Pension. Begin one at 40??

RedfordML

Better to save independently?


If I was to put £50 into a work placed one, what could I expect to get when I hit 65?


Thanks for any help or advice - I am clueless - If anyone has any links that would be helpful?

HappyMJ

You would hope you would at least get what £50 buys today.

Most pension funds return a little more than inflation so you should get a little more.

Pension funds are typically invested in a wide range of stocks and shares so the returns are highly variable so what you get back could be anything.

Aretnap

If your employer matches your contributions then you essentially double your money as soon as you contribute it, so it's a lot better than saving independently. Under auto-enrollment regulations, if your employer doesn't already match your contributions up to a percentage of your salary, they will have to do so soon.

There are further advantages from tax relief - exactly how big the advantage is depends on what tax band you're in and whether you contribute under a salary sacrifice scheme, but at a minimum it gives you an immediate uplift of 25%.

Returns are not guaranteed and depend on exactly what the pension is invested in and how those investments perform over the next 25 years, but the FCA assume an "average" return of 2.5% above inflation for their illustrations.

£50/month, uplifted to £62.50 by tax relief, matched by your employer to give a total of £125/month, for 25 years, growing at 2.5% above inflation would give you... just over £52000 (plus inflation) by the time you're 65.

The actual figure could be higher or lower than that depending on what stockmarkets do over the next 25 years, but for comparison if you just put £50/month into a bank account for 25 years, assuming interest rates were more or less enough to keep up with inflation then you'd be looking at £15,000 by the time you were 65 - quite a difference.

RedfordML

Thanks so much Aretnap.


I haven't got a private or a workplace one in place yet but thinking about starting one and if it would be worth it, because of my age.


Do private ones work the same, the provider doubles the amount you save or would I need to do more research?


Thanks again (& HappyMJ)

RedfordML

What is the state pension worth? Does everybody qualify? (this highlights my lack of understanding and knowledge around pensions!)


If I have a personal pension, I get both this and the state one?

dunstonh

I haven't got a private or a workplace one in place yet but thinking about starting one and if it would be worth it, because of my age.

Whether you have £50 in a pension or £50 in a savings account or £50 in a S&S ISA, you still have £50.

The difference is the tax handling and maturity process. So, an ISA or savings account would give £50 if you put £50. The pension through the workplace would double it (upto their limit) and you get tax relief. So, straight away, the pension is better than the alternatives for that reason.

atush

Do you have a work place pension where an employer pays in or not? Are you an employee, an owner of a business, or self employed?

It is better to start a pension at 40 than at 50 or 60. If you want to retire.

50 a month is a little low, but if can raise it each year as yu go along- this will help. AS will Tax relief and any employers contributions.

sleepless_saver

RedfordML wrote: »

What is the state pension worth? Does everybody qualify? (this highlights my lack of understanding and knowledge around pensions!)


If I have a personal pension, I get both this and the state one?

https://www.gov.uk/new-state-pension/overview

pjread

Always maximise any employer contribution. Personally I've been putting something like 30% of income into my pension for the last couple of years, if higher rate relief disappears that'll be getting chopped right back though.

audigex

Assuming you pay basic rate tax, putting £50 into a pension will only take ~£40 out of your pay.

At 40, let's assume you'll retire at 68. That's 28 years of contributions: £16,000. That'll get you a monthly pension payment of a little over £55, adjusted for inflation. Assuming you don't increase that £50 as your wage goes up, and that the pension pot only just matches inflation.

The question is really whether you think that's worth doing: £50 is a very small contribution, so unless you were using that as an example, it almost seems like it's not worth doing.

Note also that if you have debts, it's typically worth paying them off before upping your pension contributions.

atush

At 40, let's assume you'll retire at 68. That's 28 years of contributions: £16,000. That'll get you a monthly pension payment of a little over £55, adjusted for inflation. Assuming you don't increase that £50 as your wage goes up, and that the pension pot only just matches inflation.

This assumes zero growth over 28 years, not very realistic.

It should be many times that amount in the end.

And if the OP doesnt have an employers contribution, I would put in the full 50, plus tax relief instead of putting in just $40. I would also increase contributions yearly.