Concerned about future pension

edinburgher

Would there be a SIPP that you could recommend that she looks to pay into or anything?

There are plenty of low cost SIPPs out there that you could use to hold investments for her future.

That said, you may be better off investing more in your pension (assuming your ages are similar), as you're saving the NI, whereas she will not.

That's the approach that we're taking at present (wife working p-t, so not as much scope to pay into pension currently).

It may seem counter-intuitive, but seemed to us one of the better ways of maximising our money. As and when this leads to one of us having a larger pension in future, I imagine we'll switch roles and I will go back down to minimal payments, with her taking over the larger payments.

jamesd

Like all pension calculators from major pension firms the HL one is not a reliable indicator because of the rules around how they have to work:

1. They must assume that you will buy an inflation linked annuity, something very few people did even before pension freedoms and it's even rarer now. Compared to income drawdown or state pension deferring that roughly halves the potential income level.
2. They must use growth assumptions that are lower than the long term average even though you are investing for the long term.
3. They pretend that the state pension doesn't exist when you really can expect about £8k a year from it.
4. Studies show that the appropriate income replacement rate is lower at higher incomes and in any case it really depends on your spending target, not your income now.

The combination of lower than normal growth and more expensive income buying greatly increases the amount that you have to put into a pension.

In spite of that, getting money into a pension as soon as possible lets compounding of growth over more time greatly reduce the cost and makes early retirement much easier, so it's a good thing to do.

Your partner can wait. Salary sacrifice is a better deal for the household finances and the auto-enrollment contribution levels are being increased over time to 8% combined in 2018 so that will help a lot. Unless or until they are in salary sacrifice the best option will be for you to take some tax free lump sum after age 55 from your pension to give to them for theirs. That maximises the overall tax relief achieved by the household.

Zola.

Thanks very much, a lot learned today.

Naively, I did even consider the pension companies may bending the truth a little bit, with possible agendas for more fees etc.

In short, I will seek to put an extra 5% in and let it grow sooner.

dunstonh

Naively, I did even consider the pension companies may bending the truth a little bit, with possible agendas for more fees etc.

No. They have rules to follow. Ironically, advisers do not have to follow those rules on projections and can use other measures too. Such as stochastic modelling. Although the assumptions do have to be reasonable. Although that is basically the only criteria.

jamesd

It's not so much them bending the truth, except perhaps on state pension and income replacement rates, it's just the regulations which they have to follow.

Stochastic modelling is the name for the sort of thing done by Firecalc and cfiresim, modelling the variations in investment growth instead of just using a simple average, because runs of bad performance turn out to be very important to the level of income that can be taken without excessive drops. This isn't as simple as a fixed percentage but it gives a much better idea of the range of possible income levels over time and it's good to understand that there is a range.

LHW99

Whatever the projections, its always good to put in as much as possible as early as possible to get the maximum time for compounding, as jamesd says.

It also means that if later you are out of work for a year or two, or you decide to start your own company, and can't make pension contributions for a while, you will still have a solid base in your pension rather than a worry that you will run out of time to pay in.

MoneySavingUser

Zola. wrote: »

There's no way I can stick in 30% of my pay every month of course, for now at least...

One way of upping contributions slowly is to put any pay rises straight into the pension

kidmugsy

Isn't there a rule of thumb that says you might aim at a percentage = half your age? So 16% in your case. Which would, I suggest, include your ISA contributions. So you are already over 16%.

If you both would like to make savings for old age that do not necessarily cut you off from the cash until your mid/late fifties, you could consider LISAs, which should be available to people under 40 from 06/04/2017. You might as well open them with some minimal subscription to secure the possibility of subscribing more in future.