Pension Targets

dunstonh

I am 40 and my pension pot is currently £86,400. My employer contributes 11% of my salary (£40k) and I contribute 10%. I have increased by contributions from 9% in 2023 to 10% in 2024. I am not sure what more I can do or what I need to do or even where I should be at this stage.

Its not bad for 40 but its not great either.    However, it all relative to future contribution levels and how much your spending needs in retirement and how much you earn.   

I would like to get a pot that pays out approximately £25k per annum and I have no other pension pots.

Is that from state pension age, including with not including state pension?  If earlier retirement, you will need to fund the gap until state pension age?

According to these statistics, your pot is higher than the average 40-49 year old:
Average pension pot in the UK: Statistics by age in 2024 (investingintheweb.com)

Don't rely on that.  Most people have multiple pensions.  So, the average pot size is not a guide as someone could hold 5 pots.   Plus, the average pot size is heavily impacted by recent auto-enrolment schemes starting from fresh and only being active for less than 10 years.

I would like to get a pot that pays out approximately £25k per annum and I have no other pension pots.

If we look at that in real terms, you have about 4 years worth of that saved up so far before you would run out of money.

Albermarle

You can do a back of a fag packet calculation as follows.

Assuming that your salary and contributions increase with inflation, and assuming that your pension investments increase by a minimum of 1% above inflation.

Then if you work for another 28 years, you should have a pot of about £380K ( in todays money) .

This could probably safely generate an income of around £13.5k pa + the state pension of £10.5 K pa ( I know it will have increased by then but so will prices so effectively it will still be £10K in todays money)
So near enough £25K pa in todays money.

Some relevant points.
1) Note the previous post regarding your pension investments. Increased growth above 1% would obviously help the situation.
2) You could increase the withdrawal rate from the pension pot. This will increase the chance of it running out if you lived to a ripe old age
3) You could struggle to retire much before the state pension age, if at all. Unless you get a higher paid job/get an inheritance/win the lottery.

In summary your pot is above average, and you and your employer are adding a good % each month.
The problem is that to generate a long term good level of retirement income, you need a BIG pot, especially if you want to retire early.

Marcon

SieIso said:

Hi All,

I have not always focused too much on my pension but in recent years I have taken a much keener interest in it. I spoke to a representative from my pension provider this week who was onsite at my workplace, they advised that my pension is "much too low" and I should make serious efforts to address this. The representative advised that he could not give any further advice. 

I am 40 and my pension pot is currently £86,400. My employer contributes 11% of my salary (£40k) and I contribute 10%. I have increased by contributions from 9% in 2023 to 10% in 2024. I am not sure what more I can do or what I need to do or even where I should be at this stage. I have been told before by the same provider that my pension pot should be of concern to me and I have tried to address this by increasing my contributions but I worry that I have left things too late.

I would like to get a pot that pays out approximately £25k per annum and I have no other pension pots.

Any advice would be great. 

If your salary is £40K and you are already contributing 10%, how much scope to do you have to pay more and still afford to live today? All very well your pension provider saying that's not enough, but if you can't afford to contribute more then that's the end of the matter until either (a) your salary increases or (b) your outgoings decrease.

QrizB

SieIso said:

I spoke to a representative from my pension provider this week who was onsite at my workplace, they advised that my pension is "much too low" ... My employer contributes 11% of my salary (£40k) and I contribute 10%.
Any advice would be great. 

Your total pension contributions are 21% of your salary. For someone aged 40, that's quite reasonable.

Exactly what calculation did your pension provider's sales rep do to demonstrate that it was "much too low"?

redlightbulb

I have seen a guideline of 3X your salary at 40 floating around, which I have tried to work to for my targets.
So from that you are a bit behind.   But I know it is so hard to work out an actual figure..
They tell you to work out what income you need per year in retirement and then work backwards.
I think you are doing OK from my limited knowledge.  There are so many variables... not great that the representative didn't elaborate more.  They must have had a figure of where they think you should be at to say what they did.   

Jonboy1889

chris021 said:

I have seen a guideline of 3X your salary at 40 floating around, which I have tried to work to for my targets.
So from that you are a bit behind.   But I know it is so hard to work out an actual figure..
They tell you to work out what income you need per year in retirement and then work backwards.
I think you are doing OK from my limited knowledge.  There are so many variables... not great that the representative didn't elaborate more.  They must have had a figure of where they think you should be at to say what they did.   

That’s quite an ambitious target- someone starting work at 21 earning £18k would need to put 20% of their income every year (inc company contribution) from the start of their working life to hit £90k by 40 (assuming by 40 they earn £30k given 2.5% annual salary increase, and a 5% growth pa)

quite a stretch for most people.

That rule also ignores recent pay increases. If last year you earned £50k and got a pay rise to £70k this year there’s little chance your pension would be 3x your salary at 40.

might be more helpful guides maybe 

barnstar2077

I would investigate how your money is invested in your pension, and what your options are for different funds etc.  How your pot is invested can make a massive difference.

I wouldn't worry too much though, but if you can afford to put a bit more in then do so.  The guy that you spoke to was hardly impartial as others have said! 

cloud_dog

Let me caveat the below by saying that these are general guidelines, and obviously the specifics of the situation (you / your partner) will define the most appropriate action.

Having said that....

Fidelity offer some useful rule of thumb guides that helps put your position in to a little more context, especially the Power of 7.

https://retirement.fidelity.co.uk/retirement-savings-guidelines/#/

Please bear in mind that if you want to retire earlier or with more, more will be required.

MEM62

SieIso said:

I am 40 and my pension pot is currently £86,400. My employer contributes 11% of my salary (£40k) and I contribute 10%. I have increased by contributions from 9% in 2023 to 10% in 2024. I am not sure what more I can do or what I need to do or even where I should be at this stage. 

Your are doing better than many a) by having a pot and b) by looking at it now.  If things remain unchanged and assuming an averaged return of 5% pa, your pot would be worth circa £800k when you retire.  There are a whole heap of variables that will impact what that actually means when you retire.  Inflation will erode, considerably, what that is worth in 27 years time but that may be offset by and increase in your contributions as your salary increases.  We do not know what inflation will be, how much your earnings will increase or what life events you will face over the next almost three decades.

The positive is that you have a start and you are making reasonable contributions.  Increase them if you can but remember to balance the fact that life is for living and you need to do that today as well as planning for tomorrow.  Review your situation regularly over the coming years and you can adjust as you need to.  

SieIso

barnstar2077 said:

I would investigate how your money is invested in your pension, and what your options are for different funds etc.  How your pot is invested can make a massive difference.

I wouldn't worry too much though, but if you can afford to put a bit more in then do so.  The guy that you spoke to was hardly impartial as others have said! 

Is this what you mean?

Early-Stage Growth Fund (Drawdown L/S)	£84,881.52
Growth Fund (Drawdown L/S)	£1,429.45