Where do I begin to start saving at 36 towards Pension

IloveElephants

Hi Everyone,

I have never opened a pension before and I want to start at the late age of 36 as im worried about the state of the current economic climate.
My situation:
Single, I dont own property but would love to soon, 
I have recently for about a year paid into the standard government pension where monthly I would get deducted around £50 per month from my pay. My employment situation is shaky and not certain to last given the current covid-19 situation. 

But people have said to me to open a private pension and I should pay for expert bespoke financial advice. I would like to hopefully have my property paid for before retirement. So where do I start and can I add £50 per month in and will this be enough ? assuming I want a pension of £30,000 per year taken inflation into account.

I want to open a pension pot within the next month and get started as I wasted too much time already. 

Thank you everyone.

hugheskevi

IloveElephants said:

I have never opened a pension before and I want to start at the late age of 36 as im worried about the state of the current economic climate.

Not sure why state of economic climate is particularly relevant - you will need a pension regardless.

IloveElephants said:

I have recently for about a year paid into the standard government pension where monthly I would get deducted around £50 per month from my pay. My employment situation is shaky and not certain to last given the current covid-19 situation.

There isn't a standard government pension. There is a statutory obligation for your employer to automatically enrol you into a pension scheme, and your employer can choose from a wide range of providers. Similarly, there is a statutory requirement for your employer and yourself to contribute a minimum amount into the pension chosen by your employer, but either or both of you are free to do more than the statutory minimum.

But people have said to me to open a private pension and I should pay for expert bespoke financial advice.

Getting expert bespoke financial advice for this level of investment is a waste of money. When amounts are small, the key focus is on the amount being invested rather than the assets they are invested in. The default fund of the pension your employer has arranged should be fine for quite some time yet and advice can come when the pot is larger, in a few years or so.

I would like to hopefully have my property paid for before retirement. So where do I start and can I add £50 per month in and will this be enough ? assuming I want a pension of £30,000 per year taken inflation into account.

You could always pay off your property using money from pension instead, thus benefitting from investment returns and tax relief. It is not without its risks of course.

You can add £50 per month if you like. You can use pension calculators such as this one to calculate what you will build up. Assuming your employer puts in £100 in addition to your £100 p/m, you would end up with a pot at age 68 of about £112,000 according to the calculator. Using a standard drawdown rate of 4%, that is £4,500 p/a. Add that to State Pension of £9,100 p/a and you would get about £13,600 p/a.

So you should be looking at quite a lot more for an income of £30,000 p/a in retirement.

squirrelpie

hugheskevi said:

There isn't a standard government pension.

There is and its usually called the State Pension and is paid for by NI contributions.

But that aside, both the OP and you are clearly talking about workplace and private pensions and what you say is sensible. It might be worth pointing to a government site that includes a pension calculator as well as other useful stuff:

https://www.gov.uk/plan-retirement-income

steampowered

Putting £50 a month into your pension, with an additional £50 coming from your employer, will get you a pension pot of £52,600, which equates to £2,400 per year if you retire at age 67, based on the Hargreaves Lansdown calculator. 

The full state pension is worth about £9.1k per year. Assuming you qualify for that, you would be looking at income of about £11.5k per year in retirement based on your current level of savings.

So, you are massively underestimating how much you need to save to achieve anything like income of £30k in retirement. The general rule of thumb is to save as a percentage of your income, half your age, when you start saving. For you that would mean saving 18% of your salary (including employers' contributions).

Your priority should be to make the money you get work as hard as possible. It's likely that the best way of doing that for you is the following:
- Putting enough into your pension to get the maximum matched contribution your employer is willing to pay. Don't turn down free money from your employer.
- As you wish to buy a first property, put as much as possible beyond that into a Lifetime ISA - to maximise the bonus you can get from the government.
- Once you have bought a property, you can look at increasing your pension contributions further. The benefit of doing this is tax relief - since you get tax relief on pension contributions, £50 into your pension actually costs you less than £50.

Brynsam

IloveElephants said:

But people have said to me to open a private pension and I should pay for expert bespoke financial advice. I would like to hopefully have my property paid for before retirement. So where do I start and can I add £50 per month in and will this be enough ? assuming I want a pension of £30,000 per year taken inflation into account.

I want to open a pension pot within the next month and get started as I wasted too much time already. 

The age at which you intend to retire is crucial. If you plan to work until you are 75, you might get closer to your £30K a year, but somehow I suspect that's not what you have in mind.

Make sure you've joined whatever pension your employer offers under auto-enrolment regulations, even if you think your job won't last, and get maximum contributions from them. That is a private pension, so you can safely ignore the 'people' telling you to open one. Add more if you can afford to do so.

Notepad_Phil

steampowered said:

The general rule of thumb is to save as a percentage of your income, half your age, when you start saving. For you that would mean saving 18% of your salary (including employers' contributions).

