Am I contributing enough?

anotherbrokegraduateinlondon

How much should I be contributing to my pension in an ideal scenario? 

I am 26 and have been contributing 5% of my salary, which is 25k, for the last year and this is employer matched. My employer will match up to 8%. Should I contribute more? I am anticipating that my salary will increase significantly in the next 10 years, however I currently rent in London and have debts I need to clear so would struggle to increase this contribution currently. 

Dazed_and_C0nfused

It seems a no brainer to at least move up to 8% as that extra 3% from you will mean 6% going into the pension fund.

If it relief at source then you will get tax relief added to the pot as well.

If it is a net pay scheme then the real cost to you will only be an extra 2.4%

NottinghamKnight

Matching pension is normally very worthwhile to benefit from, what debt do you have and at what rate of interest are you paying as that might affect how you split your money.

Albermarle

If you increase to 8% it will cost you another 2.4% and there will be an added 6% in total going into your pension . Quite a good deal !

cfw1994

As everyone has pointed out - it's free money: take it!
The general "rule of thumb" is to put in half your age in % terms (incl any company contributions).
So for a 26 year old, aim for 13%....but in your case, I would strive to put 8% of your own in and get 16 in total.
Added to which, the earlier you can put more in, the better the effects of 'compounding' over the long term.
Wish someone had told me that as a 26 year old 

barnstar2077

Put in at least the 8%.  You are young and fit now but when you get to sixty you may feel very differently and wish you could retire earlier than 68+

I believe there is a debt section to this board.  You may want to find it and post on there for a bit of advice / moral support.  Don't be disheartened, you are still young, you can get yourself back on track in no time.  Good luck!

thickasabrick

anotherbrokegraduateinlondon said:

How much should I be contributing to my pension in an ideal scenario? 

I am 26 and have been contributing 5% of my salary, which is 25k, for the last year and this is employer matched. My employer will match up to 8%. Should I contribute more? I am anticipating that my salary will increase significantly in the next 10 years, however I currently rent in London and have debts I need to clear so would struggle to increase this contribution currently. 

The Which article How much will you need to retire ? Suggests £36 per month at age 20 and £73 at age 30 for a comfortable retirement so 10% of a £25000 salary at age 26 looks quite reasonable.
If your employer matches up to 8% that is definitely worth stretching the extra 3% for.

garmeg

thickasabrick said:

anotherbrokegraduateinlondon said:

How much should I be contributing to my pension in an ideal scenario? 

I am 26 and have been contributing 5% of my salary, which is 25k, for the last year and this is employer matched. My employer will match up to 8%. Should I contribute more? I am anticipating that my salary will increase significantly in the next 10 years, however I currently rent in London and have debts I need to clear so would struggle to increase this contribution currently. 

The Which article How much will you need to retire ? Suggests £36 per month at age 20 and £73 at age 30 for a comfortable retirement so 10% of a £25000 salary at age 26 looks quite reasonable.
If your employer matches up to 8% that is definitely worth stretching the extra 3% for.

Those figures assume 2 state pensions plus an existing fund of £100,000 which is why those monthly contributions are so low.

[Deleted User]

You do want to get the match but you also need to manage your cash flow. Thats priority.  Must be able to repay consumer debt. And eat. Build a budget. Putting away 16% rather than 10% is very nice but you also need to live. So, if you cant afford to increase pension contributions thats fine. Just make sure you do once you repay your debt and your pay goes up. 

bowlhead99

anotherbrokegraduateinlondon said:

How much should I be contributing to my pension in an ideal scenario? 

I am 26 and have been contributing 5% of my salary, which is 25k, for the last year and this is employer matched. My employer will match up to 8%. Should I contribute more? I am anticipating that my salary will increase significantly in the next 10 years, however I currently rent in London and have debts I need to clear so would struggle to increase this contribution currently. 

A I agree with Mordko that although 'the maths' says you'd be crazy to turn down the free employer match by not paying as much in as you're allowed, you do need to balance it with what you can reasonably afford. Maybe in ten years time you will be paying higher rate tax and focusing on pension contributions at that time will be relatively more important, but if you're underwater on debt it's usually advised to take care of that problem first. Based on your other thread, it seems your cashflow is tight, so nobody is going to call you an idiot for failing to overcommit to your pension.

