Realistic pension gains?

B0bbyEwing

I think this may end up being one of those questions I struggle putting in to words, especially as the knee-jerk response is depends what you put in :-s I'll give it a go.

So looking at consolidating the banking & re-jigging things trying to see if we can put more to retirement. Out of curiosity I started Googling to get an idea of what's a fair amount I "should" have as my pot at the age I'm at.

And came across this link.

Now obviously there's no 100% right/wrong. Only guides & common sense is more is better than less - I get all that.

So it says at age 20, nobody expects you to have anything. Good, because I didn't at 20.
Age 30 they talk about £25k as a years wage at that age (which ok I'm a bit over that in terms of value but also I'm approaching the next bracket in terms of age, so not great) & then age 40 they mention £90k.

£65k hike. I thought that quite an amount. 

Which lead me to look at my pot & see what mine had moved in just 12 months (as I don't have 10 years of data to look on).

Last year my SIPP increased 7k / 27.97%. 
Roughly take out my contributions & it rose 4.5k / 18.13%.

Jan-Aug it rose approx. 3.3k / 13.20% once you remove my contributions from it (reason I say that is because once you chuck say 1k in, while it can reduce in time, it immediately increases by 1k obviously).

Comparison this year

Jan-Aug, same contributions but once you take out those, it's only risen £600 / 1.45%

Now before we get it in, I know the phrases - "past performance....." .... "investments can....." and that's fine.

But using that site just to get some kind of feel, for them to talk about a 65k hike over 10 years which will include years such as this one that I'm experiencing, makes me wonder if I am performing under what the rough guide says, whether 65k over 10 years is realistic. 

I see these final figures for retirement & to me they're so huge. I wonder how people can come to such figures as surely these articles aren't all tailored towards the upper level earners (HR tax payers & above) & saying sod the rest of you? Or are they?


For the record, I'm talking purely about my SIPP here. I'm not factoring in any state pension, I'm not factoring in the workplace pension. Before it's said - no, my workplace will only pay the total minimum & if they can get away with it they wont even pay that. No salary sacrifice isn't an option. No I'm not a HR tax payer, no I'm not likely to be, now, later in working life or retirement. Can't think of any other auto-assumption stuff so sorry if I've not covered it.

As from reading that link, what I took away form it was basically everyone needs to get out of their job, go find a job paying 3x as much (because that's simple) & then you'll be fine, otherwise forget it (of course, not applying to the upper earners).

* For the record, nothing against those who earn well. Good for you. I just feel a lot of articles are tailored towards you/these people rather than the lower earners such as myself as going off a link such as this one, I'm a mile off the average earn (last 3 P60s read 30k, 28k, 26k). Don't assume that means we get a pay rise every year because I checked the one before that which was also 26k & I remember one spell where we went 10 years without a pay rise. 

NannaH

Well for what it’s worth,  I’ve used 3% (after fees and allowing 2% for inflation) as a hopefully realistic number for the next 10 years for our Sipps. 

 I’ve also worked out a no growth scenario, other than contributions and tax relief.  If growth is higher then happy days. 

 With 5 years to go we will switch to cash only contributions to build up a buffer pot each that doesn’t depend on investment gains, but still gains the tax relief.
I started very late, at 50, with £3600 a year contributions but should still have over £70k at 65, that’s without further growth of my investments,  which to date  have grown 2.9% this year,  I didn’t expect any growth this year tbh. 

DH has just over £100k in a couple of pensions and is opening a SIPP once he starts earning from his very recent self employment,  hopefully he’ll be able to stick a minimum of £10k (£12500 gross) a year in for the next 10 years, 5 years of which will be invested in a whole world tracker).  He’ll also put his military pension of £6k in his Sipp, as cash from 2026, so as to get back the tax he will pay on it , probably at higher rate.

ewaste

Much of the general stuff online is to push people toward the realisation they actually need to be contributing more than they think and likely far more than they are. Just like you've maybe heard the rule of thumb of having a combined contribution rate of half your age. This is actually mentioned in the link you posted. 

Arbitrary numbers like you mentioned are essentially a ballpark toward reaching whatever assumed goal without either front loading or back loading contributions. If someone sees they are 'behind' at age 40 they might decide to up contributions.

In the link, that is reaching a somewhat lofty goal of £20k of private pension provision at age 65 with a sensible withdrawal rate. The state pension is then added to that at whatever age. 

The main reason for the large disparity is that during your 30's it's assumed a person will start earning more in a job with some pension provision. It'll also assume a reasonable element of compound growth of previous contributions i.e. 5% in this case.

I work with people who are higher rate taxpayers and contribute a few percent because they are looking at the £'s and thinking it's a decent amount. I also work with people like yourself earning 'below' average who've decided to put pensions further up their priority list. They've got the right idea of looking at the percentage being contributed as well as the £'s. 

dunstonh

£65k hike. I thought that quite an amount.

