Pension Pot nowhere near enough and stressing!!

James_BB

I’ve logged onto my pension account today to find my pot value is £7180. I’m 37 years old (38 in August)

My workplace has a Retirement Savings Plan and they give me “pension funding of 10% of my salary which is £35,395 increasing to £38,580 in April. The 10% can be taken as cash towards my salary or put towards pension contributions. The default contribution % was 4% but due to when I joined my employer i have full flexibility of increasing or decreasing that % (if you joined my employer now the contributions are set at minimum 8% and can’t be reduced) I assume it’s due to pension regulations?

Anyway I’m not great with money and decided to take reduce my contributions and take the 10% as cash about 8-10 years ago (no excuses I know it was a stupid thing to do) which was added to my salary and naturally I’ve adjusted to the increased amount of money if that makes sense.

in the last few months I’ve set it at 6% with the plan to increase in 2% increments every 6-12 months as I didn’t want to go from zero to X amount as the jump would be very noticeable.

I’ve read that you should have least a years salary in your pot by your thirties and obviously I’m away off that. Is this correct? 

Rather than bury my head in the sand I need to sort this and would appreciate some advice. Is it just a case of cranking up the contributions as quickly as possible to make up the shortfall. Is there a basic formula that I can refer to to ensure I’m on track on future or how far off I am. 

I know I need to adjust my spending habits (less eating out as that’s a massive expense each month) and fortunately i don’t use debt to pay for things

Apologies for the long post 

Albermarle

Slightly confused by your current pension contribution status. Your employer has to contribute a minimum 3% and you 5% , unless you opt out of the pension altogether. Are they making any current contribution? or are you still getting this as a 10% salary uplift instead?

I’ve read that you should have least a years salary in your pot by your thirties and obviously I’m away off that. Is this correct? Personally I have never heard that one, but in any case your pension pot is very low for your age.
The good thing is that you have plenty of time to catch up, and it is good that is what you are planning to do.

 Is it just a case of cranking up the contributions as quickly as possible to make up the shortfall.
Basically yes . Also you need to check how your pot is invested. Due to your age it should be in a higher risk/higher growth fund.

I know I need to adjust my spending habits (less eating out as that’s a massive expense each month)
Maybe time to learn to cook 

James_BB

Thanks for the response 

My employer which is NatWest gives 10% every month as “pension funding” so at the moment I’m on £35,395 so they’ll give me £3,539ish annually. I then decide to contribute X amount of of that towards my pension. So at the moment I’m doing 6% so the other 4% is cash into my monthly wage. So I believe it’s a salary uplift?

it’s called a Retirement Savings Plan which replaced a final salary pension scheme that was pulled many years ago. It’s with Legal and General and is a Diversified Growth fund which is the default fund (fact sheet at the bottom of the link) I believe it decreases the risk as I edge closer to retirement. I can invest into any of the funds in that link. (Won’t let me post link so added a space after the https://


https://
epa.towerswatson.com/accounts/NW1/public/natwest-group-pension-fund-documents/#section-1

Is there a guide/basic formula to calculate how much approximately I should have in my fund depending on my age 

sheslookinhot

James_BB said:

Is there a guide/basic formula to calculate how much approximately I should have in my fund depending on my age 

Google is your friend

Albermarle

epa.towerswatson.com/accounts/NW1/public/natwest-group-pension-fund-documents/#section-1

There is no indication on the fact sheet that this fund will decrease in risk as you approach retirement?
Otherwise looks like a typical medium risk default fund with about 65% equities, with typical middle of the road performance.

