How Much Should I Contribute

hyzenflay

Hi,

First I'll give some facts:
I'm female, 32, Full time employed
Have a partner who is not currently working due to health.
Pay in to my employer group personal pension scheme currently at 10% through salary sacrifice. (thus saving tax and ni, as well as reducing contributions to my student loan repayment)
They now pay in 6% on top of this (though this may increase to 7.5% in the next few months)

I've been contributing for the last 3 years at 8%, but company contributions were none for part of that, then only 3%

I did have a previous pension with a previous employer, but it was wound up and due to my circumstances I took it as a lump sum (deposit for buying a house) so this is my only current pension scheme.

Due to lower previous contributions previously I upped my contributions to meet the 'half my age' rule of thumb but when using the pension scheme calculator it keeps projecting an income of around 25% of my salary.

I've googled and researched until I'm blue in the face and truthfully it is only making me more and more worries about the whole thing seeing estimates of having to put 25% of salary away in order to get a liveable pension.

I live in the north of england, and, as mentioned own a home with a below 'average' sized mortgage which I try to make a very small overpayment of £50 a month on. Money is relatively tight due to having to support my partner as well and the house we live in is by no means finished (it needed a lot of work when I bought it, and still needs a good deal of that work to be done (big things have been done like roof, and plumbing but I have a very half done attic, kitchen and bathroom and it needs redecoration throughout)

I don't have any other debts than the mortgage (apart from SLC student loans)

I guess my question is am I making the best choices both for my financial present and future and is there a better way I can try and balance both?

I may have got a bit rambley here, so apologies for that.

Thanks

atush

Well your current pension provisions seem to be adequate at this time, and apart from the 50/mon on the mtg I assume you have no other spare cash.

Do you have an emergency cash buffer? Does your partner receive all/any benefits he may be entitled to re JSA, etc? Is the illness long term, or will they recover?

hyzenflay

atush wrote: »

Well your current pension provisions seem to be adequate at this time, and apart from the 50/mon on the mtg I assume you have no other spare cash.

Do you have an emergency cash buffer? Does your partner receive all/any benefits he may be entitled to re JSA, etc? Is the illness long term, or will they recover?

I guess I'm confused as to why if 1/2 your age rule of thumb is supposed to provide 2/3 income, the 'prediction' is 1/4 of my salary so it makes me wonder if I should be doing more. Not really much spare cash I give a very small amount to charity but I don't think that £15 would really make that much difference to me.

I have a very small buffer but if/when I get more work on the house done that will disappear. I'

He was on ESA, but was one of those to have to go through the atos medical/tribunal thing. He won his appeal recently and so got a little backpay but he was only entitled to 1 year of contributory ESA anyway, so his payments had already stopped by the time the appeal happened. I work full time so he is unable to claim income based ESA. He gets a little DLA but I don't think he's able to claim anything else because I work full time. His illness is long term, but we hope that it will become managed enough that he will get better, but at this point the if/when of that is still quite uncertain, and I guess that leaves me worrying as to if I would have to provide for both of us then as well.

JoeCrystal

hyzenflay wrote: »

I guess I'm confused as to why if 1/2 your age rule of thumb is supposed to provide 2/3 income.

Never heard about that rule of thumb. Basically a half of your age was to make you realise how realistic contribution has to be. The rule of thumb that tend to associate with 2/3 of your income is pay in 25% of your earnings for forty years. However, the trouble with rule of thumb is that they are very imprecise but they do provide general idea at least.

It is truly sad that private personal pension scheme requires so much contribution in order to show something reasonable for it and really highlight just how valuable company contribution really is.

Cheers,
Joe

hyzenflay

JoeCrystal wrote: »

Basically a half of your age was to make you realise how realistic contribution has to be. The rule of thumb that tend to associate with 2/3 of your income is pay in 25% of your earnings for forty years.

So my sort of contribution would never give that sort of return. Does that mean it is inadequate and I should try and squeeze more to contribute more?
A comfortable retirement seems like an impossible goal in that case, I've always thought it was important to contribute as much as I can, but perhaps I should reduce contributions and save/overpay on my mortgage instead.

atush

Well, the thing is, I don't see how you can? If anything, you need a larger cash buffer with your OH not working at all. And not looking likely to for some time. If and when he does, it should be easier for you to save as he will pay his share of bills.

