Pension contribution rule of thumb query

Jags01

Hi everyone,

Regarding the rough 'half your age as a percentage' rule, does this include the tax relief? For instance, If I start my pension at the age of 30, I should pay around 15%. If my employer pays 3%, my personal contribution is 12%. But what about the tax relief? Should my personal contribution decrease to allow for this percentage?

Thanks in advance.

ischofie1

Yes it should.

kidmugsy

Remember that if the rule of thumb is to have any merit then it shouldn't say "save half your age as a percentage in a pension" but instead "save half your age as a percentage for your retirement". The choice of saving vehicle comes second.

Jags01

Absolutely agree with your point.

My original query was really because I couldn't understand why online calculators don't remove the tax relief.

As it is added onto the total contribution, in effect you are contributing more than 'half your age'. Which is obviously a good thing but perhaps not affordable to everyone.

Linton

Half your age is very much a rule of thumb. Worrying about +or - 20% is taking it way beyond its accuracy. However you do need to think it terms of how much goes into your pension, not how much you pay for it. Workplace pension contributions are normally expressed as a % of gross. Pension calculators cant work any other way as they dont know your tax circumstances.

AnotherJoe

What Linton said, its a rule of thumb, not a precise mathematical calculation.
It should also be realised is the minimum (IMNSHO) aimed at giving you (IIRC 2/3) of your take home after you retire at around 65. So if you fancy having more money / retiring earlier than 65 or 66 or 67 .... its not going to cut it.

JoeCrystal

And as it is, it really depends on how much you want by the time you retire. I generally use 25% of the income to contribute as it is often said that the worth of a public sector pension is equivalent to 25-30% of the salary and I genuinely want to have better retirement provision.

RuleTheWorld

I'd put in as much as you can afford within reason. The rule of thumb is a minimum