Overzealous in contributing to workplace pension, or the right amount?

yatesl

Currently I put in 16% of my wage to my workplace pension.  10% by me, 6% by employer.  I got this figure as, although I had been putting in money to my pension beforehand, I decided to go "Right, come on" at age 32.  I'm late 30s now.

To give numbers, I'm currently on 117k (current salary ~37k).  Projected annual income, according to Scottish Widdows, is 45.9k including state pension.  This is obviously more than what I'm on now, at an age where I'll likely be needing less.  I believe this is in "today's money" price, but if we take the sentiment of I'll potentially have a higher pension than what I'm earning at 37, does this seem right?  Or should I just be matching my employer to bring it down to 12%, and use the rest on either household/lifestyle spending, or having a good time?  Lifestyle changes are still to come (hopefully) - got a house, but wedding, kids etc 

Appreciate the figures are potentially a lot less than others on here (!), but the sentiment remains. And obviously this relies on me being in this job for the next 30 years, which is not necessarily my childhood dream but nothing on the horizon yet.

Thanks! 

Isthisforreal99

Ignore the projected income. What is the size of your pot?

QrizB

If you're generally comfortable with your current lifestyle, then I wouldn't go changing anything just yet.

When you get into your 50s, you might find that you'll be able to retire earlier than originally thought.

ali_bear

You might try a modelling tool such as the one at https://www.guiide.co.uk/ although these can be very sensitive to the assumptions you put in, especially the investment growth rate. 

Alternatively there is a rule of thumb where you take your disposable income after all regular livings costs, mortgage payments etc then divide this into three equal parts, one each for pension savings, medium-term savings (or paying down debt if you have any) and living for today. But this is only starting point and it all depends on your attitude to these things. 

kimwp

If you don't need it now (and you don't have silly money in there), then I'd keep up with the current payments and only reduce them if you need them for kids etc.

I've really bulked up my pension pot (currently 40) and it means I can think about reducing my hours or retiring earlier because my retirement is pretty much funded so I don't need to fund contributions.

barnstar2077

I agree with the above, the prediction from the pension company is worthless (too many variables, and normally overly pessimistic.)

They will probably also have assumed that you will not take said pension till you are 68.  No one wants to work that long if they can help it (trust me, even if it isn't now, work is going to grind you down as you get older.)

I would assume that you won't able to access your private workplace pension until you are 60 (it's a long way off, so plenty of time for government meddling.)

I would at least keep your current contribution rate, and also open a stocks and shares ISA to give you more options later.  If you feel particularly flush, then open a SIPP on the same platform and pay into that too.

You can always take money from an ISA later and put it into a pension, but in the mean time it will give you a lot more flexibility should your health decline, or you just get a boss you detest when you are 56 etc.

What you are putting into your works pension at the moment really is the minimum in terms of getting a favourable result later down the line, so if you do nothing else, do not even consider reducing your contributions!  Your future self will thank you.

sammyjammy

Isthisforreal99 said:

Ignore the projected income. What is the size of your pot?

"I'm currently on 117k"

MarlowMallard

Do you have any ISAs ? If not I'd consider cutting the pension contribution to 8% and putting 4% into ISAs, the advantage being you can use them for emergency funds, house upsize, or if you retire before SPA you can take £16.7k pa out of the pension tax-free, and top it up out of the ISAs. 
 
 The tax gain of pension over ISA is not that much for a basic-rate taxpayer, because you'll pay tax on some of the pension on the way out, though pensions are obviously locked away until 58-60 which is both a plus and a minus.  

barnstar2077

MarlowMallard said:

Do you have any ISAs ? If not I'd consider cutting the pension contribution to 8% and putting 4% into ISAs, the advantage being you can use them for emergency funds, house upsize, or if you retire before SPA you can take £16.7k pa out of the pension tax-free, and top it up out of the ISAs. 
 
 The tax gain of pension over ISA is not that much for a basic-rate taxpayer, because you'll pay tax on some of the pension on the way out, though pensions are obviously locked away until 58-60 which is both a plus and a minus.  

I would not cut pension contributions personally.  If the OP retires at 60 (for example) then they will be able to remove a lot of money without paying much tax at all.

LHW99

Allows for rowing back a bit on contributions temporarily if eg you lose your current job

yatesl

Thanks everyone.  I do have a S&S ISA and a cash emergency fund.  They can always be higher obviously.  I'll continue contributions as they are as, you're right, if I lose my job or if I change jobs for a lower paying one, I'll regret not doing it now.  Plus it's only a difference of maybe £50 a month I guess?