Saving for Retirement - Is employer contributions enough?

Cien

Hello!

A bit about me.

I've recently turned 28, and I've been working full time for just over 5 years with my current employer who pays 12% of my salary as pension contributions. 

I'm mortgaged with my partner (will discount everything related to them as I want to focus on *my* finances for the purpose of this post). Current mortgage outstanding is £116,580 with 2 years till our next remortgage (current rate 2.3%l and our house value is around 210-220k (bought for 166k) in 2019. We used help to buy mortgage so we have the 20% property value I want us to buy out when remortgage in 2024). Current repayments are £433.60 pm (will significantly rise when we buy out Help to buy and these interest rate rises).

My starting salary was £16k, and this month was promoted again and I'm now on £32k.

I still get 12% contributions paid by my employer and I'm wondering if this £320 a month on its own is enough for a comfortable retirement e.g a few lavish holidays a year, and have enough income to not have to worry about day to day spending too much.

I know there's a lot of crystal ball gazing involved however with my health I've had 6 major operations on my stomach and I'm just concerned about my future and don't think I'll live to an old age and saving for retirement sometimes seems like it'll never happen.

I want to live in the now so would prefer to maximise my current take home pay rather than paying into a pension.

I do various savings such as a share purchase of £50pm matched by employer they give a £50pm worth of shares free.
Sharesave is due to end next year, I save 250pm here and should double my money (option was 84p a share thanks covid) and price has fluctuated from 1.40-2.20 and they mature next Nov. Hopefully I can hold them until the value goes above 2.40 as I'd love to say I can triple my money. No major need for the cash on maturity so happy to hold until price recovers.

So with all that in consideration,  I am a realist, so on the off chance I do make it to my 60s or 70s, how much should I be saving into pension?

I think my current pension savings so far is around £13k so I have a looooooooong way to go yet. Quite low as when I did start out the 12% on 16k is quite low and my priorities were to get on the property ladder, which I did, huzzah!

I can contribute to my pension myself using salary sacrifice and my employer gives their NI savings on top of my own contributions, however much I choose to save.

I would like to think in a couple years I could get promoted again and have a salary bump which again leads to a bump in passive pension contributions from my employer.

I know I cant get advice here, but what would YOU do, if you were me?

Save extra into the pension every month or just live in the now?

Albermarle

I do not think you say anywhere how much you are contributing now? Normally employers will insist you contribute a minimum amount.
Otherwise 12 % from an employer is very good, and assuming you are paying some, it is not a bad level for a 28 year old.
So in this case you might be better to spend any spare money on the mortgage/buy out and enjoying yourself, especially considering your long term health worries.

Cien

Albermarle said:

I do not think you say anywhere how much you are contributing now? Normally employers will insist you contribute a minimum amount.
Otherwise 12 % from an employer is very good, and assuming you are paying some, it is not a bad level for a 28 year old.
So in this case you might be better to spend any spare money on the mortgage/buy out and enjoying yourself, especially considering your long term health worries.

Sorry, I don't have to contribute anything if I don't wish to. My employer pays a flat 12% every month. I can choose to contribute myself via salary sacrifice. I just don't know if its right for me to do so as I'm more of a living in the now mentality while being very conscious that I might need a healthy pension for my current lifestyle if I get to that age.

Brenster

Your future self will thank you for contributing more now.  I know you say live for today, however there is a happy middle ground.  I dont think 12% per year on its own will allow a comfortable / lavish retirement.  I would rather put money in and plan an earlier retirement than put in the minimal and work into older age, where health becomes more of a lottery.

Plasticman

Lots of people prefer "living in the now" at 28. It's less appealing by the time you get to 58 and realise you'll be working until you drop and won't have enough for a decent lifestyle when you finally retire. I'm financially OK as I head closer to what will be an early retirement but I could have been better if I'd had a better balance of living today vs saving for old(er) age. 

I guess a lot will depend on how serious your health condition is and whether it's really likely to lead to a shorter lifespan. You need to make sure that you have some emergency savings and that your partner is financially secure in the event of your death. How you manage your spending vs mortgage payoff vs pension contributions really comes down to the lifestyle you want now and later in your life and how risk averse you are. 

Gubs113

You said you have recently been promoted. What I would do is take the extra you are now earning and split it between

- pension

- mortgage over payment
- rainly day fund

- day to day living

The split is up to you (maybe a 1/4 for each) but you are used to living on your old salary so you can afford to use the extra 

If you do this each time you get a pay rise it sooner adds up 

Cien

Plasticman said:

Lots of people prefer "living in the now" at 28. It's less appealing by the time you get to 58 and realise you'll be working until you drop and won't have enough for a decent lifestyle when you finally retire. I'm financially OK as I head closer to what will be an early retirement but I could have been better if I'd had a better balance of living today vs saving for old(er) age. 

