Pension Query

kiis10295

Hi All, I'm relatively new to the talk of Pensions but I'm paying quite a bit into mine at work so thought It's best to check I'm on track or atleast doing the right things.

I started paying into a Scottish Widows work place pension a few years ago.
I'm currently 38. Current payments are as follows:

I'm paying the max my employer will match - 6%
My employer - 12% (Doubled in 2022 once I completed 5yrs of service)
AVC - 10% (was 9% until start of 2024 but I increased to 10)

Scottish Widows website says my Pension Pot will be just above £500k at 65 or somewhere in the region of £32k a year which is pretty much on par with my current annual salary.

I'm assuming the State Pension (around £10k) is on top of the 32k?

I don't currently have any plans or ideas of what I want to do when I retire as it's quite far off. I already own my own home & have around 50k in savings sitting in ISA's paying 5%.

Am I paying enough into my pension (too little or too much)?. I thought it's best to check things out now so I do. Any advice is welcome.

BoxerfanUK

Just a little food for thought…. but have you considered what effect inflation may have on the forecasted 500k and 32k in 27 years from now?

Meaning, you earn 32k now, but what would you need to be earning in 27 years to achieve the same standard of living that you have today?

kimwp

It's not really advice, but one thing I find annoying with pension calculators is whether the value and income predicted is in today's money equivalent. 

I think if you've done the calculation in a private pension website, it's reasonable to assume it doesn't include the state pension. 

BoGoF

Do you know what your pot is invested in fundwise?

At 38 these projections make a lot of assumptions, how much is your pot currently worth?

hugheskevi

kiis10295 said:

I'm paying the max my employer will match - 6%
My employer - 12% (Doubled in 2022 once I completed 5yrs of service)

Very sensible.

AVC - 10% (was 9% until start of 2024 but I increased to 10)

Do you have access to salary sacrifice for this contribution? Does your employer share any of the employer National Insurance savings?

If not, you might want to consider saving the money into stocks and shares ISAs and waiting for a future time when putting money into pension is more advantageous (eg salary sacrifice available, or a higher rate taxpayer - at such a future time you could put more money into a pension from salary and use SSISA for living costs, effectively moving the SSISA into a pension).

Scottish Widows website says my Pension Pot will be just above £500k at 65 or somewhere in the region of £32k a year which is pretty much on par with my current annual salary.

A key priority should be to increase salary, which will significantly improve your scope to increase pension or ISA contributions.

Assuming your salary increases by around 2% p/a above inflation and your funds return about 4% above inflation, then even ignoring any pension already accrued you would build up a pot of around £500K at age 65 (in real terms), ignoring State Pension. That would give an index linked annuity of around £22,000 based on today's rate. Including State Pension would get you roughly to your salary of today, but you would hope your salary would be much higher in real-terms by age 65 - even with just 2% p/a real salary growth you would be at £55K then.

I don't currently have any plans or ideas of what I want to do when I retire as it's quite far off. I already own my own home & have around 50k in savings sitting in ISA's paying 5%.

That sounds like a cash ISA - any reason you want so much cash rather than investments?

Am I paying enough into my pension (too little or too much)?. I thought it's best to check things out now so I do. Any advice is welcome.

Do you have investment Lifetime ISAs? That may well be a better choice than AVC pension contributions for a basic rate taxpayer.

[Deleted User]

A £500,000 pot will generate about £20,000 a year assuming you do not take the tax free lump sum all at once and take 4% annual drawdown. If you take the tax free lump sum, the £375,000 remaining would produce an annual income of £15,000 per annum at the 4% annual drawdown rate. This is very simple because I am ignoring growth and inflation. Perhaps their estimate does include the state pension.