Not really.   You like to get close to double in 10 years (although some rare decades see no growth).  And your contributions should be higher than in your 20s.

But using that site just to get some kind of feel, for them to talk about a 65k hike over 10 years which will include years such as this one that I'm experiencing, makes me wonder if I am performing under what the rough guide says, whether 65k over 10 years is realistic.

An economic cycle is around 15 years.  If you look at any short-term period, such as 12 months, you will see all sorts of variances.  2022 is a loss year YTD.  

So, you should never look at expectations based on 12 months of performance.

[Deleted User]

Bobby, my advice is put as much into pensions as you can afford, as early as you can in life.
My Father really pushed me to start contributing aged 20. Now at almost 50, I've got a half decent pot saved.
It's all about the compound interest - best advice he ever gave me

B0bbyEwing

ewaste said:

1) Much of the general stuff online is to push people toward the realisation they actually need to be contributing more than they think and likely far more than they are. Just like you've maybe heard the rule of thumb of having a combined contribution rate of half your age. This is actually mentioned in the link you posted. 

2) The main reason for the large disparity is that during your 30's it's assumed a person will start earning more in a job with some pension provision. 

3) They've got the right idea of looking at the percentage being contributed as well as the £'s. 

1) Yeah I figured that's generally the purpose, although at the same time while not precise, I also assumed it wouldn't be a million miles out either.

2) I could be wrong but that's the impression I get from these kinds of articles - that they're referring to maybe uni people who've just come out of uni in their 20s, they're on the first rung, they have debt, then in their 30s they have these high flying jobs earning 6 figures. 
Or they're referring to life transformers. People who've eared the minimum but then total change of events & now they're really well off. 

And that they're not really angled towards those who earn on the low side year on year. 

3) I know a lot of people seem to go for a % contribution. I've always gone the £ route though. My approach has always been - ok I earn XYZ, from that I need to deduct this, this & that bill. Now what do I have left & how much of that can I afford to say goodbye to.

dunstonh said:

So, you should never look at expectations based on 12 months of performance.

I tried to make it clear in my OP but looks like I failed.

I wasn't using last year or even Jan-Aug last year vs Jan-Aug this year as a golden guide, a forecast for the coming years.

It was just to say that with the inevitable ups & downs as those 2 examples show, I wondered in my case whether such a claim could be accurate.

* Obviously if you're one of these who is fortunate enough to max out their pension year on year then 65k over 10 years is nothing.
But then I'm not talking about the fortunate ones as that's not my situation.

resk

I know you've tried to negate any comments about your workplace pension, but I really think you should include the value of any workplace pensions you have, past or present, in your total pension pot.  "They'll only pay the minimum" doesn't mean that it won't add up to a decent amount of money over a working life.  My workplace pension is by far the largest part of my overall pot, although I do accept that you are in a very different situation.  

Workerdrone

I like these posts where we get honest illustrations. Here's mine if it helps.

I've never been a particularly high earner. When I started work in 1994 I was paid 8k, when I left 8 years later it was £17500. Total contributions for that employment were £29,686.21. Its presently worth £135,333.62 (It did briefly touch £150k last December).

I then had 10 years of self employment and a disastrous marriage which financially wiped me out so I made no pension contributions in that 10 years.

I got back into it in 2012 at 36 and have built a second pot with my current employer of £89k. For the past year its stayed pretty much at £89k although I put £1300 a month into into via sal sac (Myself + employers 10%). I don't worry too much about this. I've got about 14 years left to contribute but can add another 8 onto that if I need to. I just see this years contributions as hopefully buying more units at a lower price.

My salary at £38k is the highest I've ever earned. I live modestly, keep my bills low and every time I make a saving or get a pay rise I up my contributions. I'm presently 46 and my combined pots are valued at £224k

ewaste

B0bbyEwing said:

ewaste said:

1) Much of the general stuff online is to push people toward the realisation they actually need to be contributing more than they think and likely far more than they are. Just like you've maybe heard the rule of thumb of having a combined contribution rate of half your age. This is actually mentioned in the link you posted. 

2) The main reason for the large disparity is that during your 30's it's assumed a person will start earning more in a job with some pension provision. 

3) They've got the right idea of looking at the percentage being contributed as well as the £'s. 

1) Yeah I figured that's generally the purpose, although at the same time while not precise, I also assumed it wouldn't be a million miles out either.

2) I could be wrong but that's the impression I get from these kinds of articles - that they're referring to maybe uni people who've just come out of uni in their 20s, they're on the first rung, they have debt, then in their 30s they have these high flying jobs earning 6 figures. 
Or they're referring to life transformers. People who've eared the minimum but then total change of events & now they're really well off. 

And that they're not really angled towards those who earn on the low side year on year. 

3) I know a lot of people seem to go for a % contribution. I've always gone the £ route though. My approach has always been - ok I earn XYZ, from that I need to deduct this, this & that bill. Now what do I have left & how much of that can I afford to say goodbye to.