And that is based on retiring at state retirement age rather than any early retiring at 60 etc. Retiring early means that you need to have the means to live until you start getting your state pension, which is likely to mean a much bigger percentage needs to be put away.

You say you want a retirement income of £30k but on what basis do you say that e.g. is that your current income and so you think you can only survive if you get the same amount, or have you seen that figure somewhere and decided that is what is needed, etc.

If £50 a month is really all you can afford to put away then I think you need to look at where you are currently spending your money and decide what you can do to reduce your expenditure. That way you can start putting extra money away, and just as importantly, you probably won't need to have as big a retirement income as you won't find yourself needing all those little extras that you hopefully find that you can give up or reduce the need for.

Albermarle

I want to open a pension pot within the next month and get started as I wasted too much time already

Although it has been explained above already , just to be clear you have a pension already that you are paying into at work .

If you want to add more than you do now , just request to your employer to take more from your salary to put in it . When you leave this employer the pension comes with you .

If you really want a private pension of £20Kpa on top of your state pension then you will need to build up a pension pot of around £600,000 and with the best will in the world you will not get anywhere near that adding £100 per month .

ComicGeek

The problem is that a lot of people will hear the above, and think why bother then. We need to educate better. I only started my pension in my first job because the MD said it was stupid not to - 7% employers contributions, and I topped up to 10% without really understanding how it works. 

IloveElephants

hugheskevi said:

IloveElephants said:

I have never opened a pension before and I want to start at the late age of 36 as im worried about the state of the current economic climate.

Not sure why state of economic climate is particularly relevant - you will need a pension regardless.

IloveElephants said:

I have recently for about a year paid into the standard government pension where monthly I would get deducted around £50 per month from my pay. My employment situation is shaky and not certain to last given the current covid-19 situation.

There isn't a standard government pension. There is a statutory obligation for your employer to automatically enrol you into a pension scheme, and your employer can choose from a wide range of providers. Similarly, there is a statutory requirement for your employer and yourself to contribute a minimum amount into the pension chosen by your employer, but either or both of you are free to do more than the statutory minimum.

But people have said to me to open a private pension and I should pay for expert bespoke financial advice.

Getting expert bespoke financial advice for this level of investment is a waste of money. When amounts are small, the key focus is on the amount being invested rather than the assets they are invested in. The default fund of the pension your employer has arranged should be fine for quite some time yet and advice can come when the pot is larger, in a few years or so.

I would like to hopefully have my property paid for before retirement. So where do I start and can I add £50 per month in and will this be enough ? assuming I want a pension of £30,000 per year taken inflation into account.

You could always pay off your property using money from pension instead, thus benefitting from investment returns and tax relief. It is not without its risks of course.

You can add £50 per month if you like. You can use pension calculators such as this one to calculate what you will build up. Assuming your employer puts in £100 in addition to your £100 p/m, you would end up with a pot at age 68 of about £112,000 according to the calculator. Using a standard drawdown rate of 4%, that is £4,500 p/a. Add that to State Pension of £9,100 p/a and you would get about £13,600 p/a.

So you should be looking at quite a lot more for an income of £30,000 p/a in retirement.

Thank you hugheskevi, you have given me lots of infomation to look more into, I really appreciate your advice and may come back and ask you a follow up question mid week, thank you

IloveElephants

squirrelpie said:

hugheskevi said:

There isn't a standard government pension.

There is and its usually called the State Pension and is paid for by NI contributions.

But that aside, both the OP and you are clearly talking about workplace and private pensions and what you say is sensible. It might be worth pointing to a government site that includes a pension calculator as well as other useful stuff:

https://www.gov.uk/plan-retirement-income

Thank you Squirrel yes I will look into that link you sent 

IloveElephants

steampowered said:

Putting £50 a month into your pension, with an additional £50 coming from your employer, will get you a pension pot of £52,600, which equates to £2,400 per year if you retire at age 67, based on the Hargreaves Lansdown calculator. 

The full state pension is worth about £9.1k per year. Assuming you qualify for that, you would be looking at income of about £11.5k per year in retirement based on your current level of savings.

So, you are massively underestimating how much you need to save to achieve anything like income of £30k in retirement. The general rule of thumb is to save as a percentage of your income, half your age, when you start saving. For you that would mean saving 18% of your salary (including employers' contributions).

Your priority should be to make the money you get work as hard as possible. It's likely that the best way of doing that for you is the following:
- Putting enough into your pension to get the maximum matched contribution your employer is willing to pay. Don't turn down free money from your employer.
- As you wish to buy a first property, put as much as possible beyond that into a Lifetime ISA - to maximise the bonus you can get from the government.
- Once you have bought a property, you can look at increasing your pension contributions further. The benefit of doing this is tax relief - since you get tax relief on pension contributions, £50 into your pension actually costs you less than £50.

Wow thank you steampowered for the great information you provided. Again I will read in more detail and get back to you mid week with a follow up as you have given me lots to ponder. Thank you