Where do I begin on pension savings?

IloveElephants

Albermarle said:

I am not including employment pension as I worked for companies that did not contribute to my pension and I also worked for myself so I am not relying on this.

To reach your ambitious target, it will be easier if you have a job where the employer contributes. Nowadays they have to contribute a minimum 3 % . Some contribute more and this makes a big difference over 25 years.

Otherwise you can see from the figures mentioned in a previous post, you will need to earn a big salary to be able to contribute £20K pa to a pension on your own.

Hi Albermarle, I agree and thank you for sharing. 

It has been difficult since 2020 to find a stable employer, hopefully the current job I have will be long term enough to boost my pension. 

IloveElephants

QrizB said:

There's something that's not clear from the opening post and hopefully the OP will be back with more info:

IloveElephants said:

I am 38 and have £3,000 in my nest pension. It was from my old workplace. I am now thinking of opening a private personal pension (ones that I can log in myself and add funds) and set up a direct debit monthly to put money in.
I am not including employment pension as I worked for companies that did not contribute to my pension and I also worked for myself so I am not relying on this.

Do you have other pension pots from your other employments, or is £3k in Nest the total of all your pensions savings to date? £3kseems very low for someone who is 38.

Are you still earning £30k pa, and hoping for a similar income in retirement?

You have a couple of previous threads on pensions from 2020, was it around then that you got started with Nest?

In very broad terms, you've got 30 years to work until you reach State Pension Age (SPA). The state pension currently pays just under £10k pa, so you only need to save enough to make up the difference between that and your target retirement income.

Hi QrizB,  thanks for taking the time for my question. Let me clarify

Do you have other pension pots from your other employments, or is £3k in Nest the total of all your pensions savings to date? £3kseems very low for someone who is 38. - 3K in the Nest pension is the total of my pension from the job I worked full time between 2017-2020. I worked for that small company in 2016 but it was only in 2017 when the owner decided to enroll all employees into nest pension. 

I do not have other pensions as my jobs were low skilled jobs and I changed different jobs over time from 2010-2016

I am now earning 45k base - hoping to retire on 30k as by then with inflation this would be not much. This is including the state pension if it is such a thing by then.


You have a couple of previous threads on pensions from 2020, was it around then that you got started with Nest?

In very broad terms, you've got 30 years to work until you reach State Pension Age (SPA). The state pension currently pays just under £10k pa, so you only need to save enough to make up the difference between that and your target retirement income.

That makes me slightly optimistic, yes its very bleak currently in my situation. I just logged into my next pension it says my retirement pot is £3994

I paid just over £1,500
my old employer £1,300
tax relif  just over £400

it says I was 

it says Member since March 2018

So I guess that is when I was enrolled in the pension.

Thank you so much for your comment 

IloveElephants

gm0 said:

Good for you to be getting onto this.

You need to understand a few pension rules.  On tax relief specifically.   Which is not lump sum friendly.

The most significant rules are Annual Allowance.  (The limit each year which can go to a pension - currently 40k)

And the rule on pensionable earnings (which defines how much can go in from £40k (Max AA) down to £2880 made up to 3600 (with relief) for non-earners with 0 income.  Income has to be employment or self-employment. Not other investment income or interest.  That's generally not "pensionable income" as far as the tax man views it.

Anyone can have a pension and put in 2880 each year to get this top up to 3600 provided they can find the £240 per month.
The benefit of tax relief on pension saving is a very big part of the attraction to locking money away in this tax wrapper until your mid-50s or later.  As a result it can be difficult in practice to make contributions which don't attract tax relief as this is a strange thing to do and thus uncommon.  So providers may not make it easy/permit it.  In any case an S&S ISA would do the same investing job without the additional limits, restrictions etc.  If you wish to invest lump sums this way the 20k ISA allowance each year for this may be helpful to look at.

Who you save with can be chosen on their viablilty/reputation and "costs" and "range".  How much and how often you will save and trade funds will affect cost.  Some platforms are better for traditional funds, others are setup to be cheaper to hold ETFs.