Still, the employer won't give you free money towards your debts, but they will give you free money if you just put a bit more of your own money in your own pension (and all that money, yours and the employers, will grow over time with investment returns), so incurring a little bit more debt interest now is not necessarily the end of the world as long as it doesn't put you into hardship.

Disregarding the debt problem, the way I would usually tell someone with your percentages to think about the employer match is:

When you took the job, your employer wrote you a contract and said they had budgeted £108k to pay you to thank you for working so hard over whatever period (depending on your salary range, maybe that amount of money is the first 2 or 3 or 4 years with them).

If you like, you can still do the same amount of work for them in your job but just take the first £105k of what they were willing to pay you, and they will be able to spend the other £3k of it on someone else's salary, or give it to the shareholders, or throw it in the bin, or use it to pay your boss a nice bonus to thank him for saving them money by not trying hard to convince you to take that last £3k.

Either way -  if you don't ask for it, you won't get it and it will be spent elsewhere, even though they budgeted to pay it to you and offered it to you on a plate.

All you need to do to get it, is say that you will put £3k of your own salary into your own pension to grow for your own retirement, over the 2 or 3 or 4 years or whatever.

If you do that, they will give you their extra £3k as a boost to your pension, and over the next three or four decades with 5-6% real terms investment growth it may grow to be worth £15-30k in today's money, enough for you to buy yourself a new car as a retirement present... along with the new car you buy for your partner or child out of the £3k of your own money that you put in (which you'd have paid tax on if you took it now anyway). Your future self and family would thank you very much for your wise decision.

Or, you can say "nah, I don't want to put as much money into my pension thanks, please feel free to throw that £3k in the bin or give it to my boss or colleague instead".

Reading that, most people would say it was a no-brainer to take the money which is why you got the responses you go, on the thread. But if turning it down will help dig you out of a debt hole, that's OK. It's too easy for those of us in different circumstances to tell you what we would do without knowing the full extent of how your life's working out. I think the key thing is that because it's *such* a good deal, you'll want to be able to say that if you turned it down for some explainable reason, it was the right move and you can still justify it when you look back on it.  So, it's fine to turn it down and use the extra cashflow to get out of the debt hole, but don't turn it down and then spend the money on something trivial instead of solving the debt problem.

thickasabrick

garmeg said:

thickasabrick said:

anotherbrokegraduateinlondon said:

How much should I be contributing to my pension in an ideal scenario? 

I am 26 and have been contributing 5% of my salary, which is 25k, for the last year and this is employer matched. My employer will match up to 8%. Should I contribute more? I am anticipating that my salary will increase significantly in the next 10 years, however I currently rent in London and have debts I need to clear so would struggle to increase this contribution currently. 

The Which article How much will you need to retire ? Suggests £36 per month at age 20 and £73 at age 30 for a comfortable retirement so 10% of a £25000 salary at age 26 looks quite reasonable.
If your employer matches up to 8% that is definitely worth stretching the extra 3% for.

Those figures assume 2 state pensions plus an existing fund of £100,000 which is why those monthly contributions are so low.

Keep forgetting that article is for couples. Didn't spot the £100,000 starting pot (at 20 ?)
So you definitely need to maintain, at a minimum, 10% of your salary towards a retirement fund.
Someone on this forum posted some links to pages which allowed you to project what your fund at retirement would be from your savings rate. Can't find them just now so using a random early retirement calculator I found.
networthify  When can I retire?

Using £25000 annual salary with 5% personal contribution to pension gives £19641.80 net wage (using the listentotaxman UK Tax Calculator 2020/2021). Put that as your annual salary with the pension savings of £2812.5 (5% you 5 % employer HMRC £312.50) 
You can retire in 47.5 years

with a savings rate of 12%

annual expenses 17,142

annual savings 2,500

monthly expenses 1,428

monthly savings 208
You reach the Which articles comfortable pension pot size of £169,175 in 28 years at age 54
post edit - just noticed it reduces the annual expense by the savings so is showing a lower target income of £17142. Still useful as an exercise for setting your savings rate target.