Am I doing ok with my pension saving?

gettingthehangofthis

Hi MSEers, I really need your wisdom please!

I am female, 33, and want to know if I am I doing ok with my pension saving? My retirement will be in Spring 2055 at age 67. I have the following pension pots:

Scottish Widows

Currently valued at £5,600.

(Paid in 2012–2013) – no longer contributing

NEST

Currently valued at £6,990.

Contributed from 2016–2018 through payslips, I now contribute one off payments to this as I'm self employed (for the moment). I recently paid in £4k to top-up the year and a bit I spent in Canada where I paid in just 4.6% of my salary to CPP.

Canada CPP

Value unknown but I paid abut $3,160 CAD (£1,858) into this between 2018 and 2020.

When I run the NEST value through their calculator, along with regular contributions of £3,640.00 annually (based on paying in 14% of £26,000* salary for the rest of my career), this tells me 'We estimate your retirement pot may be worth: £278,000' – a lump sum of £69,500, and annual retirement income will start at £9,390.

Is the '£278,000' number along the right lines for a comfortable retirement? Not sure if I will need a lump sum, and I will also have the other 2 pots above + UK state pension (presumably) to top it up too?

Thank you in advance!

*This value is a conservative estimate of my salary, it's likely to be 25% more but it doesn't take into account possible time out due to having children. I am not a big spender on material things but would like to travel in retirement.

TVAS

£9,390 plus state pension in 2055 is not a lot of money due to inflation. The things we want, mobile phones, mobile phone contracts, flights, streaming subscriptions are cheap. The things we need, rent or mortgage, travel, food, utilities are expensive.

Why would you not take the TAX free lump sum? If you don't you will pay more income tax as pensions are taxable in payment. 
You said you want to travel in retirement so you do have something to do with lump sum money.

"I am not a big spender" that will change with you have children. 

In 1997 my basic salary was £25,000. I bought a house for £82,000. Everything was so much cheaper at that time. Your salary is £26,000 my house value is now £550,000. The point I am trying to make is that salaries have actually been sliding since the 1970s so contribute MORE now before you stop work. 

gettingthehangofthis

I thought that the £9,390 figure is in today's terms – and this figure will be larger in 2067 due to inflation? (But still buy you £9k worth of food/bills in today's terms.)

bostonerimus

You have started earlyish and you are putting more than 10% of salary into your pension which is excellent. Now you have to keep doing that for 30 plus years. Try not to let "life events" derail that. As you are relatively young you should be investing for growth so use one of the target date retirement multi-asset funds or a portfolio that has a substantial allocation to equity growth funds. I would make sure you have 6 months worth of spending in the bank for emergencies and do a detailed budget to see if there are areas where you can save and then put that money either into your pension or open an ISA. The ISA might not be as tax efficient as your pension, but it has the advantage that you can get at your money immediately.

gettingthehangofthis

Thank you @bostonerimus. I have cash savings for a house which I haven't mentioned but need to get started with investing too.

I just found this article from 2018 which says £260,000 is needed for retirement, which is close to the NEST estimate calculated above so hoping I will be ok if I keep paying in ~14%/ yr:
<a href="https://www.theguardian.com/money/2018/may/16/average-person-will-need-260000-for-retirement-says-report">https://www.theguardian.com/money/2018/may/16/average-person-will-need-260000-for-retirement-says-report</a&gt;

Linton

We cannot tell you how much income you will need in retirement.  A comfortable retirement for one person could be luxury or a struggle for someone else.  The best estimate at current prices is probably how much are you spending per year now in total minus the expenses that wont apply in retirement. 

The output from the pension calculator is all at today's prices (I checked) and assumes your pay and therefore your pension contribtions increase with inflation.  As a very rough guide it is reasonable to assume that a pension pot can generate an income of 3.5% of the initial pot size increasing with inflation.  If you are going to retire at State Pension Age with  a £278K pension pot and no other income that amounts to a total, including SP,  of about £19K gross or say approx £18K after tax.  Is that enough? 

WIll you really want to wait until you are 67 to stop working?  If not you will have to add in the money you wont be getting from SP.

Your current pot is possibly rather low but you are still young and a lot will change between now and retirement.  In my view 14% of income going into your pension is a fairly realistic amount and a lot better than the minimum defaults and what I believe most people pay.   Are you in a job where you can expect above inflation pay increases as you gain experience?  If so it would be sensible to look to increasing your % contribution over time, especially if you want to retire early.

gettingthehangofthis

Thanks @Linton this is very helpful.

18k/year in today's terms would be plenty, assuming I have paid off my mortgage. I had planned to work until the state pension age but maybe this would change.

The 14% doesn't include employer's contribution at the moment but it would be sensible to keep mine at 14% or more regardless of employer contributions. I take your point about increasing contributions, I have previously gone up a % when I had a payrise.

Albermarle

There a lot of different figures you see for what is the average pension pot in the UK but for sure it is a lot less than £250K.
On the other hand the majority of people make inadequate provision for retirement, either because they really can not afford it or just through ignorance/neglect of personal finance issues.
I have seen the £250K figure quoted as a kind of minimum for a at least a reasonable kind of retirement if the State Pension is included. As Linton says having more could maybe mean you retire earlier.
14% + employer contributions is good at age 33 and if the investments do well/ you get a better paying job/more generous employer contributions it would grow significantly.
Due to your age the investments within the pension should be the high growth type as you have many years to ride out any market downturns .

gettingthehangofthis

Thank you @Albermarle must research investing now...

Thrugelmir

When looking forward. Do not panic. Much of the growth in the final value of your pot will come in the latter years. As the income and capital gains generated are reinvested. Compounding really does do the heavy lifting. 

gettingthehangofthis

Thank you @Thrugelmir that makes me feel better about things