Saving too much into pension for retirement?

kinger101

Cobbler_tone said:

kinger101 said:

Cobbler_tone said:

Alexland said:

Cobbler_tone said:

I think you can only work in today’s money. You should have a rough idea of what you won’t be spending…mortgage, childcare, NI, lower tax bill etc. You may want to add on things like private health care, adding pets to the family, extra holidays/hobbies etc.
With DB pensions even easier as the income should be able to be modelled and guaranteed.
As for the price of milk, you need to assume it is relative your income/cost today. I think that’s how most of us would work things out.

Depends on how much inflation protection the DB scheme will really provide. My dad's was capped at 3% pa so over time the spending power of his DB scheme diminished as even a low average rate of inflation is lumpy not linear.

But that protection is known. Ultimately it is designed to protect somewhat against inflation, i.e. mine is 5% cap RPI.
It is incredibly difficult to protect against outlier years and over time you shouldn’t be too far off. You can add a contingency but ultimately you need a figure or else we’ll all work until we drop.
Ultimately my state pension will far outweigh any ‘damage’ that 5%+ RPI can do to my DB in the 10 years I’m waiting to get it.

The outlier years might happen early on and have a lasting impact for the duration of pensioner's and spouses retirement.

Unless the scheme chooses a discretionary increase above the amounts stipulated, there's no mechanism to reverse the loss of spending power caused by years in which the schemes are capped.

True but you can only factor in so much. It is not feasible (for most) to factor in prolonged periods of high inflation. For those who have made decent pension provisions you tend to hear about them having more money than they need, as opposed to running out or struggling. Especially when the norm is to need less money as you get older.
That said, if you are aiming for a silver service retirement home then you'll never have enough, or probably die trying!

A decent DB is still the gold standard and if you factor in a decent standard of living in todays money using that, you'll be laughing when the state pension kicks in and more worried about your tax bill. 

Quite a few people have a combination of DB and DC pots.  I have USS, which has a cap.  If I did do the annuity route, it would be RPI linked as I wouldn't want to double up on inflation risk.

TBH, although moving to a DC scheme was a downside, the combination of better promotion opportunities in the private sector and having to plan more for my retirement means I'll likely have a much better pension then I'd have had otherwise.

Cobbler_tone

kinger101 said:

Cobbler_tone said:

kinger101 said:

Cobbler_tone said:

Alexland said:

Cobbler_tone said:

I think you can only work in today’s money. You should have a rough idea of what you won’t be spending…mortgage, childcare, NI, lower tax bill etc. You may want to add on things like private health care, adding pets to the family, extra holidays/hobbies etc.
With DB pensions even easier as the income should be able to be modelled and guaranteed.
As for the price of milk, you need to assume it is relative your income/cost today. I think that’s how most of us would work things out.

Depends on how much inflation protection the DB scheme will really provide. My dad's was capped at 3% pa so over time the spending power of his DB scheme diminished as even a low average rate of inflation is lumpy not linear.

But that protection is known. Ultimately it is designed to protect somewhat against inflation, i.e. mine is 5% cap RPI.
It is incredibly difficult to protect against outlier years and over time you shouldn’t be too far off. You can add a contingency but ultimately you need a figure or else we’ll all work until we drop.
Ultimately my state pension will far outweigh any ‘damage’ that 5%+ RPI can do to my DB in the 10 years I’m waiting to get it.

The outlier years might happen early on and have a lasting impact for the duration of pensioner's and spouses retirement.

Unless the scheme chooses a discretionary increase above the amounts stipulated, there's no mechanism to reverse the loss of spending power caused by years in which the schemes are capped.

True but you can only factor in so much. It is not feasible (for most) to factor in prolonged periods of high inflation. For those who have made decent pension provisions you tend to hear about them having more money than they need, as opposed to running out or struggling. Especially when the norm is to need less money as you get older.
That said, if you are aiming for a silver service retirement home then you'll never have enough, or probably die trying!

A decent DB is still the gold standard and if you factor in a decent standard of living in todays money using that, you'll be laughing when the state pension kicks in and more worried about your tax bill. 

Quite a few people have a combination of DB and DC pots.  I have USS, which has a cap.  If I did do the annuity route, it would be RPI linked as I wouldn't want to double up on inflation risk.

TBH, although moving to a DC scheme was a downside, the combination of better promotion opportunities in the private sector and having to plan more for my retirement means I'll likely have a much better pension then I'd have had otherwise.

