How much to put into pension?

mickd27

Hi,
I'm 34 years old and current pension pot is about £30k. Should be around £35k by age of 35. 
My pension contributions have been up and done my whole career due to my pay being up and down. Now I'm in a steady job I will be putting in a total of 9% into my pension automatically. My salary is £40k.
Just wondering from this how I can estimate how much pension I would have near retirement age and if I should be contributing more? Cheers.

MovingForwards

You can use a pension calculator to work out if you will have what you hope on retirement.

Andrew31

Assuming 30 years at 4% growth net of charges c£341,000.  However inflation would need consideration.    

mcooke999

There's no easy answer to this because there's so many factors involved... It all depends on when you want to retire, what you want your salary to be & whether or not you think the state pension will exist by then. But I understand you want a simple answer

However, I'm in a similar position to you. I'm 31, pension currently worth about £25k, self employed so income up and down. No pension from any previous employers.   I opened up a SIPP at age 28/29 and started putting £550/m away which I increase by 3-5% each year so I currently put £605/m away... I've done a few calculations and worked out that this should give me a decent pot by the time I reach my late 50's early 60's.

So in answer to your question, if you're on £40k now then maximise your employers contributions on your workplace pension (assuming you have one) but separately put as much as you can afford to into a S&S ISA before you get too used to the salary. That way you'll have an extra pot of money building up that you can put into a SIPP at a later date if you ever exceed the higher rate tax threshold. I'd aim to try and put away 20 - 25% of your salary including your workplace pension.

At the end of the day, you've got time on your side so £1 invested at 34 will grow massively compared to £1 you put in at age 54!

mickd27

mcooke999 said:

There's no easy answer to this because there's so many factors involved... It all depends on when you want to retire, what you want your salary to be & whether or not you think the state pension will exist by then. But I understand you want a simple answer

However, I'm in a similar position to you. I'm 31, pension currently worth about £25k, self employed so income up and down. No pension from any previous employers.   I opened up a SIPP at age 28/29 and started putting £550/m away which I increase by 3-5% each year so I currently put £605/m away... I've done a few calculations and worked out that this should give me a decent pot by the time I reach my late 50's early 60's.

So in answer to your question, if you're on £40k now then maximise your employers contributions on your workplace pension (assuming you have one) but separately put as much as you can afford to into a S&S ISA before you get too used to the salary. That way you'll have an extra pot of money building up that you can put into a SIPP at a later date if you ever exceed the higher rate tax threshold. I'd aim to try and put away 20 - 25% of your salary including your workplace pension.

At the end of the day, you've got time on your side so £1 invested at 34 will grow massively compared to £1 you put in at age 54!

Okay thanks. Yeah I was self employed so I have a private pension and a LISA. I was going to put any additional money into the LISA now I am a staff employee. Could max out the LISA each year if I can afford it.

mcooke999

The only thing with a LISA is you wouldn't be able to transfer it into a SIPP at a later date...

If you put it in an ISA you'll be able to offset your earnings should you ever go above the higher rate tax threshold in future...

mickd27

mcooke999 said:

The only thing with a LISA is you wouldn't be able to transfer it into a SIPP at a later date...

If you put it in an ISA you'll be able to offset your earnings should you ever go above the higher rate tax threshold in future...

Yeah but is it not just exactly the same as I will be getting the 25% back from the government and paid into my LISA?

mcooke999

For a basic rate tax payer you are correct but for a higher rate tax payer you can also claim back the extra 20% through a tax return if you made pension contributions too.

kinger101

In answer to whether you should contribute more, your older self will thank you if you do.
In terms of LISA versus occupational scheme, first make sure you're getting the maximum employer match from this.  Next, you need to find out whether it's a salary sacrifice scheme or not.  If it isn't, using a LISA is the much better vehicle for someone on basic rate tax.

Three comparisons here;
Pension scheme without SS:  £1 in your pension costs you 80 p.  However, it's likely taxed at 15 % on withdrawal.  So you're getting 85 p for 80 p (6.25 % gain)

Pension scheme with SS:  £1 in your pension costs you 68 p (as you also save 12 % NI).  85 p for 68 p = 25 % gain.

LISA:  80 p is topped up to £1.  It's not taxable.  Still 25 % gain.

Personally, for BR, I'd still favour LISA over SS, as the benefits on pensions depend largely on future tax regimes, and so are more unknown.  As I understand it, there's currently nothing to stop someone at 60 cashing in the LISA and sticking in in a pension to get additional tax benefits, though this might change.  
 

mickd27

Yeah it is a salary sacrifice scheme. 

Sailtheworld

Andrew31 said:

Assuming 30 years at 4% growth net of charges c£341,000.  However inflation would need consideration.    

On average for the last two hundred years or so, depending on who's working it out, stock market returns have been between 4.5 - 7% when adjusted for inflation. A nominal return of 4% over thirty years looks very cautious.

As for the the OP's question of whether he should be saving more - the answer is hardly ever no.