I guess a lot will depend on how serious your health condition is and whether it's really likely to lead to a shorter lifespan. You need to make sure that you have some emergency savings and that your partner is financially secure in the event of your death. How you manage your spending vs mortgage payoff vs pension contributions really comes down to the lifestyle you want now and later in your life and how risk averse you are. 

Yes this is very true. I've been following this pension section for some time and feel like these massive retirement funds some have seem impossible for me to achieve so may as well do those nice things now instead.
I'll see what my first month's pay looks like at the new salary and from there look to maybe round it up to 400 a month and try and pay some more onto the mortgage (this is my biggest worry if I'm honest).
Thank you all!

Cien

Brenster said:

Your future self will thank you for contributing more now.  I know you say live for today, however there is a happy middle ground.  I dont think 12% per year on its own will allow a comfortable / lavish retirement.  I would rather put money in and plan an earlier retirement than put in the minimal and work into older age, where health becomes more of a lottery.

An excellent point thank you. I really don't know if I can do another 30 years of this 😭 Maybe my premium bonds will get me that unicorn sighting of a £1m win and take the edge off for me 😂 

ewaste

Your employer contribution is comparatively generous by itself, especially for your age. Although it certainly won't enable a comfortable retirement at a somewhat sensible age. However if you can contribute via salary sacrifice and your employer contributes their NI saving as well. It certainly points toward it being worthwhile making your own contributions.

What are your long term career prospects, is your income likely to continue to rise? e.g. are you likely to become a higher rate taxpayer and therefore could make efficient use of tax relief later. I'm pessimistic by nature so with a generous salary sacrifice scheme I'd be contributing what I can afford to let compounding do the heavy lifting. 

I'd work backwards, what age would you like to retire and what income would you like. You can then do math to work out a suitable contribution rate and adjust going forward as your aspirations and/or income change. 

I'd argue you maybe have too much risk concentration with the sharesave. If your employer matches sharesave I'd certainly utilise it up to that threshold within reason. Do you have a plan to diversify once your sharesave matures? 

Also important to think about insurance cover due to ill health beyond the typical life and critical illness cover etc. 

For your age you are in a far more fortunate financial position than most...

Brenster

I do look at these massive pots and wondered how they were acheived, and i didnt start looking into my pension until my i was 38 !  I had student debt, other debt, mortgage and young family to pay for.  But i am so glad i started, my goal is to retire by 56-57, much better than the enevitable state pension age of 70 on a pittance which will be the age it is in 25 years time, and it will only allow for a basic survival !
Its amazing the difference compound interest makes to pensions, especially those with plenty of time, like yourself.

Cien

ewaste said:

Your employer contribution is comparatively generous by itself, especially for your age. Although it certainly won't enable a comfortable retirement at a somewhat sensible age. However if you can contribute via salary sacrifice and your employer contributes their NI saving as well. It certainly points toward it being worthwhile making your own contributions.

What are your long term career prospects, is your income likely to continue to rise? e.g. are you likely to become a higher rate taxpayer and therefore could make efficient use of tax relief later. I'm pessimistic by nature so with a generous salary sacrifice scheme I'd be contributing what I can afford to let compounding do the heavy lifting. 

I'd work backwards, what age would you like to retire and what income would you like. You can then do math to work out a suitable contribution rate and adjust going forward as your aspirations and/or income change. 

I'd argue you maybe have too much risk concentration with the sharesave. If your employer matches sharesave I'd certainly utilise it up to that threshold within reason. Do you have a plan to diversify once your sharesave matures? 

Also important to think about insurance cover due to ill health beyond the typical life and critical illness cover etc. 

For your age you are in a far more fortunate financial position than most...

Yes I will certainly look to do some contributions myself on the back of this via sal sac.
The sharesave is not a potential risk as with this particular organisation I'll never in my lifetime see their shares drop as low as 84p again. It was a once in a lifetime investment I feel. Sharesave is extremely low risk because at maturity if the shares aren't at the price I want I can have my £9k I've saved back, only harm is that there's no interest paid as if it had been in a savings account or a typical investment over that same period but what investment can you genuinely get a reset button like that?
Share purchase is the actual risk but heavily balanced out by the free 50 per month I am awarded back. I can afford to lose 50 per month and like they say, its the long term and the dividends are adding up too which is nice.

The insurance part is tricky. I have critical illness (75k) and death in service 12x my salary paid to my nominated beneficiaries through work. I tried most life insurers and they won't cover me. I'd need a specialist insurer for life insurance away from my employer in case I ever left but im sure the premiums would cripple me. I genuinely can't see me leaving this employer so happy to sit it out with my death in service thats paid for by them, I pay less than £5pm for my critical illness and also pay around £3pm for personal accident up to 200k I believe. 
I just can't get those figures privately, I've tried 😞

I'd certainly love to retire by 50, but short of a miracle or being launched up the career ladder on a rocket, can't see that happening 🙈