Should I get a private pension?

Mr_Mink

Hi

Just recently I've been contemplating getting a private pension but I'm unsure A: of where to start since my Google Fu has let me down on trying to find out and B: if I should even be thinking about a private pension.

For a bit of back ground I'm 28, on 27K salary though should soon be going up to 30K (and with a bit of luck there could be a promotion worth even more but I'll stick to the 30K for now). My company recently enrolled us into the auto enrollment pension in summer 2013 and then I've also been working solidly since I was 16 so have made a good dent into the NI contributions.

So, should I be looking into getting a private pension to top up the pot for later in life? Also, just to make things extra extra complex, I'm hoping that in around 10 years time I can emigrate to Canada but for now I think it's best to plan for if that doesn't happen.

dunstonh

You need to look at it differently. You dont know if you need a pension. So, you need to look at your future spending. Currently you are working and earning £27-30k. When you retire, how much will you earn then and how much will you want to be spending?

If you have a shortfall in your retirement income then you need to address that shortfall and a pension is one of the ways to achieve that.

MEM62

Have you not considered making additional payments into your company pension? This is likely to be the best option.

Mr_Mink

dunstonh wrote: »

You need to look at it differently. You dont know if you need a pension. So, you need to look at your future spending. Currently you are working and earning £27-30k. When you retire, how much will you earn then and how much will you want to be spending?

If you have a shortfall in your retirement income then you need to address that shortfall and a pension is one of the ways to achieve that.

Ok, that makes sense. Probably a daft question but I need to learn, are there any tools for working out what my retirement income is likely to be?

atush

You need first to decide how much income you need and then see what sort of pot size you need and how to get there.

Ask google for pension calculator.

In the mean time you have been auto enrolled. how much do you and your employer pay in?

Will they pay more if you do? is is a company PP or NEST?

kangoora

I'd suggest you look at 'The Number' thread on here. Lots of people going into a detail on what they think they will need to retire. Admittedly, it will be difficult to predict at 27 as there may be a number of life events which could materially affect what you think you need now, what you may eventually need and what you need to save to achieve a comfortable retirement. Amongst them are, getting married, having kids, getting that big mortgage, etc.

For now it would be best to build up an idea of what you think you will need , create a decent outline plan of how you might achieve it and then review it every couple of years.

Mr_Mink

Thanks for all the advice so far.

Well, on the Money Advice Service they've got a basic pension calculator. According to it I'm looking to have around 18-19k p.a. once I retire and my current work pension and state pension leave me with an 11k shortfall.

I like the idea of increasing my contribution to my work one, especially if my employers match the increase. Should I be concerned about this shortfall I currently have or wait until my earning levels are higher so I've got more disposable income to stash away?

kangoora

A basic set of comments to help out

1. Clear down expensive debt, no point getting 5% returns if paying 8 - 25% interest on debts.
2. Increase pension payments to get the maximum company matching contribution. This is 'free' money even if you can't get at it until retirement so definitely make the effort to do this.
3. Build up a decent emergency reserve of 3-6 months outgoings in case of job loss, illness, boiler blowing up, etc.
4. Divide remaining savings into 3 pots. 1st for short term savings, holidays, etc for 1-2 years plans. 2nd for medium term, things like House deposit (if needed), car replacement, emigrating, marriage? etc for 2-5 years plans. What's left for the 3rd pot is your long term investments, pensions etc for 5 - 40 years plans.
5. If your company does salary sacrifice then some money into the company pension is probably preferable to a private one, although as you mention auto-enrollment they possibly won't offer this.

At the end of the day you can only contribute into a pension what is 'spare' after living expenses and other savings so don't get too hung up on the pension calculator result - note this isn't advice to ignore it either You're starting reasonably early, which is good - you have lots of time to increase the pot through compounding and looking into it now means you should be well set up in later life provided you keep up the interest and the input.

I'd recommend Tim Hales book 'Smarter Investing' and also really going through https://www.monevator.com as with a 30-40 year investment window index tracking investments could be useful, certainly until you gain some confidence. Also, stick around here and ask lots of dumb questions, it's what I did - and still do occasionally