Getting started with pensions in my 30s

ambrosino

Hey,

I'm 36, and just starting (late, I know!) to think about what provisions I have for retirement, whenever that should come.

My old job (2015-2018) paid into an Aviva "designer stakeholder" pension, and I found out yesterday that I have £4.9k in there. It's invested on a (default) risk profile of 4/7 ("Future Focus 2 Drawdown Lifestage Approach") - not sure it's doing much for now.

My pension with my current workplace is with Royal London. Work pays in 5% equivalent of my £40k salary for every 2% I contribute monthly. In April I understand my share will mandatorily go up to 3%. I'm waiting to get my login details so I can find out more details/how much has accrued here now. I've been with my company for 1 year so I doubt much yet.

Otherwise: I'm single (no intentions of cohabiting/marriage/kids), bought a flat in zone 3 London in 2017 (£167k mortgage as I had a large deposit; renewing that now and will likely switch from 35 to 33 yr term), about £8k cash and no other debts. I don't run a car or anything so apart from household bills my commitments aren't extensive.

I'm absolutely lost with what next steps to take to build my future; I'd be super grateful for any advice!

• As of Jan this year I'm saving £600+ a month; planning to save £7k this year just doing that. I'm making what I can on hi int.% current accounts like Nationwide, Tesco, tho' these rates are soon expiring; I will likely switch to HSBC and First Direct for introductory rates. (I use Monzo for spending which has been great for helping budget and save.)
• I'm starting to look at investing; £30 monthly deposit into a Wealthify S&S ISA for the last year, just increased now to £50. Considering what else I can do with some of my cash (setting aside 3 months emergency fund); possibly a Vanguard life strategy fund, possibly dip my toe into P2P investing with Zopa.
• With my existing pensions:
  • Could I deposit into my Aviva pension while contributing regularly to my current Royal London one - is that allowed?
  • ...And is that sensible or should I just focus on contributions to current pension - or roll them together?
  • Looking at what I could do with cash I save this year, is it smarter to put this into investments or a pension? (I know some diversity is good - how much is good before you spread yourself too thin?)
  • What should I be looking for with pensions given where I am in life? I really don't want my living standards to drop once I'm no longer working.

Thanks in advance for any advice!

ambrosino

Thanks for the reply!

I'm working on the assumption I will likely have to work til the official retirement age (which I think in my case will be 69 or 70?)

At the same time I'm exploring the whole Financial Independence thing! (Which plays towards my interest in investing.) But not making naive/overly optimistic assumptions about where I expect to be.

That rule of thumb is useful! So 17-18% annually? Yikes. Well, that works out as about the amount I intended to save this year, though I didn't bank on locking the majority of it away in my pension.... is it reasonable or deeply unwise to invest this instead of pensioning it? (The maximum my employer would contribute would be 9%, if I put away 7% but that feels steep at the moment.)

I'm not sure how much I will need - how does one guess at that? (Cost of living etc). If I stay in my current home I would hope to have paid off this mortgage by then - but if I moved house, it's hard to know what I would be dealing with (though I don't plan on ever needing a 4 bed home or the like - if my home grew in value enough I would potentially move slightly more central or to a 2 bed place). Something I would really like to be able to do, well before retirement, is spend part of the year somewhere sunnier - Italy, ideally, and if it became financially viable I would consider buying a property there.

MallyGirl

ambrosino wrote: »

That rule of thumb is useful! So 17-18% annually? Yikes. Well, that works out as about the amount I intended to save this year, though I didn't bank on locking the majority of it away in my pension.... is it reasonable or deeply unwise to invest this instead of pensioning it? (The maximum my employer would contribute would be 9%, if I put away 7% but that feels steep at the moment.)

You would be getting the maximum free money from your employer - I would really try and go for this option. The combined size of contribution is about right given your stated desire to maintain living standards in retirement. You have to strike a balance between nice life now and later. The more you can contribute now (and leave to compound grow) the better as it would take a lot more later to catch up.

davidquizer

Hi, its great to see you taking pensions seriously, the lack of knowledge in this country is a huge problem. I retired at 58, and its one of the best things I ever did. I had various company pensions, but a massive plus to me was, like you I had a stakeholder pension, the beauty of these is the flexibility. Even after I left the job that paid into it I carried on paying into it and then at retirement received my company pensions with no lump sums as I wanted the security in retirement of a guaranteed income which increases. Then I took the maximum tax free lump some out of the stakeholder , actually I changed it into a SIPP so that I could take further lump sums out whenever required, it is taxable income but I'm careful when I withdraw to minimise tax. I would say pensions and stocks and share ISA's are almost equally important, pay into both as much as you can afford. The beauty of the ISA's is being tax free and the flexibility. Good luck, David

ambrosino

MallyGirl wrote: »

You would be getting the maximum free money from your employer - I would really try and go for this option. The combined size of contribution is about right given your stated desire to maintain living standards in retirement. You have to strike a balance between nice life now and later. The more you can contribute now (and leave to compound grow) the better as it would take a lot more later to catch up.

