How do I know I’ll have enough in my pension

Jes_Ter

Hi All, looking for a bit of advice as I don’t really know much about pensions.
I’m a 31 year old (nearly 32), with a company pension that I’ve had since I was 18 (although the first 3.5 years were apprentice contributions, so not masses were put in). 

I currently have approximately £59,000 in my pension pot. This is a defined contribution pension (means nothing to me), and if I put 6% of my basic salary in, my company will put 12% in (this changed a few years ago, but I’ve always put in the maximum I can to get the max company contribution). This equates to about £592 per calendar month going into my pot. I’ve recently opted to put a further 6% in myself, bringing the totally monthly contribution to 24% of my basic salary (approximately £790). 

I’ve chosen to invest in the medium to high risk option, as I’m hopefully about 30 years away from retirement, but I’m still worried that I’m going to get to 62’ish and find I don’t have enough money? All of the websites/info etc that I look at online seem to point out that I will be short of cash. Can anyone give me any insight? Is 24% of my basic pay going to be enough going into my pension pot annually to make a difference? I currently have a mortgage and a handful of finance deals that mean I cannot really afford to do much else (I figured with the tax efficient savings of a pension, being a 40% tax rate payer, this would be the best option for my future). 

Any help/advice would be greatly appreciated. I don’t really need advice on the mortgage/other financial stuff as I’m working on reducing this/overpaying etc already. Just pension advice if possible?

Thanks All 👍🏻☺️

Peterrr

You're putting considerably more into your pension than most of your age group so I wouldn't be worried about not having enough at retirement. Whether you will have enough will also depend on what your spending habits will be in retirement - world cruises or pottering around your garden. Decades to go before you should become concerned about that.
Meanwhile, since you've made a great start to your retirement savings, you might want to consider diverting some of your earnings into accessible savings or getting on the property ladder.

Simon11

Like me (I am aged 34) you have your head well glued on around pensions, so worth visiting this forum occasionally to learn more about pensions. You are very lucky to have a high percentage put in by an employer- well worth considering this in your next career move.

As you move up the ladder, where possible try to put any taxable income that you have after £50,000 to reduce paying 40% tax. If you get bonuses, well worth chucking these into the pension as well (max you can put into a pension is £40k per year).

If you keep going, you should be in a great position to retire earlier, say 55-60.

Yankee24

Agree with Peterr.  As I tell my adult kids, pensions are great esp as a higher rate tax payer, but you need a full financial strategy, not just pension.   When my husband’s and my parents died, we inherited.   Stupidly we had never considered that.  We should have been much more aware of what 50k, 200k a million could do.  It would have opened out eyes to different approaches.  So think around the issue you are trying to solve.  The problem we have found with money, is we were too conservative with it when we had a young family…. We should have enjoyed that time more.  Having pots of money at 60 isn’t what it’s cracked up to be. 

Pipthecat

At your age I was saving into my pension without any real understanding of what my finances would be like in retirement.  Whilst I was growing a healthy pension pot, I was still a bit shocked to realise how modest my pension was going to be in relation to my lifestyle at the time.  I came to the following conclusions. I wanted to retire around 60 but would like the option to finish earlier if I could.  I did some math to work out how much I needed vs wanted to live on in retirement and started saving more to achieve what I wanted (Home - PLSA - Retirement Living Standards gives a good reference).  

In your shoes, I would have a play with one of the retirement planning calculators out there, see what the future might look like and decide if I can/need to add to my savings.  You have 30+ years on your side so you are in a great position if you do need to change anything.

Workerdrone

I would say you are in a very good position. At 32, I only had 27k in my pension. A result of leaving a stable job at 28 for period of disastrous self employment. I didn't start paying in again until I was 36. Luckily what saved me was the fact that a good chunk of that 27k was in tech stocks acquired from 2003 so pretty much at the bottom. The long bill run on tech effectively patched my 8 years of none contribution. But back to you. At 32 you have a very good pot and a very good contribution. Don’t forget a lot of these pension sites are showing what annuity you might get based on your projected pot size. I think that’s outdated. You might want to
look at drawdown

Linton

You know you will have enough in your pension if you set up a year by year financial plan showing how your pension pot size increases until your retirement.  If you update the plan annually with reality you can quickly see whether you are going off target and change the plan accordingly.

You will need to know your desired retirement annual income.  A reasonable first estimate is what you are spending per year now minus any large items that wont apply in retirement eg mortgage. If you dont track your expenditure you should start doing it now.

You can estimate the required pot size by multiplying your annual retirement income need beyond State Pension by 30.

If you are familar with spreadsheets it is easy to set up a year by year calculation of how your pot grows given assumptions on the annual amount of money going into your pension and expected investment growth.  Otherwise there is pension planning software available. For example (not a recommendation) :https://www.retireeasy.co.uk/

tacpot12

Lots of good advice above - I agree you are doing the right things already. Just carry on contributing and monitor how things are going every couple of years. You can trust that it will work out - it did for me. I had a personal pension set up for me at work in 1992, when they were a new thing. I didn't understand them, but carried on contributing, and as a result I was able to retire at age 53. (Although I could only draw on my pension at 55, in the last few years of my working life, when my mortgage had been repaid and my children had left home, I was able to save enough to life of my savings for two years before drawing on my pension).

I just wanted to add that a "Defined Contribution" pension scheme is one where your pension benefits are defined by what you personally have contributed to your scheme. This is in contrast to a "Defined Benefit" pension scheme where your benefits are defined by something other than what you personally have contributed - often this will be related to your salary, but the relationship canbe quite loose.

I would also agree about the need to spend money while you are young so that you enjoy life, but I've also seen the power of saving and investing. Spend a bit and save a bit, and you should be very happy. 

Albermarle

Pension basics | Help with pension basics | MoneyHelper

Explanation of Defined Contribution pension.

Otherwise as others have said, you are way ahead of the game for your age. In fact many people give no thought to their pension until they are about to retire.

MEM62

Yankee24 said:

The problem we have found with money, is we were too conservative with it when we had a young family…. We should have enjoyed that time more.  Having pots of money at 60 isn’t what it’s cracked up to be. 

You made what you thought was the right choice at the time.  Don't beat yourself up about it - hindsight is always 20-20.  And much better that way round than overspending and living your last years in poverty.      

Brenster

Yankee24 said:

Agree with Peterr.  As I tell my adult kids, pensions are great esp as a higher rate tax payer, but you need a full financial strategy, not just pension.   When my husband’s and my parents died, we inherited.   Stupidly we had never considered that.  We should have been much more aware of what 50k, 200k a million could do.  It would have opened out eyes to different approaches.  So think around the issue you are trying to solve.  The problem we have found with money, is we were too conservative with it when we had a young family…. We should have enjoyed that time more.  Having pots of money at 60 isn’t what it’s cracked up to be. 

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