Are my pension contributions enough??

claire1a

I previously read a comment from Martin saying at age 30 you should be saving 12% of your wages towards a pension/ retirement.

I currently pay 6.5% into my local council pension which is matched by my employer.

My question is, with my work matching does this count as the 12% or should I be aiming to save an additional 5.5% into an ISA or equivalent??

I am currently 28 (I have been paying into my pension for 6 years), have a mortgage and hardly any savings as at the moment the cost of living matches my wages. I do not have a partner but rent my spare room out (rent currently going to pay off my CC). I really don’t want to be 68 before I can even consider retiring!! And would like to be money savvy as early as possible.

Any advise/ tips would be appreciated!

dunstonh

I previously read a comment from Martin saying at age 30 you should be saving 12% of your wages towards a pension/ retirement.

I doubt Martin would say anything so specific as that. The amount you should pay should be fine tuned to your circumstances, risk profile, capacity for loss, when you want to retire, how much etc.

It is more likely he used the a general guide to get you thinking of the sort of figure you should pay which is half your age as a percentage. It is a crude quick and dirty figure that is more designed to get people thinking of realistic amounts rather than being your actual figure.

I currently pay 6.5% into my local council pension which is matched by my employer.

If you are in the LGPS then it works differently to that. The percentage guide is for money purchase schemes (such as personal pensions). Not occupational defined benefit schemes.

claire1a

I think it just struck a cord that I don't want to leave thinking about retirement until i'm too tired to carry on working. I would ideally like to retire in my late 50's early 60's. I know this will be hard but it's never to early to get your finances in order to work towards that figure (if hopefully circumstances allow me but who knows!)

So should I be looking into a private pension alongside my LGPS? I also have 12 years of NI contributions, as I have paid in full since starting work at 16, but i'm not sure these matter that much.

Basically when I do get spare cash should I put it into a private pension, pay off my mortage or put it into savings to go towards the hopeful R day?

bsms1147

The rough and dirty rule is that your annual pension contributions expressed as a percentage of earnings should always equal half your age when you started saving.

If you start your contributions at age 20, they should be 10%.
If you start at age 30 they should be 15%.
ad infinitum.

You appear to have started at 22, so your figure would be in the region of 11%.

Bear in mind it's a very rough figure though.

greenglide

bsms1147 wrote: »

The rough and dirty rule is that your annual pension contributions expressed as a percentage of earnings should always equal half your age when you started saving.

Not this "rule" isnt as appropriate when the person is in a DB pension scheme.

Whether you should fund a pension outside the LGPS will depend on how you see the future panning out. Money put in generally can't be got back until age 55 (at present) but between now and then should grow enormously. An investment at a young age is wonderful if you can afford it - most people below 50 or so cannot / will not find the money until it is too late.

atush

As you are in the LGPS, you are ahead of the game, as others would have to save 25-30% to match it.

BUT, will you want to work til the scheme retirement age? If not, you need to fund early retirement to pay you something to live on until your LGPS pays out (you can take them early/reduced but avoid this if at all possible). So savings into a personal pension that can be taken from age 55, and S&S isas (after you have an emergency cash pot saved) will help you to retire early

Are you saving for something like a house? If so, Cash and S&S isas should be used for this, instead of additional pension savings at this time.

FatherAbraham

claire1a wrote: »

I previously read a comment from Martin saying at age 30 you should be saving 12% of your wages towards a pension/ retirement.

I currently pay 6.5% into my local council pension which is matched by my employer.

My question is, with my work matching does this count as the 12% or should I be aiming to save an additional 5.5% into an ISA or equivalent??

I am currently 28 (I have been paying into my pension for 6 years), have a mortgage and hardly any savings as at the moment the cost of living matches my wages. I do not have a partner but rent my spare room out (rent currently going to pay off my CC). I really don’t want to be 68 before I can even consider retiring!! And would like to be money savvy as early as possible.

Any advise/ tips would be appreciated!

It sounds like you're an LGPS member. This isn't a money-purchase pension scheme, but a defined benefit scheme. Each year that you buy rights in the scheme with your 6.5% payments gives you a 1/60th of your final salary as a pension at 65.

Your employer's "contribution" can be reckoned to be at least about 23%, giving you an overall equivalent savings rate for retirement of around 30%.

You need do nothing more. All your problems have been solved by your employer's massively generous pension scheme.

It's only ordinary workers in defined-contribution schemes who need to worry about how to get up to 12% (which is far too low, of course, to achieve anything like the benefits enjoyed by LGPS members).

Warmest regards,
FA

Triumph13

If you expect to be a public sector worker with a DB scheme long term, then you will also need to weigh carefully the balance between making retirement savings within a pension (to supplement your expected DB benefits in retirement) and outside a pension (to fund the gap between your wished-for early retirement and state pension age without having to suffer the reductions involved in taking your DB pension early)

kidmugsy

With a govt-guaranteed final salary pension, combined with the hope of retiring early, it might be wiser to save into ISAs unless you are a higher rate taxpayer.