Whats considered a "good" employer pension? Me 5% employer 3%?

AlanP_2

Alexland said:

AlanP_2 said:

I agree, but my point was that even 3% is better than the previous default position for many smaller private-sector employers of a 0% contribution as they didn't offer a pension scheme at all.
Dated May 2018 - Since AR introduced in 2012 9.5million people had been auto-enrolled.

Yes a huge success for the government in getting millions of people and employers to make a hopelessly low level of contribution to reduce their dependence on means tested benefits in retirement.

Maybe, and if yes, well so what?

For many low paid workers a DC pot based on 8% contributions plus SP will provide enough to live on in retirement and is better than the reliance on means tested benefits from the public purse in old age. Today's pensioner's don't claim their full entitlements so what makes you think they all will in the future? Given that then, in general, they are likely to be better off in retirement this way.

Additionally a proportion of them will change employers and work for one that contributes more, and, a proportion will be spurred into thinking about retirement and pensions and will pay more in themselves. The "nudge" the governement has given with AR is something to be applauded not criticised.

NedS

AlanP_2 said:

Alexland said:

AlanP_2 said:

I agree, but my point was that even 3% is better than the previous default position for many smaller private-sector employers of a 0% contribution as they didn't offer a pension scheme at all.
Dated May 2018 - Since AR introduced in 2012 9.5million people had been auto-enrolled.

Yes a huge success for the government in getting millions of people and employers to make a hopelessly low level of contribution to reduce their dependence on means tested benefits in retirement.

Maybe, and if yes, well so what?

For many low paid workers a DC pot based on 8% contributions plus SP will provide enough to live on in retirement and is better than the reliance on means tested benefits from the public purse in old age. Today's pensioner's don't claim their full entitlements so what makes you think they all will in the future? Given that then, in general, they are likely to be better off in retirement this way.

Additionally a proportion of them will change employers and work for one that contributes more, and, a proportion will be spurred into thinking about retirement and pensions and will pay more in themselves. The "nudge" the governement has given with AR is something to be applauded not criticised.

Agreed. One of DWP's stated objectives is to ensure financial security for current and future pensioners by helping people to increase their pension savings. Introducing auto-enrollment helps meet that objective and helps provide a pension for millions of people who previously didn't have one. What the government may save in means tested benefits in retirement is probably offset by the upfront revenue losses due to tax relief on the auto-enrollment pension contributions, but clearly it is beneficial to all to try to move people away from means tested benefits and towards financial independence.

Cus

My company will match an employee contribution up to 8%. Minimum of 3% for the employee I think. I put in 5%.

barnstar2077

Cus said:

My company will match an employee contribution up to 8%. Minimum of 3% for the employee I think. I put in 5%.

If they will match 8% then you should consider putting that in if you possibly can.  You are turning down free money otherwise.

Robwales

wow - some of these numbers are amazing.  My employer (who i have been with for 20 yrs) matches my contribution upto 5% + Sal Sacrifice.  I then top up each year to the max i can -  funds allowing (+ carry fwd and tapering allowing).  In my case my earnings can vary massively each year so i have to wait to near the end of the tax year to calc the top up value.  Wish i could have got the 25% levels some of these posts have been suggesting.

Polly05

My work matches up to 9%.

Alexland

AlanP_2 said:

Maybe, and if yes, well so what?

Sadly the government missed the opportunity to increase the percentages to a more a meaningful level while the economy was still growing nicely. The danger is that people will think they are OK at this 'government suggested level of contribution' then end up very disappointed with a massive drop in their living standards in retirement. How often on ISA threads do we hear people say 'I already have a pension, am contributing the maximum, it's sorted' and then discover they are completely off-target for their expected retirement age and lifestyle?

8% isn't likely to provide much at today's higher stock market valuations and near zero long term bond returns. With the conservative asset allocations and charges found in most workplace schemes the contributions might not generate much real return above inflation. I would have favoured a minimum 5% employee and 10% employer contribution to balance out current and future living standards even if that means employees had to forgo a couple of years of pay rises to get there. Still that will have to wait some years until things have recovered from this pandemic.

jimi_man

I'm in receipt of a public sector one for which I paid 11% for most of my career and it gave me 2/3rds final salary after 30 years, as soon as you left irrespective of age. I imagine the employer contribution rate is enormous as I can't think of too many that are as generous. Easy to see why they closd it. Currently pay into CS Alpha which has been documented elsewhere on the thread. I also pay extra into the EPA and I also pay into a private pension - approx 40% of my earnings - mainly to avoid paying HR tax, but also obviously to pile as much away as possible to retire (again!) early at around 58.