Do they have the funds you want.
How much does it cost to trade monthly (if that's what you want).
Platform fees
Digital facilities may matter to you or not.  Some on your list will be more basic than the others.

As to your question. How much

First pass - you can get a 30k income at 3% drawdown from a fund of £1m. 
Or a lesser fund of 750k if you project a higher rate of drawdown closer to 4%.
 
A lot depends on how long you plan to take it (from retirement age to death) and what inflation indexation of the retirement income you wish to plan for.  And whether you bump drawdown income down when your State Pension happens.  There are web calculators to play with these assumptions on many of the provider sites.

But rough amount. Age 38 to 60.  Saving around the £2,000 per month level should sort it (tax relief included)

Compounded ~820k fund to support £30k, indexed, WR=3.6%) saved by age 60 (with an assumption of 4% compound returns on savings from now.  Nobody can say what the long term average for 22 years will be. 

Less than that.  A lot more.  Once people would have used 7% or more in a calculation like that with very different results i.e. a savings rate closer to half the size.  Your guess is as good as mine. 

Vanguard and others publish highly speculative material on long term equity returns.

Hi Gm

Thanks for your really informative reply. I appreciate it

you say
But rough amount. Age 38 to 60.  Saving around the £2,000 per month level should sort it (tax relief included)

I think this is what needs to be done. I need to contribute £1000 of my own money per month and hope the employer will match it and invest that every month in my pension. The only problem is what money will I live on? How will I pay bills? I am going to be looking for a weekend job and hopefully the main job with employer contributions will help me on my pension.

IloveElephants

I just want to say thanks to everyone that has given me brilliant information, It is a bleak situation but I will try my best to play catchup and grow my pension pot, if anyone else has more ideas please share. Thank you everyone

Brie

The easiest thing to do (though may not be the best) is to contribute more to your work pension.  Most will allow AVC (additional voluntary contributions) that will help increase the pot available to you.  It's easy as it's painless and takes no effort.  Set your contribution limit to 10% of your salary instead of 5% and it comes out of your pay automatically so you're not tempted to spend it on whatever.  There's also the possibility that your employer may match a higher amount which would be great.  Also check if salary sacrifice is an option as this would mean your pension contribution comes off your pay before deductions so you gain a little bit more there as well. 

IloveElephants

Brie said:

The easiest thing to do (though may not be the best) is to contribute more to your work pension.  Most will allow AVC (additional voluntary contributions) that will help increase the pot available to you.  It's easy as it's painless and takes no effort.  Set your contribution limit to 10% of your salary instead of 5% and it comes out of your pay automatically so you're not tempted to spend it on whatever.  There's also the possibility that your employer may match a higher amount which would be great.  Also check if salary sacrifice is an option as this would mean your pension contribution comes off your pay before deductions so you gain a little bit more there as well. 

Thank you so much Brie for sharing this info I will look into it. 

Albermarle

That makes me slightly optimistic, yes its very bleak currently in my situation. I just logged into my next pension it says my retirement pot is £3994

It would be more bleak, if you had only started looking into this when you were 45 or 55. You have time to work on it.

I am now earning 45k base - hoping to retire on 30k as by then with inflation this would be not much. This is including the state pension if it is such a thing by then.

People have been saying that ( in bold ) ever since the state pension was started, and it is still going strong. Inflation increases are guaranteed as minimum, and can be more. It has grown more than wages for some years now. As already mentioned any government that abolished it would be slaughtered at the next election, and probably a few elections after that, as old people vote a lot more than young people. So it will never happen.

Could there be some changes to it over a 40 year period? Very likely. Is the age you start getting it likely to increase further. Very likely. But the chance of it effectively disappearing . Highly unlikely.

Linton

IloveElephants said:

Hi,

I need some advice and direction please, 

I am 38 and have £3,000 in my nest pension. It was from my old workplace. I am now thinking of opening a private personal pension (ones that I can log in myself and add funds) and set up a direct debit monthly to put money in. 

I am not including employment pension as I worked for companies that did not contribute to my pension and I also worked for myself so I am not relying on this.

I would like some advice on how to get an income of 30k per year by retirement, how much should I save per month, who shall I open the private SIPP pension with? Once I open the pension to play catchup how much shall I deposit as a lumpsum to meet my goals?

