Crossroads - savings or pension?

cloud_dog

warmsnow said:
 I wouldn't be so quick to applaud this high employer contribution. You follow the logic through and it suggests students are paying too much for their studies and staff are being underpaid. 

I'm sorry but, this is a completely illogical conclusion (captain).

Albermarle

warmsnow said:

Albermarle said:

 So you only get a career average pension up to 59k, and you're already contributing 9.6% (you) and 21.1% (employer) - and this is going to get less attractive. Recent numbers are speculated at 40-70% of payroll! 

If you think that the average private sector employer only contributes 3 % , and even a generous employer would rarely contribute more than 10% , then you have not got so much to complain about really.

I wouldn't be so quick to applaud this high employer contribution. You follow the logic through and it suggests students are paying too much for their studies and staff are being underpaid. Imagine 40 years of 30% total contribution only to end up with a pension of 50% of your salary for an average of 15 years. Its really creeping into bad value. I don't know if you have a rule of thumb about what might be a good deal salary contribution vs pension?
A further problem with this is there are clauses such that the universities aren't allowed to offer a competing pension, so the only alternative is opting out - and then only getting back your employee contribution i.e. a pay cut.

I am not going to get into the age old argument of the pros and cons of working in the public and private sector , except to say that the real cost of providing final salary /career average pensions is widely underestimated .( as is average lifespan )
For example lets say you earned £60K when you retired and received a pension of 50% of that , as you mentioned .
Now I will also assume that the pension is inflation linked and that if you die a spouse will receive half of the pension.
If you go to the annuity market and try and buy a pension of like that  for a 65 year old , it would cost around One Million Pounds in cash, no kidding !

warmsnow

Thanks for the reminder: 1mil for a £30k pension! I'm definitely in the camp that that is a massive sell - and one of the reasons they let people do flexible drawdown. Quick math has 60k career average x (0.1+0.2) x 40 years = £720,000. I know I'm supposed to money weight this but the compound return is abysmal.
Students pay for compensation and employer contribution is part of compensation. Fair enough the argument may not be solid because my statements contained a lot of value judgement, but half your salary in pension contributions is not a good thing - especially when the benefit keeps going down at the same time. The imaginable difference with private companies would be perhaps two private companies are offering you the same salary with different employer contribution. But academics don't get that. All their UK employers will make the same employer contribution.

ElmoR

Thank you all for your comments and points. Lots there for me to mull over.

I think I'm especially jittery about the USS at the moment because of the recent deficit announcement. Last time we went through this it resulted in a huge cut to eventual benefits. From your comments though, I can see that it is still half a unicorn and very good compared to many private schemes. Maybe I'm wrong, but I though that the PPF is maintained by contributions from industry/businesses? The State underwrites it? Or does it? Maybe I'm being very doom and gloomy but I cannot see that as being completely solid, never going to collapse, robust-type strong bet? Not after covid and brexit? Am I being too pessimistic?

I've done the state pension qualification check and will be full at 60. 60 seems like a nice round number to aim for but I spend a lot of time pulling my hair out at work and not sure if I can stay sane that long

Will look into moving the Nest tiny thing into a Vanguard pension perhaps.

Thank you again for the feedback/comments and the non judgy acceptance of previous decisions made!

ElmoR

Albermarle

Not after covid and brexit? Am I being too pessimistic?

Clearly Covid is not a positive development for many parts of the world but it will pass. Brexit is purely a local issue , which will probably damage the UK economy , but it will not bring about some financial disaster where institutions collapse.

Ok to be pessimistic but no need to overdo it . We are not living in Somalia or Belorussia. 

ElmoR

Some mulling later...and some extremely helpful exchanges with other forumites too...and I'm about to move from the crossroads. Well, maybe I already have. I took on board several of the comments and advice offered, so thank you.

The NEST teeny weeny pot is being sent to join the USS main pot. That's if the paperwork ever gets accepted (since I keep filling it in incorrectly). I've increased the additional contributions into my DC pot from 4% to 15% of my monthly salary (I need that old blue head with the top blowing off emoji here). With tax relief it doesn't make a huge dent in the take home salary and yes, I should have done it earlier but I don't think we could really afford to (psychologically, mainly) until the mortgage was history. As it is, it feels a bit weird to be increasing it this much. Full disclosure, I grew up 'poor', worked either 2 or 3 part time jobs on the side from age 12 til my twenties and have a tendency to hoard money as a security blanket. Can't seem to shake that hard wiring even when I arrived at the top of a relatively well paid profession. (Not sure why I feel embarrassed about that? but no way I would ever talk to regular people about this!).

What I need to really decide now is whether to leave that DC pot as "Do It For Me" or actively manage where it goes myself? I have set my target retirement age as 60 and it says that they move your pot from higher risk to moderate to lower risk as you approach that target. Just now it seems to be 60% in flames (the higher risk category has a little flame sign, which I guess is meant to mean hot in a good way, but I see it as going up in flames ). The other 40% is in what it says is Moderate risk. The third category is Low risk and I currently have none in there.

I am still sending smaller amounts of money to Vanguard Lifestyle ISA and also to cash savings accounts (at measly 0.45 and 0.6% interest, plus one fixed monthly saver at 2.5%), so there is an emergency fund available.

Question is, what do I do about that DC management of funds - "Do IT For Me" feels comforting in a passive, want to put my head in the sand kind of way. But it's a lot of money going in now (to me anyway), so maybe I should tweak it and spread across the Low, Medium and High Risk a bit more? In terms of risk aversion - I can tolerate some ups and downs, don't lose sleep about such things, but equally, I rather hate my job for the most part these days and the prospect of having to work past 60 would fill me with utter dread. And there is that hoarding for security tendency.

Hopefully, you'll collectively have some constructive pros/cons type advice again?

Many thanks, ElmoR