Yeah, definitely. Only thing is, in my efforts to save I have already tightened my belt as far as I reckon it will go! (Only having alcohol a couple of occasions a month, never buying lunch at work, no takeaways, no new clothes etc - all the usual sensible stuff).

Perhaps I can scale up gradually and get myself used to a change in accessible income.

ambrosino

davidquizer wrote: »

Hi, its great to see you taking pensions seriously, the lack of knowledge in this country is a huge problem. I retired at 58, and its one of the best things I ever did. I had various company pensions, but a massive plus to me was, like you I had a stakeholder pension, the beauty of these is the flexibility. Even after I left the job that paid into it I carried on paying into it and then at retirement received my company pensions with no lump sums as I wanted the security in retirement of a guaranteed income which increases. Then I took the maximum tax free lump some out of the stakeholder , actually I changed it into a SIPP so that I could take further lump sums out whenever required, it is taxable income but I'm careful when I withdraw to minimise tax. I would say pensions and stocks and share ISA's are almost equally important, pay into both as much as you can afford. The beauty of the ISA's is being tax free and the flexibility. Good luck, David

I need to find out what type my current workplace pension is - may be stakeholder too, or something else.

So do you think it might be worth sticking with that Aviva stakeholder pension I have and continuing to pay into it as you did? I might have a chat with them about how the investments work. Was yours invested quite conservatively or ambitiously?

atush

The maximum my employer would contribute would be 9%, if I put away 7% but that feels steep at the moment.

You really should do this, as your current pensions savings are lower than should be for someone of your age. So you need to gain the max free money your employer will provide.

Sounds like youare saving hard, but have you done a full MSE? Checking your utitlities, phone, internet, insurance etc to see if you are getting the best deals? This might provide some extra savings so you can treat yourself occasionally?

barnstar2077

Getting on top of your expenses now by saving on your gas, phone etc will help massively and give you a much better idea of how much you really need in the future. As Atush says, spend some time looking at all of your bills, use this website and its forums. I just extended my mortgage term by another 15 years to reduce my monthly expenses and free myself up to plough money into my pension (eventually I will use my pension to pay off my mortgage.) An idea I would never have thought of myself if I had not read it on here first. I am only forty one but I am finding work so much harder than I did ten years ago. Put the effort in now, your future self is going to be feeling pretty smug about having more options later in life!

ambrosino

Yeah - I have gone hard on utility savings! I research everything super hard and have haggled my latest broadband plan down to several £ less a month than the market said I could (annoyingly, a month later there's now some even cheaper but it's too late to switch). Energy - I'm paying £56 a month elec+gas with Flow. Addressed a dodgy looking water bill recently too so that should be up to date. I keep mobile as low as possible and stay on top of when I'm free to switch etc.

So for now I doubt I can tighten the utility belt any more than I have done. Can't extend mortgage (I spoke to broker the other day as it's due for renewal) - I'm on 35 yrs as it stands!
I've already put "nice life now" on hold - as above, I've dramatically cut down going out, spending on non-essentials, drinking, etc. I go to the cinema when the ticket's free. I don't buy lunch, I make it. I'm not living luxuriously!

Definitely would like to save more for my pension, but I'm worried about over-committing and undoing the hard but recent work I've put into reshaping how I manage my day to day money - which is vital because with the odd exception I'm only spending it on essentials so there's little room for error... and yeah, unless it's a dreadful idea I really do want to divide my savings between the inaccessible pension pot and some sensible investments that I have a bit more control over.

atush

If there is no more cash to save, then I would build up the Cash fund to 3 months esseential outgoings then add 1K then plow the rest into pensions. Maybe look to boost other investments with the next pay rise.

The Sal Sac opption gives you 32% tax releif with every 100 into your pension costing you 68.

Zorillo

7% into the pension is a no-brainer, you're giving up free money. And a combined 16% is still light if you have designs on early retirement/ financial independence.

What was your situation prior to 2015? Are there any older pension pots half-forgotten?

For comparison, I am 36 and have nearly twice my salary in my pension pot. I contribute 10% of my salary which is lower than yours, and my company puts in 6%. I also save the maximum into a LISA each year. I have absolutely no expectation of being able to retire earlier than my mid 60s.