1:- I just had a play around with a compound interest calculator and it's not far out if you started working and contributing early. They seem to be using the half of age rule of thumb, getting that £65k in 10 years amounts to a total contribution rate of under 15% for someone on a slightly below average salary. 

2:- It's not really aimed at any specific group, just anyone at or slightly below the UK average income. The issue is starting early enough and maintaining contributions at a sensible level. 

You certainly don't need to be earning six figures or even be a higher rate taxpayer to get there. Although the later people leave their eventual point of realisation the more difficult it becomes. 

3:- What does that work out to in percentage terms? between you and your employer. Do you hit the rough rule of thumb? at a minimum an employer contributes 3% although it's possible to find an employer with better pension provision.

billy2shots

B0bbyEwing said:

I think this may end up being one of those questions I struggle putting in to words, especially as the knee-jerk response is depends what you put in :-s I'll give it a go.

So looking at consolidating the banking & re-jigging things trying to see if we can put more to retirement. Out of curiosity I started Googling to get an idea of what's a fair amount I "should" have as my pot at the age I'm at.

And came across this link.

Now obviously there's no 100% right/wrong. Only guides & common sense is more is better than less - I get all that.

So it says at age 20, nobody expects you to have anything. Good, because I didn't at 20.
Age 30 they talk about £25k as a years wage at that age (which ok I'm a bit over that in terms of value but also I'm approaching the next bracket in terms of age, so not great) & then age 40 they mention £90k.

£65k hike. I thought that quite an amount. 

Which lead me to look at my pot & see what mine had moved in just 12 months (as I don't have 10 years of data to look on).

Last year my SIPP increased 7k / 27.97%. 
Roughly take out my contributions & it rose 4.5k / 18.13%.

Jan-Aug it rose approx. 3.3k / 13.20% once you remove my contributions from it (reason I say that is because once you chuck say 1k in, while it can reduce in time, it immediately increases by 1k obviously).

Comparison this year

Jan-Aug, same contributions but once you take out those, it's only risen £600 / 1.45%

Now before we get it in, I know the phrases - "past performance....." .... "investments can....." and that's fine.

But using that site just to get some kind of feel, for them to talk about a 65k hike over 10 years which will include years such as this one that I'm experiencing, makes me wonder if I am performing under what the rough guide says, whether 65k over 10 years is realistic. 

I see these final figures for retirement & to me they're so huge. I wonder how people can come to such figures as surely these articles aren't all tailored towards the upper level earners (HR tax payers & above) & saying sod the rest of you? Or are they?


For the record, I'm talking purely about my SIPP here. I'm not factoring in any state pension, I'm not factoring in the workplace pension. Before it's said - no, my workplace will only pay the total minimum & if they can get away with it they wont even pay that. No salary sacrifice isn't an option. No I'm not a HR tax payer, no I'm not likely to be, now, later in working life or retirement. Can't think of any other auto-assumption stuff so sorry if I've not covered it.

As from reading that link, what I took away form it was basically everyone needs to get out of their job, go find a job paying 3x as much (because that's simple) & then you'll be fine, otherwise forget it (of course, not applying to the upper earners).

* For the record, nothing against those who earn well. Good for you. I just feel a lot of articles are tailored towards you/these people rather than the lower earners such as myself as going off a link such as this one, I'm a mile off the average earn (last 3 P60s read 30k, 28k, 26k). Don't assume that means we get a pay rise every year because I checked the one before that which was also 26k & I remember one spell where we went 10 years without a pay rise. 

Have a play around with a compound interest calculator

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php


I'm bodging things together here but basically taking your wage now and imaging you have £0 in a pension (you are that 20 year old you mention)

I'm also going to do what you said not to do. I'm taking 8% pension contribution as a guide ala work place pension (5% you 3% employer) but obviously this is paid privately as per your initial post. 8% is really the minimum you should strive for. 

So, that 8% of your current wage is £200 a month. Starting with a pot of £0 for 20 years. 

At an average of 5% stock market return that will give you £82,200 before fees. 

At 7% return it would give you £104,185 before fees. 


I haven't included the unknown variable, inflation but neither have I upped your contribution in line with pay increases over the next 20 years. We tend to move up in our careers from 20 years old to 40 and wages can increase a fair bit meaning your 8% contributions should increase in £ terms meaning a larger pot at the end than what's calculated here. 

5 and 7% are very realistic average returns (leaving inflation and wage increases/increase contributions to one side). 


Welcome to the world of compounding my friend. 

bostonerimus

Obviously the return from investments will depend on the type of investments you have ie the amount and types of stocks, bonds and cash. Then for planning purposes that return should be modelled with a probability distribution of potential returns with some characteristic standard deviation. For most people it's probably easiest just to put in a few estimates for net return after inflation that might range from 10% to 0%. Of course using the same number for each year is not right, but it will give you a very rough idea of the boundaries of the solution space. If you want to look at this in more detail google "efficient frontier".