what should my monthly contribution be to get a decent pension?

worcester1

Hi guys/ladies,

I am a later pension contributor at the tender age of 35. I have been paying £135 and my employer pays another £135, so total of £270 a month for a year for now. I wish to stay with the same company until I retire and over the years both my contribution and that of my employer will increase (it's 6% of my salary).

Can you please tell me what my retirement age would be? Is £270 a month enough and how much am I likely to get should I work until retirement age? I intend to take the 25% lump sum as soon as I retire.

I recently received a letter form the NI contribution guys saying that I will get estimated £183p/w state pension when I retire - is this correct/

Ideally I would like to get £1000 -£1200 per month after tax from my pension. Is this possible? this will be my state pension plus my private pension.

I also currently save £250 per month in a company share saving scheme and one way or the other will always pay that much either into the scheme or an ISA. So, basically what I am saying is, for the forseeable future I will always contribute 12% (6% me and 6% my employer) into my company pension. Also I will always put aside £250 aside for when I get old. I have the right skill sets (data analyst) and with good health permitting, I can always work or find work in my field of work.

I understand this is a long posting,but if you can answer my questions and also give me some tips that will be brilliant.

david78

You have a salary of £27000 or so. With 6% contributions from yourself and 6% from the company you will be lucky to get a pension of about £6000-£7000 when you get to 65. (You can retire anytime you like, but can only purchase an annuity between 55 and 75.)

I used the pension calculator at

http://www.h-l.co.uk

Can't tell if your state pension forcast is right from the information you have posted. It depends on the number of years contributions you have made. This is payable from when you get to 65.

A rule of thumb is to divide your age by 2. So at age 35 you should be paying in 18% of your salary. This increases the pension to £10,000.

bristol_pilot

Is it a final salary or money purchase pension scheme? Are you a higher rate taxpayer (or likely to become one)?

david78

Sounds like a moneypurchase/stakeholder plan to me. Employee/Employer contributions of 6% each would be unlikely to support a final salary scheme. His salary is £27,0000 I think so he is not a higher rate tax payer just yet.

worcester1

thanks for your replies guys. Yes I am on 27K at the moment and should rise to £30k in a year or so. I have been making NI contributions for the last 16 years. 6% is the maximum I am allowed to contribute and it's a money purchase scheme.

I basically want a total income (after tax) of £1000 - £1200) a month when I reach or retire at 65 years. The £184 was the figure they forcasted that I would get.

Should my current contribution not be sufficient to achieve the targeted £1000 - £1200 per month, what else can I do to?

I already stated that I intend to put aside another £250 a month which is currently in a share saving scheme - until it matures. I am saving to buy the shares at 20% discounted and the share price has doubled since then. As long as the share price stays at its current price, in couple of years my savings of £200 pm (total £7200 in 3 years) will be worth £14200 in shares.

When the company stops the scheme, I will continue to save the same £250 pm plus any lump sum i saved in the past towards my retirement fund. This is my plan and as we all know, things never go according to how we plan them.

It is my intention that I want to achieve the £1000-£1200 a month even if i have make sacrifies now. Will my current employee pension + estimated state pension of £184per week give me this targeted figure?

worcester1

daivd78, you are right - I am not a higher tax payer and it's a money purchase scheme.

worcester1

wow, the link that david78 posted give me an income of 6,377.28p/a (that's taking a 25% tax free lump sum) based on my total 12% contribution on a 27K.

I really need to do something if I am to get my targeted income. Any suggestions guys?

This will only give me a toatl income of just over £10k and weekly wage of just £162, is this right?

EdInvestor

Forecast state pensions will already give you about 800 a month, with the other pension adding another 531, for a total of 1,331 plus interest income on the tax free cash.

So you appear to be well ahead of the target.:)

However

is the income of 6,377 p.a index linked for inflation, like your state pensions?

If not, you may find it falls by almost half if you buy an inflation-linked annuity. Even so,that would give you a total index- linked income of around 1,100, so you are still within your target range.

savingforoz

I'm a bit confused - I thought the max state pension was c £84 per week - am I missing something here? How is it possible to get such a large state pension?

EdInvestor

That's the basic state pension you are thinking of: but there are 2 state pensions.The second one is called S2P ( formerly SERPS) and is earnings- linked. So some people who have paid in since 1978 when SERPS started, were never contracted out and had reasonable salaries most of their lives will get double the basic state pension - or more.

Check your own forecast to see what you will get.

worcester1

wow this is great news Edinvestor. Although I don't understand much about linked inflation and the other stuff you mentioned earlier. Basically Using the link that David78 posted. I put down my date of birth , current salary, mine and my employer comtribution, that I want to retire at 65, I want to take 25% tax free lump sum and ticked the option that says todays money.

I started working in 1991 and had jobs that paid me over 20k a year for the last 6 years hence i think why my pension is forcatsed at £184 p/w.

Will your confirm that if I keep paying 12% into my company pension until I reach 65 and then I will get my targeted pension income? Is the figure you quoted before or after tax? Nevertheless I will still continue puting aside the £250 a month into my company share saving scheme and at the end invest all what I have saved + interest + share bonus into a retirement fund. I will be putting another post when I get to the end of the scheme to get some advise on what to invest into.

A £1000 - £1200 pm + the equity on my property + my wife's pension will hopefully put us in a comfortable stage when we eventually do retire. Just hope that we all on this site live a long and healthy life to enjoy what we ripe.