my wife working there for another 35 years! Would any of the above impact on the value you have estimated? Is the estimate conservative?

i said estimate as I didnt know her age, how long she had been in it and now long she is likely to be in it, accrual rate etc. I went by 30/80ths on her current salary of 21k and rounded down a bit on the assumption you would take tax free cash.

If it was 40/80ths and you didnt take tax free cash then it would look to forecast on £10k (amounts being in todays terms)

Employer contribution on a final salary scheme is irrelevant. She is buying benefits with her contribution. The scheme requires the employer to make sure that there is enough money in the pot to pay those benefits.

darkvader

Robbie_Macca wrote: »

Thanks for the reply, although 52k sounds pretty decent household income, it doesn't seem to go very far...after mortgage, childcare (bigger than our mortgage!). I can honestly say we don't extravagantly spend, don't go out much or have holidays... The CC is the remains of our wedding from two years ago.

I was in the same position at the start of this year, 30, no pension and pretty much the same household salary as yours so I understand your situation first hand.
As we do not have a cute baby (yet!), we dont have childcare costs and also dont have cars so its easy for me to say we were saving about £800 when my salary was £36k and now we save about £1500 a month - note that though no mortgage our flat rent is £1050

Leaving the CC aside, I am sure you may be able to save a little more than £600 a month, there must be some way so first thing is to sort out your expenses, write down a log of what you spend for a month or so (Dec wont help your cause for sure). Once you have this log, you can clearly tell where you can reduce outgoings and save more.

At the same time, start the pension even if it means only giving £200 into it for now. Once you have finances in order you can increase that amount. Exploit your employer's pension scheme and get it going - make sure to chose the right spread of investments and you could just put it 100% in equity as it's for the long term. It's good your wife's pension os active but review her investments as well. The bog standard default investment invests in medium risk investments which makes no sense and you are potentially losing out on returns so make sure its 100% equity for her too.

If you have time, look around here for various tips and info on where you can open a SIPP, Pension plan etc - if you dont want the hassle and if your employer provides a decent choice of funds then just increase your contributions - saves you the hassle of opening another pension outside (though some may recommend keeping two pensions to be safe)

Finally, I hope you have an emergency fund in place? It differs based on personal preference but I'd say 3 to 6 months salary should be kept aside for anything urgent (you can count your credit card allowance towards this or use it to make 50% of your emergency funding)

Saving money for your future is a must and pension a double must - start in small steps, it will help you learn and get more comfortable with all the investment jargon and before you know it, you will have everything in control and start feeling better. Trust me, I say this from first hand experience. It looked bigger than Mt. Everest when I started in Feb this year but I am quite happy with the progress I have made, with a lot of help and gratitude to this forum

Best wishes
DV

atush

First of all at 30 you still have over 35 years of working life ahead of you, so you do need to start a pension.

After you have paid off the CC, you have 600/month to pay into savings somewhere. I would also point out, that the 2 of you really need to build a savings pot in Cash for emergencies (car break down, redundancy etc) otherwise, back into debt you will go. 6 months spending is the figure to aim for.

So, you can split the 600 between starting your pension and a cash ISA pot.