I was looking into HL
Aviva
Vanguard
Legal & general
Scottish widdows
Wealthify

Thank you everyone, 

Another estimate....

 Say you work until you are 68.  That gives you 30 years to accumulate a pension pot.

Assuming £20K pension from your pensions plus State Pension of about £10K a very rough calculation suggests you would need to have a pot of about £600K.

To achieve a pot of £600K at current prices another very rough calculation suggests you would need to contribute a total of £12K/year increasing with inflation. £3K is coming from your and your employer's contributions to your NEST scheme.  This leaves a contribution of £9K/year or a payment into a SIPP after tax of £7.2K/year=£600/month increasing with inflation.

So perhaps rather more achievable than gm0's estimate but retiring later.  In both cases it is just to give you a rough idea of the level of extra pension payments required - it's not small. Anything could happen between now and then.

IloveElephants

Albermarle said:

That makes me slightly optimistic, yes its very bleak currently in my situation. I just logged into my next pension it says my retirement pot is £3994

It would be more bleak, if you had only started looking into this when you were 45 or 55. You have time to work on it.

I am now earning 45k base - hoping to retire on 30k as by then with inflation this would be not much. This is including the state pension if it is such a thing by then.

People have been saying that ( in bold ) ever since the state pension was started, and it is still going strong. Inflation increases are guaranteed as minimum, and can be more. It has grown more than wages for some years now. As already mentioned any government that abolished it would be slaughtered at the next election, and probably a few elections after that, as old people vote a lot more than young people. So it will never happen.

Could there be some changes to it over a 40 year period? Very likely. Is the age you start getting it likely to increase further. Very likely. But the chance of it effectively disappearing . Highly unlikely.

Hi Albermarle,

It would be more bleak, if you had only started looking into this when you were 45 or 55. You have time to work on it. Thanks for giving me positivity, that helps a lot 

People have been saying that ( in bold ) ever since the state pension was started, and it is still going strong. Inflation increases are guaranteed as minimum, and can be more. It has grown more than wages for some years now. As already mentioned any government that abolished it would be slaughtered at the next election, and probably a few elections after that, as old people vote a lot more than young people. So it will never happen.

Could there be some changes to it over a 40 year period? Very likely. Is the age you start getting it likely to increase further. Very likely. But the chance of it effectively disappearing . Highly unlikely.

Very interesting comment you made. Thanks for sharing your perspective on things. I have taken on board everything you said. 

barnstar2077

As others have said, don't beat yourself up, it's not as bleak as you might at first presume.  For a start, you are thinking about it now and starting to take it seriously.  I know plenty of people in their sixties that don't take retirement planning seriously, so straight away you are a leg up on many others!  Many people just think when they get to retirement age that the government and their company will tell them what they are getting and that is it.

You will be surprised how quickly your pot will grow as you start to put extra money in, seeing that number go up will be good motivation and put a smile on your face I am sure.

As well as putting more money aside, take notice of what it is invested in.  My works pensions default fund was massively over weighted to the UK, meaning that the fund primarily invested in UK companies.  I have since moved it (within the same pension) to a more globally diverse fund that has historically had better returns and reduces the risk of one countries performance disproportionally affecting the outcome.

I also use Vanguard for an ISA and SIPP, investing in their own FTSE Global All Cap Index fund for both.  An ISA is useful to bridge the gap should you need to / desire to leave work before you can access your pensions (and assuming you have the allowance, you can always put some or all of it into a pension at a later date if you work longer and don't need the cash sooner.)

I will say though, that you should also live a little now too!  Think of the difference between going on a diet or improving your diet.  If I go on a diet I can lose a lot of weight but it may not be sustainable, it may be too extreme and I can't keep it up for long.  If you create a budget and set aside a realistic amount to keep yourself entertained while investing the rest you will be far more likely to be able to keep it going and not burn yourself out trying to plough every penny into your pension/investments.

Lastly, I always recommend these forums to friends.  There is a board for most subjects and you can not only gain some great money saving advice, but also find a group of like minded people that help to motivate each other.