Help thinking about my pension

Lomcevak

Hello folks. I'm generally reasonably clued up for finances ... apart from pensions, where I haven't got a clue. Always paid into one since i've been working, but never knew what I was (or should be) aiming at. I've decided i've got to deal with that, but would very much appreciate some help getting started thinking about it all.

As context, i'm late-30s as is my wife. Both right on the 40% borderline (i'm just above, she's just below). She's a university reader on the Teachers' Pension Scheme, i'm an engineer with a defined contribution scheme (4% contribution via salary sacrifice, 8% matched). Neither of us make additional contributions at present.

I have ten years of contributions with a previous employer (total about £60k) in one tracker fund and a small amount with the current employer, also in trackers. Looking at the ten years of statements, it would appear to have grown at an annual rate of around 2.3% which is well below the lowest value in the statement projections (5%). In both 2003 and 2009 the total value was less than the sum of the contributions, although that's particular low points and it has done a bit better since.

Anyway, questions:

- how do I go about working out if we're saving enough? I'd really like to focus on paying off the mortgage over the next few years before the kids go to university, but in principle there's a couple of hundred quid a month available that could boost my pension contributions.

- a couple of people have suggested I should start a SIPP and transfer the money from my old, now-dormant, company pension. I'm not looking to be an active investor, i'd just want the lowest-cost trackers I could find and I've been told that fees tend to tick up on unmonitored pensions like mine as financial services love inertia and lack of understanding. In general does this seem reasonable, and would a SIPP be a cheaper option? Obviously I need to find out exactly what current management fees are before I can work this out in detail, but i'm not even sure if it's sensible or not.

- as we're are both on the 40% boundary, are pension contributions a sensible way to drop our tax rate(s) down to lower rate? Would a SIPP be a good way to allow a February/March lump sum? My income has a significant call-out/overtime element that isn't predictable at the start of the year, but I can only set additional pension contributions from salary sacrifice once per year. Same issue applies to the child benefit cut-off above £50k, as my income this year and/or next will be cutting in to this limit.

And finally, any suggestions for basic reading? Books or articles with a TMF/MSE-type view on keeping costs low? I've been trying to follow the pension boards on TMF but the topics seem to be too advanced when i'm still trying to get my head around the basic aspects.

bigadaj

Will your employer match increased contributions, if so then max the contribution into. The pension. Your pension can be worked out using assumed growth projections, most providers have calculators on their websites. The big unknown is the growth rate and as you have seen this can be quite low, so worth doing a sensitivity analysis on the calculators for this. You can use drawdown but assuming an annuity then you may be shocked by the low returns currently, if you got to say £300000 pot at retirement then you're only looking at £15000 a year or less.

You're wife should be better and she can ask for a projection.

Simplistically then additional matched contributions, with salary sacrifice should be worthwhile. In terms of the mortgage then your attitude to risk will define whether you save, in pensions or outside, or overpay mortgage, I paid off mortgage and am now saving extra into pensions, with current mortgage rates many would advise saving.

In terms of your old pension then definitely look at charges and consider transferring, and see if you can transfer into your current pension, again depending on charges.

Lomcevak

Will your employer match increased contributions, if so then max the contribution into. The pension.

They won't match any more contributions at 2:1, anything extra is done under salary sacrifice so are pre-tax and with a small NI kickback (i think 6%, would have to check). The major downside here is that I have to try and guess my overtime/on-call payments in advance when setting AVC salary sacrifice, and overtime/on-call money is outside the salary sacrifice scheme (i.e. not matched). I quite like the idea of more flexibility here.

My mortgage is 4.99% for the next three and a half years, we went for a 10-year fixed in 2006 - I console myself with the thought that it was a decision made for the right reasons at the time, couldn't really have forseen what would happen two years into the mortgage. Maximum overpayment is £499 per month, but paying that down seems a decent use of money as I'm not going to get 5% on the money elsewhere (already have a FD regular saver).

Linton

The steps to work out whether you are saving enough are straightforward:

1) Estimate how much income you need in retirement. A good start would be how much income are you living on now, possibly subtracting some things you wont be paying when retired - eg mortgage, children expenses. Dont work on the assumption that you can cut down on your standard of living when you retire, if anything assume you need more money than now.

2) Find out how much you can expect from state pension - see here.

3) Get an estimate of your wife's final salary pension.

4) Subtract (2) and (3) from (1) and gross up for tax. That is the additional income you need.

5) Use a pension calculator such as that from HL to tell you whether your current pension contribution rate will provide you with what you need.

6) Once you have a basic plan that works then you can start playing what-ifs. eg you want to retire early.

7) You can then decide how you will pay for your retirement requirements - eg more pension, S&S ISAs