Am I paying enough contributions?

Sauveur

I am 24 and have been contributing since I was 21. I have a DC pension pot of around £14000. Since January my contributions are EE 9% and ER 6% so a total contribution of 15% by salary sacrifice.

I want to retire ideally around 60 or possibly earlier on around 2/3 of my average salary. Am I contributing enough or should I be increasing my EE contributions to say 14% so 20% in total goes in.

JoeCrystal

Well, first, well done for contributing to a pension at young age! That will help you a lot.

Why not play around with the calculator [Link] to help you to figure out what is required to achieve projected amount.

It is a rule of thumb that to have 2/3 of the final salary, you need to pay in 20%-25% of your earnings over forty years. But that is just rule of thumb.

Cheers

Joe

Sauveur

Thanks for the link. I am amazed how much difference the annual growth increase assumption makes. Changing this to 5% growth significantly impacts the pension at the end.

CLAPTON

do bear in mind that net growth (after fees and most importantly INFLATION) is likely to be around 2-3% per annum
so use a low figure and don't be seduced by their wonderful 7%s

but also bear in mind that 2/3 salary is probably unnecessary
firstly you pay no NI (12% of salay now) on pension income
and more importantly your expenses should be lower; presumably you will have e.g. paid off the mortgage; bought most of the things you need (furnisher etc etc ), children grown up and self sufficient

Thrugelmir

CLAPTON wrote: »

but also bear in mind that 2/3 salary is probably unnecessary

Travel the world in style.

A great way of spending retirement years.

JoeCrystal

CLAPTON wrote: »

do bear in mind that net growth (after fees and most importantly INFLATION) is likely to be around 2-3% per annum
so use a low figure and don't be seduced by their wonderful 7%s

but also bear in mind that 2/3 salary is probably unnecessary
firstly you pay no NI (12% of salay now) on pension income
and more importantly your expenses should be lower; presumably you will have e.g. paid off the mortgage; bought most of the things you need (furnisher etc etc ), children grown up and self sufficient

*glaring at his figures gloomy* Thanks for the return of reality, come to think of it, that could explain why my own pension provider's calculator quote much lower amount (£6,550) compared to HL pension calculator (£15,500). I am now slightly depressed, maybe I should be planning at living at half of my salary rather than full or 2/3 as I hoped...

Nevertheless, I still got thirty to forty odd years to plan out still.

Thrugelmir wrote: »

Travel the world in style.

A great way of spending retirement years.

Agreed, you can never have too much.

Beside, it would hopefully allowed better choice as it will also allow larger amount of lump sum while targeting the income.

Cheers

Joe

kidmugsy

I wouldn't bet on investment growth outrunning growth of earnings, which may be what you'll want to use as your effective rate of inflation. So there may be a case for just ignoring the growth altogether, making a mental note that it's its job is just to keep you up with the rising standard of living of everyone else. And that assumes that the next decades are something like those before 2007, on which I wouldn't bet.

Sauveur

Thanks for all the responses. If I am thinking of paying 14% EE contributions which I am not even sure will give me a decent income in retirement what are other people going to be receiving in retirement? Most of my other family member don't even have pensions or are contributing very low percentages.

JoeCrystal

Sound like my own family! But the fact is if you do not want to rely solely on State Pension which you might get at age of 68 and quite frankly, most likely to be later than that age by the time we reach an age when we can start receiving State Pension.

As you mentioned that you do want to retire at 60 and possibly earlier, then you do need to make enough contribution to cover that. That 6% employer's contribution will help in long run. As CLAPTON pointed out, you might not need all that income, but as Thrugelmir pointed out, you might want all that income. If you can afford it without sacrificing savings for other aims, then go ahead. .

As for your other family members, the sad fact is, unless they save up enough money to potentially survive on then they may be forced to work until state pension age and then depending on their contribution, lives on annual income of at least £5,500 (Basic State Pension). But then, each person got his/her own circumstance.

Cheers

Joe