Am I paying enough? (Self employed)

Becj53

Hi, this month I've finally gotten around to opening a pension (with NEST)
I'm self employed and earning around £15,000
I realise that at 41 I've left this far too late to start and I'm now panicking about how much I should be paying in, I've set the amount at £100 a month to automatically go in but realistically is this anywhere near the figure I should be paying?
Thanks in advance for any help/advice, I feel completely out of my depth with this!!

Marcon

Stop kicking yourself. You are where you are and it's better than many people, who don't think about pensions until age 60 or so!

If you can afford to pay more than £100 a month, and you want to build up your fund for retirement (i.e. you can't access it until at least age 55), then do. If you can't, you can't. There isn't some sort of magic number or formula (although many would have you believe there is).

You've left it too late to open a LISA, but look at other forms of saving to ensure you have some ready 'rainy day' money in case of an emergency. If you don't need it, then that too can help to fund your retirement.

dunstonh

I realise that at 41 I've left this far too late to start and I'm now panicking about how much I should be paying in,

Yes, you are very late to the party. You should be looking at having around £50,000ish in your pension by now. To catch up that amount would cost you around £150pm. Let alone what you should be paying for the next 17 years as a matter of course

I've set the amount at £100 a month to automatically go in but realistically is this anywhere near the figure I should be paying?

£100pm is the sort of figure a 25 year old could start out paying. Indeed, its the minimum contribution level for many pension providers.

You are not paying enough to make up the lost past years. Let alone what you should be paying.

Not going to wrap it up in cotton wool. You are not putting enough aside. However, if you are married, your spouse may have a pension or your spending needs in retirement may not be that high, it may not be too bad. It may be that sitting down each day drinking tea and watching daytime TV is what you plan doing for 30 years in retirement. That doesn't cost much.

You need to look at how much you need in retirement, deduct the state pension and start planning on that target. That figure will be different for everyone.

atush

Why are you using Nest?

At 41, you should be putting in at least 20% of your income.

Pun

atush wrote: »

At 41, you should be putting in at least 20% of your income.

'Should' is all very well - but affordability comes into it. A point you and the previous post seem to have overlooked quite cheerfully. Only the first answer seems to have paid any heed to that little part of the equation.

OP, save what you can and increase it if you can - but don't tie up so much in a pension that you can't pay your living costs now. If you are single and trying to pay your own way on £15,000 a year you are doing well to pay £100 a month into a pension.

Dox

If you are earning £15,000, don't forget that the state pension (and let's assume it will still be around when you retire, in the absence of concrete evidence to the contrary) will replace about half of that. Look at saving what you can afford to make good any 'top up' amount you need to give you a reasonable standard of living.

Becj53

Thank you everyone! I really appreciate it. I'm going to leave the dd at £100 but aim to do a top up payment each month of £50-75 depending on what I can afford!
I used NEST as its a government scheme so therefore seemed like a safer bet than one I just picked at random?

dunstonh

I used NEST as its a government scheme so therefore seemed like a safer bet than one I just picked at random?

Nest is not a government scheme. It is not safer than any other pension scheme. Indeed, they have shown, in their very short life, to be rather incompetent having suffered a major fraud and working to obsolete methods which other providers moved away from over a decade ago.

They will do the job but it is an unusual choice for a self employed person. However, the provider is only a very small issue in your overall scenario.

Jcarter

State pension age is 67 for you, so you have another 26 years to save - assuming you are going to work to 67, which it seems like you will need to.

I'll get onto Nest in a second but firstly let's talk numbers.

Including Nest's charges - your £100 a month will get you a pot of roughly £60,000 assuming a medium gross growth rate of 5%. If you are living on £15,000 now and your state pension (should you have a full NI contribution record) will be circa £8,000 you need to produce a further £7,000 from your pension to live in the same capacity you are now.

This is a broad calculation and you need to consider that you are likely to pay a small amount of income tax on your pension in retirement.

However, increasing your regular payment to £175pm will give you a pension pot of circa £105,000 (assuming a medium gross growth rate of 5%). This is likely to give you an income of circa £5,000 per annum. Still not enough for you.

I would suggest you need to be saving nearer £225 per month until retirement - obviously affordability is a big factor but you need to be prioritising your retirement over luxuries at the moment.

On the NEST side of things. Although they are a Pension scheme, they are not actually that cost effective. They charge an annual management charge of 0.3% per annum but also a contribution charge of 1.8% per contribution, which is currently £1.80 of your £100 per month.

I would suggest a pension with a more flexible tiered charge structure, such as the Hargreaves Lansdown SIPP, which over the long run may be more cost effective for you.

I am a paraplanner and this is my job but does not constitute advice. I would suggest you seek advice from an IFA if you want more information.

justme111

Depends on what you need. Your income now is 15 k - will you have all the same expenses as you do now in retirement? Have you checked all your previous jobs that they did not have pensions?

Becj53

Well like I said, I feel like I'm completely out of my depth and clearly I was right!
There's definitely no previous work pensions, so this needs to be right.
If I'm being honest, the fact that my mum died at 61 made me feel like I'd rather enjoy my money now as I may never see the benefits of a pension.
I'll look into seeing a financial advisor, are they expensive?
Becky