Pretty much in the same position. A deferred DB in 2021, took over with a DC. They gave us a £20k transition boost and I’m contributing at 37%, which is still nowhere near the DB advantage. I used to contribute at 8%.
I could technically take the DB now but no point whilst still working. Should have a decent DC pot to play with in a couple of years.

Linton

thegentleway said:

MallyGirl said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

Sarahspangles said:

There’s a thread at the top of this forum that discusses ‘The Number’. There’s some scepticism about the PLSA numbers, since the calculations are sponsored by pension providers who have a vested interest in suggesting you save more into pensions.

Cus said:

MallyGirl said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

What she said 😁⬆️

Thanks for helpful comments. I've got spreadsheets that track spending in fair bit of detail. My point was I don't know what spending will be in 25 years time...

However, our defined benefit forecasts + state pension would take us over what we spend now (which is only going to go down as we currently pay mortgage, childcare, etc... ).

In my view PLSA average incomes are completely irrelevent.  A much better start, I would argue the best one, is what you are spending now minus the things that wont apply in retirement.  After 30 or more years of working you should be used to a particular standard of living.  To have to cut back could be difficult as could finding extra stuff to buy that you would consider worth spending money on.

I based our plans on what we were spending prior to retirement without removing the things that would not apply.  That has left us with a comfortable lifestyle and enough money for all the one-offs we want.  Despite the planned-for crashes never happening, the planned-for inflation being an over-estimate, and the planned-for investment return being well exceeded,  our normal standard of living has not changed much since retiring nearly 20 years ago except ,perhaps for going one step up on the quality of wine we buy.

From what you say you may already be at that stage with your DB pensions and SPs.  So the important thing to do is to ensure you can retire as early as you would like. Obviously the earlier you retire the lower the DB pensions and the  less you are able to save.  If the retirement age is pre 57 when you could possibly access your pensions you would need to ensure significant money is invested in S&S ISAs.

A couple of factors to consider:
 - could you be higher rate tax payers in retirement?
 - are your DB pensions capped?  If so, when inflation exceeds the cap the loss in real value is never recovered so you may have to plan for you ISAs/DC pensions to top up your guaranteed income.

thegentleway

Linton said:

thegentleway said:

MallyGirl said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

Sarahspangles said:

There’s a thread at the top of this forum that discusses ‘The Number’. There’s some scepticism about the PLSA numbers, since the calculations are sponsored by pension providers who have a vested interest in suggesting you save more into pensions.

Cus said:

MallyGirl said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

What she said 😁⬆️

Thanks for helpful comments. I've got spreadsheets that track spending in fair bit of detail. My point was I don't know what spending will be in 25 years time...

However, our defined benefit forecasts + state pension would take us over what we spend now (which is only going to go down as we currently pay mortgage, childcare, etc... ).

In my view PLSA average incomes are completely irrelevent.  A much better start, I would argue the best one, is what you are spending now minus the things that wont apply in retirement.  After 30 or more years of working you should be used to a particular standard of living.  To have to cut back could be difficult as could finding extra stuff to buy that you would consider worth spending money on.

I based our plans on what we were spending prior to retirement without removing the things that would not apply.  That has left us with a comfortable lifestyle and enough money for all the one-offs we want.  Despite the planned-for crashes never happening, the planned-for inflation being an over-estimate, and the planned-for investment return being well exceeded,  our normal standard of living has not changed much since retiring nearly 20 years ago except ,perhaps for going one step up on the quality of wine we buy.

From what you say you may already be at that stage with your DB pensions and SPs.  So the important thing to do is to ensure you can retire as early as you would like. Obviously the earlier you retire the lower the DB pensions and the  less you are able to save.  If the retirement age is pre 57 when you could possibly access your pensions you would need to ensure significant money is invested in S&S ISAs.

A couple of factors to consider:
 - could you be higher rate tax payers in retirement?
 - are your DB pensions capped?  If so, when inflation exceeds the cap the loss in real value is never recovered so you may have to plan for you ISAs/DC pensions to top up your guaranteed income.

Thank you; that’s very helpful.
- no, we don’t plan on being higher rate tax payers in retirement. Our current expenditure is comfortably below that now. 
- our DB pensions are capped. First 5% is matched with CPI but then half match up to a max of 10% (I.e. if CPI inflation is 15% or more, pension ‘only’ goes up by 10%)