At some point you might want to consider, increasing the equity content of your pension , by using a different fund or combination of funds. It will make it more volatile, but should produce better growth over the long terms ( > 10 years or more)

James_BB

I must’ve got it confused with something else I was looking at. Thanks for responding 

hara____

A few thoughts -

- as Albermarle, says, the main positive is that you have time to improve things. Your current plan to put the full 10% in the pension sounds like a good start

- I wouldn't concern yourself with the rule of thumb about how much you should have. It's all so personal, a rule of thumb can't mean much. It's important to see your pension as one part of a broader picture, including any home equity and any savings outside of the pension

- while you're reviewing your work pension, might be worth checking your state pension estimate too? You can check your national insurance contribution record so far, etc

Audaxer

James_BB said:

My employer which is NatWest gives 10% every month as “pension funding” so at the moment I’m on £35,395 so they’ll give me £3,539ish annually. I then decide to contribute X amount of of that towards my pension. So at the moment I’m doing 6% so the other 4% is cash into my monthly wage. So I believe it’s a salary uplift?

I haven't heard of that system before. Do you mean that only a maximum of 6% is going into your pension from Nat West, but you aren't adding anything at all?  If it was me I would want at least the whole 10% from Nat West going into the pension, and then adding as much as possible myself. 

ewaste

Ah Yes the flexible benefits packages/allowances, usually you've all sorts of weird and wonderful options. I've a member of the family who works for another bank and gets various options from additional paid leave, life insurance, cycle to work, car schemes etc as well as pension contributions. It's all part of one flexible allowance they can allocate however they like. 

I've no idea how they essentially get around auto-enrolment as there doesn't ever seem to be an underpin 🤔 I'd imagine they just count it as having opted out. 

Naturally many people take benefits other than having it as an employer pension contribution so you aren't alone. 

The main 'rule of thumb' I've definitely seen before is have a contribution rate of roughly half your age when you start paying attention to pensions. 

You can also work backward with the aspirations of when you'd like to retire and how much income you'd like to live on.

Malthusian

Albermarle said:

There is no indication on the fact sheet that this fund will decrease in risk as you approach retirement?

The OP could be invested in a lifestyling option which is currently 100% Diversified Growth but will gradually switch into other, "lower risk" funds later. They need to check with their scheme to be sure.

James_BB said:
I’ve read that you should have least a years salary in your pot by your thirties and obviously I’m away off that. Is this correct? 

My favourite rule of thumb is that when you start saving into your pension, you should take half your age and save that % of your salary. (This % would include tax relief, employer contributions etc, so does not necessarily mean sacrificing 17.5% of your net income.)
The maths won't work for everyone, but the general principle - the later you leave it the more you have to sacrifice - does.
The "have 100% of your salary in a pension fund by your thirties" is useless, at least when you're already 37. 1) It's incredibly vague; it it means "30", you would have to start very early or get good fortune with investment growth to have 100% of your salary in a pension. Starting at 20 and saving 10 x 10% would do it, but not many 20-year-olds are that prudent. If it means "39" then it would be a lot easier. 2) Unlike the "half your age" rule, there's nothing useful you can do in the present; nobody is going to tell you to live on baked beans and save 50% of your income into a pension over the next two years, then revert to a more sensible contribution rate from 40.
As it stands, based on the information on your post, you are on course for a much larger drop in income than 4%, if/when you give up work. State Pension is £10,600pa from your 68th birthday, and the pension fund you're on course to build up with 6% of salary per year would only add a few thousand a year to that.
Are you sure you're not in a final salary scheme? The link you posted suggests this is a final salary scheme with an additional defined contribution element, not a standalone defined contribution scheme. If you are in the final salary scheme on top of the £7k pot, then your pension situation would be a lot better than your post indicates.

in the last few months I’ve set it at 6% with the plan to increase in 2% increments every 6-12 months as I didn’t want to go from zero to X amount as the jump would be very noticeable.

If you can start contributing 10% of your income in 2 years you can do it now. If you don't do it now, you should assume you won't ever. Eating out isn't a commitment that takes two years to exit. If you do nothing, outgoings only go one way. People acquire dependents, new hobbies, new friends who invite them on expensive jaunts, etc etc.

ewaste

Are you sure you're not in a final salary scheme? 

I'd be very surprised as they'd need to have been employed by the bank since before 30th September 2006 which means pretty much joining the bank straight out of school. Their flexible allowance would also be used to fund their membership from what I can tell.