Wife is in the private sector and is considerably worse off in that respect - around 5% contribution with I think 10% employer. 

The disparity between private and public is enormous. That's not a complaint (wife has many years of public DB as well) more of an observation. 

Malthusian

Alexland said:

AlanP_2 said:

Maybe, and if yes, well so what?

The danger is that people will think they are OK at this 'government suggested level of contribution' then end up very disappointed with a massive drop in their living standards in retirement.

Assuming absolute minimum contributions (8% ignoring the first £6,240), paid from age 21 to 68, a single person has to earn £23,000pa before State Pension + the auto-enrolment pension provides less than 66% of your net income in working life. (Assuming þe olde 4% rule.)

The 66% rule is the most dodgy assumption here, as the % of earned income required in retirement increases as income decreases. However, even for someone used to the relatively modest lifestyle of £23,000pa, I don't agree that a 34% drop in income represents a massive drop in living standards. Not having to do a stroke of work again for the rest of your life is a living standard.

Someone on full time minimum wage their whole career (around £15,000pa) would only suffer a 20% drop in income.

Anyone who thinks they are OK because "the government said 8% was enough and the government is always right" is highly unlikely to feel very disappointed. That means they never gave the matter any real thought during their working life so they probably won't give it any real thought in retirement either. You're trying to simulate how would you feel if you were the kind of person to make long-term retirement plans but didn't make any long-term retirement plans.

People who never pay any attention to their pension throughout working life will probably just take whatever they get in retirement without thinking about it much, unless they get a Road to Damascus moment just at the point they reach retirement age (which would be the worst possible time to have one).

I would have favoured a minimum 5% employee and 10% employer contribution to balance out current and future living standards even if that means employees had to forgo a couple of years of pay rises to get there.

An effective mandatory 7% pay across-the-board pay increase - 3 years' worth of inflation - is a non starter for the Treasury. You can't just say that everyone affected is getting their next three pay rises paid in advance and into their pension, because a lot of people don't get inflationary pay increases anyway.

That is most of the point of holding inflation at 2% in the first place - to allow employers to give employees real terms pay cuts of 2% each year, to reduce unemployment.

It would be easier to turn on the Bank of England's printing press and inject helicopter money into everyone's pension.

Public sector workers have had their inflationary pay rises paid into their pensions since austerity started and look at the stink that has caused - and those pensions are gold-plated.

Alexland

Malthusian said:

Assuming absolute minimum contributions (8% ignoring the first £6,240), paid from age 21 to 68, a single person has to earn £23,000pa before State Pension + the auto-enrolment pension provides less than 66% of your net income in working life. (Assuming þe olde 4% rule.)

You seem to be working with a compound investment growth rate of 3% above inflation and fees to calculate that example - do you really expect the average workplace pension to achieve that going forwards with current asset prices etc? I would expect a rate of 1% real growth might be more realistic in which case for the £23k earner their total SP and workplace pension even at 4% drawdown would give just over £12k around 55% in retirement.

You're trying to simulate how would you feel if you were the kind of person to make long-term retirement plans but didn't make any long-term retirement plans.

There will be a group of people who feel they have been making 'maximum' (as they understand it) pension contributions from a lifetime of work and didn't realise it was their personal responsibility to check that they were on target for what they thought was reasonable for those contributions to achieve. I agree it's likely to be more of an issue for those who earn above average for who the SP will be a smaller proportion of their current income.

An effective mandatory 7% pay across-the-board pay increase - 3 years' worth of inflation - is a non starter for the Treasury. You can't just say that everyone affected is getting their next three pay rises paid in advance and into their pension, because a lot of people don't get inflationary pay increases anyway.

It could have been phased over several years and it would have only affected employers who were making minimum contributions. Sure it would have been a challenge to some employers but should have been acceptably absorbable (as it was when AR was first introduced) when the economy was running better a few years ago.