Average pension as % of salary

dilby

Hi all -

I'm self employed through my own limited company and currently pay myself a pension each month through the company. In a quest to check I'm paying myself a decent amount, I went down the rabbit-hole of using pension forecasters and googling 'what pension should i pay myself' which results vastly different numbers and advice. So a better approach I thought was to see what other companies pay out as a % of income and then at least I'd know I was getting what I would if I was employed rather than self emplyed; I could live with that. However, that's hard to find out too, but I have come up with a vague percentage of 10%... does that sound about right? I know it's all so vague but as a general fair amount. If it helps, I'm a web designer with 10 years experience and if employed I'd likely be in a design agency in the city.

Thanks!

Paul_Herring

When you say 'pay yourself a pension' I take that to mean contributions going into a pension fund.

The quickest and most general method suggests that half your age as a percentage of your salary when you start, should be going into your pension fund. That includes both employee and employer contributions, and any rebates.

Note that the figure this produces is only a guideline to set expectations, not a hard and fast rule.

kidmugsy

The old Final Salary Pensions that tended to give people a decent retirement often absorbed 20% - 25% of earnings, between employer and employee contributions. They might typically have aimed at paying out an annual pension of 50% of salary (and 50% of that to a widow) plus, say, a tax-free lump sum of 3 x annual pension.

Brynsam

How much can the company afford? Provided HMRC sees it as 'reasonable' in the overall context of your role (and they generally do, provided you are actually working in the business and not just 'notionally' employed - and you sound very much the former), you can pay pretty much anything within reason and get corporation tax relief. Remember that employer contributions can exceed salary.

dilby

Thanks all. I've read the 'half your age' rule, but that was an odd one to me because obviously the salary is not a fixed figure. But using that example, let's use a salary of 30k which i think is pretty standardish for my age and industry, and my age (33), that would mean putting away £412.50 per month which to me sounds quite a lot, and more worringly, not close to what I'm currently doing. (30,000 / 12 = 2,500 x .165) Am

I missing something or do I just need to get more realistic?

Thanks for your kind help and patience with such a newbie!

Paul_Herring

dilby wrote: »

£412.50 per month which to me sounds quite a lot,

That figure is from all sources, not the cut in net pay you'd see.

If it were just you contributing (I. E. Ignoring employer's contributions) It would be £330 net (rebate makes up the rest). Employer contribution of 5% (to pick a random number) would reduce it to £230 net.

dilby wrote: »

and more worringly, not close to what I'm currently doing. (30,000 / 12 = 2,500 x .165) Am

I missing something or do I just need to get more realistic?

As I pointed out earlier this is a quick and general calculation to set expectations of the sort of levels required.

The only things you may be missing are the rebate and employer contribution.

But then again, those are predicated on a typical employee, not the self employed.

If you think £400/m (total, arriving into the pot) for a salary of £30k is a lot, you may need a bit more realism

Alexland

I wouldn't suggest you use 'what other people do' as the basis for what you should do. Many people seem to be making totally inadequate preparations for their retirement and are likely to suffer a material drop in living standards.

Remember if you are retired for 30 years that's 360 missing pay months so you need a substantial pot at the point of retirement - unless you want to live on just state pension. £412.50 a month doesn't sound unreasonable for someone earning £30k. Still it depends on your existing pot size, investment asset allocation, etc.

Sure investment return compounding during the accumulation phase will do some heavy lifting but it's constantly fighting inflation and fees so the result is not as powerful as it might first appear. Once you get into retirement you will probably run a conservative asset allocation which just about keeps up with inflation.

So work backwards on what age you want to retire at, what size pot you will need and how you will get there over your remaining years of work.

Good luck, Alex

tacpot12

Over my working life, I contributed £200-£400 per month to my pension (gross of tax) and in my last role my employer contributed £400 per month.

I've retired aged 55 on a pension of about 40% of my salary. I could have retired on a pension of about 60% of my final salary if I had carried on working until 65 but I didn't want to do that.

dunstonh

I'm self employed through my own limited company

Which means you are not self employed.

In a quest to check I'm paying myself a decent amount, I went down the rabbit-hole of using pension forecasters and googling 'what pension should i pay myself' which results vastly different numbers and advice.

None of them give advice. And each will use its own assumptions or ask you to put in the assumptions. This is why you get differences.

So a better approach I thought was to see what other companies pay out as a % of income and then at least I'd know I was getting what I would if I was employed rather than self emplyed; I could live with that. However, that's hard to find out too, but I have come up with a vague percentage of 10%

Pay out? Or do you mean Pay in?. If pay out; Pension companies do not pay out like that any more. Those days are largely gone. You take a figure you consider sustainable and based on your objectives and risk profile. That figure has nothing to do with different pension providers.

The half age rule for paying in is a quick and dirty guide from the 1980s to get you thinking of the ballpark figure you should be aiming for. However, if you are a cautious investor, you may have to pay in more than a more adventurous investor. Your retirement age can influence it to.

atush

A % on your age when you start So 20? 10% min. 28? 14 %. This can be included your enployers contribution (if there is one).


Self employed? You need to add more. LC? Then maybe you are OK, but i'd be putting in up to the annual allowance if you can afford to.

Not much point in paying or tax than you need to. Better in your pocket
be it now or in retirement

Prism

I also run a limited company and through that pay into my pension. I don't have a fixed amount as my salary is very variable (I get paid by the day). As long as I have enough to live on and a pool of cash in the business to cover 6-12 months of no work, everything else goes into my pension.
Its hard to compare percentages to an employed person as the tax situation is very different. So when you say 10% would you mean company profits? You salary/dividends? Take home? For what its worth I put in about 20% of take home (tax free). At your age it was about 15%