Is it really worth it?

Doubleshotdamo

Hi, I'm 46 this year and I pay in to the Workplace pension scheme. In April my contribution rises to 5%, and I think my employer's might too. Anyway, this equates to £116 out of my monthly pay packet. If I retire at 67, I would have contributed £29232 into my pension pot, plus the last two years at a lower rate. Using a pensions calculator, I found I would be entitled to a monthly payment of £177 from age of 67. I'd have to live to at least 81 years of age to see my money back, and that's just what I put in, not my boss!! If I were to get back all the money he put in, I'd have to live to 95. So, is paying into a pension this late on in life actually worth it, or should I quit and just save what I can elsewhere (which I already do, btw)?

MallyGirl

Not sure where you are getting your numbers from - they sound wrong. It is extremely unlikely that you could do better with post tax money than your pension fund can do with pre tax money plus employer contribution

Pension_Geek

There is likely to be at least some growth, over the next 20 years, which will boost the fund you have at retirement to provide income.

If you give up the 5% a year free money (essentially) from your employer you will be giving up a very valuable benefit. The first thing I have done when starting any new job i have had is to ask what the maximum contribution is i can make that will be matched and set mine accordingly.

Andy_L

MallyGirl wrote: »

Not sure where you are getting your numbers from - they sound wrong.

they are purely the employees contribution over the next 21 years so they ignore the employers contribution, investment returns & the tax rebate

etienneg

Is this a Defined Benefit scheme or a Defined Contribution one?

If it's DB you need to look at what your scheme says it will pay, not use a pension calculator.

If it's DC, a pension calculator may give you a reasonable estimate of monthly income. However, this assumes you enter a reasonable figure for the size of the pot you will have built up by retirement. This isn't just your contributions, but your employer's contributions as well and the growth that should come from the investment of the pot over many years.

Pensions are well worth the contributions!

hugheskevi

I pay in to the Workplace pension scheme

Workplace pension scheme is a generic term covering all private pensions provided by employers. These are all very different.

In April my contribution rises to 5%

It sounds like your employer may be paying the statutory minimum. If so, the 5% may not apply to your entire salary, but only to annual earnings over £6,032.

and I think my employer's might too

If it is statutory minimum, it will be 3% on a band of earnings.

Anyway, this equates to £116 out of my monthly pay packet.

Depending on how your employer operates tax relief, the amount going into the pension may well be more than this, £145 per month, after the pension provider adds basic rate tax relief.

Using a pensions calculator, I found I would be entitled to a monthly payment of £177 from age of 67.

Assuming you have a Defined Contribution pension, the calculator is just making assumptions about growth and future annuity rates.

What you will have is a pot of money consisting of your contributions, your employer's contributions, tax relief and investment returns after charges. What you choose to do with that pot of money is up to you, but purchasing an annuity is only one of several options.

I'd have to live to at least 81 years of age to see my money back, and that's just what I put in, not my boss!! If I were to get back all the money he put in, I'd have to live to 95.

The calculator may be making extremely conservative assumptions, eg, using figures for uncapped index-linked annuity with generous survivor benefits, combined with a low growth rate before retirement.

So, is paying into a pension this late on in life actually worth it, or should I quit and just save what I can elsewhere (which I already do, btw)?

Saving into a pension at any time of life is worth it. If close to retirement and without much pension saving then means-testing can affect this conclusion.

20 years to go is plenty of time to make a significant difference.

dunstonh

Using a pensions calculator, I found I would be entitled to a monthly payment of £177 from age of 67.

Check the figures you have input or the assumptions used as that figure is not right by a long way.

I suspect the calc assumptions are displaying the money in todays spending power, not future terms, using low growth rates and using low annuity rates.

In reality, the pension will wipe the floor with any other option you do with your money. Nothing beats free money from the employer.

LHW99

You say you will have

£29232

.
I make 21 years x 12 months x £117 = £29484
Then you have the additional 2 years.
Then you have the tax rebate (21 x 12 x £29.25) £7371
Then you have the employers contributions, then you have the increase in your wages / contributions due to pay rises over the next 21 years.
Then you have the increase in value due to it being invested.
Then you don't have to buy an annuity any more, which is probably what the calculator is basing its estimate on .......................

Bravepants

Seems to me that a lot of people aim to "get their money back" rather than consider that they are putting money away to provide a regular income for their dotage! It doesn't really matter to me whether I recoup all my contributions, but it DOES matter to me that I won't have to worry about money if I happen to live for 10 years or 30 following retirement.

JoeCrystal

Doubleshotdamo wrote: »

So, is paying into a pension this late on in life actually worth it, or should I quit and just save what I can elsewhere (which I already do, btw)?

For retirement provision, it is indeed worth it especially you get tax relief & employer contribution. Assuming your contribution is 5% before tax or (4% after tax with 1% tax relief) with 3% employer, either you get £80 in take-home pay or £160 going into your pension fund. If you opt out, you are essentially taking a pay cut, and your employer will thank you.

Doubleshotdamo wrote: »

Hi, I'm 46 this year and I pay in to the Workplace pension scheme. In April my contribution rises to 5%, and I think my employer's might too.

You ought to know what your employer is contributing. Find out if they are willing to match contribution if you pay in more.

Doubleshotdamo wrote: »

Anyway, this equates to £116 out of my monthly pay packet. If I retire at 67, I would have contributed £29232 into my pension pot, plus the last two years at a lower rate. Using a pensions calculator, I found I would be entitled to a monthly payment of £177 from the age of 67. I'd have to live to at least 81 years of age to see my money back, and that's just what I put in, not my boss!! If I were to get back all the money he put in, I'd have to live to 95.

Consider it an opportunity to retire early. For example, if you are relying solely on state pension to retire, then you could drawdown on your pension pot earlier, so you run out when your state pension kicked in. So please stay in the pension scheme. Your future self will thank you.

AnotherJoe

You question boils down to, is it better if i put £116 in my pension and get £232*, or should i save £92 (because you'll get taxed on the £116 and maybe even less if you pay NI as well) instead.
I vote that £232 is better than £92

Ignore the pension calculator which tells you what that eventual lump sum is worth as a monthly pension, as its wrong (basically it assumes you'd buy an annuity, you wouldnt) But you could have around £65k to spend after tax when you retire. Would that be useful ?



* if you employer matches the 5%. If not its £185. Roughly.