Can he not get some sort of education if is is unfit for work, can he still study? I am thinking if he could use his time wisely to improve both his life and his job choices later?

The half your age is to start with a reasonable amount, the 2/3 salary is something only the very best pension like Public service ones do- as stated above, you'd need to out in 25-30% of your salary for that.

I am thinking, with the problems you have, and the work that needs doing to your main asset (house) that you should save a larger emergency cash buffer (in cash Isas), keep overpaying, and if you have spare cash put that in a S&S isa to grow for medium/long term spending.

hyzenflay

atush wrote: »

Can he not get some sort of education if is is unfit for work..

He is doing this, he is studying part time with the OU to top up his degree to an honours degree.

atush wrote: »

...the 2/3 , you'd need to put in 25-30% of your salary for that.

I don't think I could afford that, certainly not at present. I'm not sure how all the people I know putting in nothing/the minimum are going to fare.

atush wrote: »

I am thinking, with the problems you have, and the work that needs doing to your main asset (house) that you should save a larger emergency cash buffer (in cash Isas), keep overpaying, and if you have spare cash put that in a S&S isa to grow for medium/long term spending.

Would it be wise to reduce pension contributions to achieve this? When I've done calculations, reducing my contributions makes a relatively small difference monetarily to me, since it is salary sacrifice and a student loan comes out as well. i.e. if I reduce my contributions to the minimum amount (5%) to get the maximum company contribution (6/7.5%) it only increases my take home by around £55 but removes £94. Saving £55 a month doesn't seem worth negating the £94 but maybe I'm wrong?

Hmm, I guess maybe I need to consider what I can cut out to start saving.

Thanks for your replies, I guess I have to accept that I'm not saving 'enough' but that it's better than nothing.

keith1950

I don't know if it was a valid figure but a few years ago was advised that my personal contribution should be at least £350/month to ensure you end up with a 'pot' of £250,000 which at the time was suggested would provide around £1000/month ??

hyzenflay

keith1950 wrote: »

I don't know if it was a valid figure but a few years ago was advised that my personal contribution should be at least £350/month to ensure you end up with a 'pot' of £250,000 which at the time was suggested would provide around £1000/month ??

I think this can depend a lot on your age, and indeed gender, so I don't know how equivalent it would be.

atush

hyzenflay wrote: »

He is doing this, he is studying part time with the OU to top up his degree to an honours degree.

Excellent!


I don't think I could afford that, certainly not at present. I'm not sure how all the people I know putting in nothing/the minimum are going to fare.

They will fare less well than you will do. So carry on.



Would it be wise to reduce pension contributions to achieve this? When I've done calculations, reducing my contributions makes a relatively small difference monetarily to me, since it is salary sacrifice and a student loan comes out as well. i.e. if I reduce my contributions to the minimum amount (5%) to get the maximum company contribution (6/7.5%) it only increases my take home by around £55 but removes £94. Saving £55 a month doesn't seem worth negating the £94 but maybe I'm wrong?

Hmm, I guess maybe I need to consider what I can cut out to start saving.

Thanks for your replies, I guess I have to accept that I'm not saving 'enough' but that it's better than nothing.

No, you should not reduce what you pay in at the moment. AS you have seen, you will gain only around half of the current amt going in.

The one way I can see for you to save more, os the standard MSA stuff on the budget and debt free forums. So go to one (the debt people are harsher but they need to be ) and post an SOA and get opinions on where you can save.

If you can't (like most of us) account for every penny/pound spent, try a spending diary and EVERYTHING gets logged in every day even piddling things like newspapers, parking for an hour, a coffee etc. You will be able to see where your money goes and eliminate some unnecessary spends.

Check your DDs and make sure they are all correct (I just found a phone contract I cancelled on there and got it stopped again), review your insurance and utilities etc.

atush

keith1950 wrote: »

I don't know if it was a valid figure but a few years ago was advised that my personal contribution should be at least £350/month to ensure you end up with a 'pot' of £250,000 which at the time was suggested would provide around £1000/month ??

Plug it into here, and play around with it:



http://www.hl.co.uk/pensions/interactive-calculators/pension-calculator