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  • FIRST POST
    • MattyJ87
    • By MattyJ87 7th May 18, 10:31 PM
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    MattyJ87
    Question about the 'golden rule' of paying in to your pension
    • #1
    • 7th May 18, 10:31 PM
    Question about the 'golden rule' of paying in to your pension 7th May 18 at 10:31 PM
    Hello,

    This may have been covered before but I couldn't find anything on the main MSE site. Martin's golden rule for paying in to your pension is take your age, divide by two and whatever that number is, is the % you should be paying out of your salary in to your pension.

    Should this be how much you pay in yourself directly (excluding employer contributions) or the combined amount of your contribution + employer contribution/tax relief? I'm getting a bit confused as for me these would be quite different numbers.

    Thanks!
Page 1
    • greatkingrat
    • By greatkingrat 7th May 18, 10:45 PM
    • 155 Posts
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    greatkingrat
    • #2
    • 7th May 18, 10:45 PM
    • #2
    • 7th May 18, 10:45 PM
    It's the total contribution, including anything paid by your employer.
    • RuleTheWorld
    • By RuleTheWorld 7th May 18, 10:54 PM
    • 140 Posts
    • 37 Thanks
    RuleTheWorld
    • #3
    • 7th May 18, 10:54 PM
    • #3
    • 7th May 18, 10:54 PM
    employee contribution and employer contribution

    nothing to do with tax relief - presuming this has been given at source
    • Paul_Herring
    • By Paul_Herring 7th May 18, 11:50 PM
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    Paul_Herring
    • #4
    • 7th May 18, 11:50 PM
    • #4
    • 7th May 18, 11:50 PM
    It's not a golden rule, it's a guideline to indicate the sort of amounts you should be looking at contributing - generally to dissuade the sorts of thoughts that the auto-enrolment amounts are anything like sufficient.

    But it's generally taken to be the
    - percentage of your gross wage,
    - that arrives into your pension pot,
    - from you
    - and your employer,
    - after any relevant tax rebates.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • dunstonh
    • By dunstonh 8th May 18, 1:03 AM
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    dunstonh
    • #5
    • 8th May 18, 1:03 AM
    • #5
    • 8th May 18, 1:03 AM
    Martin's golden rule for paying in to your pension is take your age, divide by two and whatever that number is, is the % you should be paying out of your salary in to your pension.
    Is he claiming that? We were using that back in the late 80s. It was a very crude guide then and remains so now. It is not a golden rule. Its only purpose is to get people thinking of the sort of ballpark they need to paying. It is not accurate for most.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • kev2009
    • By kev2009 8th May 18, 11:47 AM
    • 285 Posts
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    kev2009
    • #6
    • 8th May 18, 11:47 AM
    • #6
    • 8th May 18, 11:47 AM
    Hi,

    Just wondering, is this rule only upto a certain age? I mean if a person was 60, should they really be paying in 30%? I can understand the rule if you 20-30 for example as paying in 10-15% is a reasonable amount but as you get older unless your on a good salary will decent pay rises, it becomes harder to maintain.

    If i take my age and divide by 2, i'm underpaying into my pension by 2.5% however due to having a mortgage etc, single income i'm not able to pay in more.

    Kev
    • stoozie1
    • By stoozie1 8th May 18, 11:53 AM
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    stoozie1
    • #7
    • 8th May 18, 11:53 AM
    • #7
    • 8th May 18, 11:53 AM
    I think it's meant to be the age at which you start contributing.

    So if you start at 40, you do 20% thereafter.

    But I'm not enamoured with it as a rule of thumb!
    Save 12 k in 2018 challenge member #79
    Target 2018: 24k Jan 2018- 560 April 2670
    • Aegis
    • By Aegis 8th May 18, 11:55 AM
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    Aegis
    • #8
    • 8th May 18, 11:55 AM
    • #8
    • 8th May 18, 11:55 AM
    Hi,

    Just wondering, is this rule only upto a certain age? I mean if a person was 60, should they really be paying in 30%? I can understand the rule if you 20-30 for example as paying in 10-15% is a reasonable amount but as you get older unless your on a good salary will decent pay rises, it becomes harder to maintain.

    If i take my age and divide by 2, i'm underpaying into my pension by 2.5% however due to having a mortgage etc, single income i'm not able to pay in more.

    Kev
    Originally posted by kev2009
    For someone starting at 60, they'd need to be paying in a lot more than 30% of their salary if they ever wanted to retire. Such an individual would likely have left retirement planning far too late to make much difference.

    The real goal of this formula is to show someone that starting in their 20s means they can probably pay in half of the proportion of their salary (e.g. 10%) than someone starting at 40 (i.e. 20%) for the rest of their life if they are aiming for much the same retirement income. It's just a rule of thumb though, and doesn't factor in acceptable risk levels, target income, target retirement age, inheritances, etc.
    I am an Independent Financial Adviser
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
    • NoMore
    • By NoMore 8th May 18, 12:08 PM
    • 253 Posts
    • 227 Thanks
    NoMore
    • #9
    • 8th May 18, 12:08 PM
    • #9
    • 8th May 18, 12:08 PM
    People are way over analysing this, its not a rule. Its not a guarantee that you will have a good pension if you follow it.

    Its just to demonstrate, quickly and simply that the earlier you start the less you have to contribute monthly. Its simple mathematics, starting older requires more money contributed monthly as less time before retirement.

    Overall the more you can contribute the better off you will be.
    • Paul_Herring
    • By Paul_Herring 8th May 18, 12:13 PM
    • 6,503 Posts
    • 3,206 Thanks
    Paul_Herring
    Just wondering, is this rule only upto a certain age? I mean if a person was 60, should they really be paying in 30%? I can understand the rule if you 20-30 for example as paying in 10-15% is a reasonable amount but as you get older unless your on a good salary will decent pay rises, it becomes harder to maintain.
    Originally posted by kev2009

    Once again, it's a guideline, not a rule, and yes. In

    - the year you start contributing
    - you work out that percentage and
    - keep to that percentage until you retire.

    So, if you started paying in 14% at 28, and keep paying 14% (through pay rises, promotion, whatever, it's always 14%) then yes, at 60 you should still be putting in 14%.

    If, however you don't start until 60, then you should be putting in 30% (probably a lot more actually, as noted.)


    What you don't do (for this guideline) is increase the percentage as you grow older - if you started at, and continued with, 14% at 28, you don't increase it to 15% at 30 or 20% at 40.

    But to re-iterate, this is a guideline to get you in the right ballpark of what you should be contributing, not a hard-and-fast rule.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • dunstonh
    • By dunstonh 8th May 18, 1:00 PM
    • 96,058 Posts
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    dunstonh
    Just wondering, is this rule only upto a certain age?
    its not a rule. its a crude guide to a ballpark figure if you are looking to retire at state pension age.

    Remember we were using the same guide 30 years ago when the state pension age was lower and annuity rates double the current level and investment returns were higher. So, you cant expect the same outcome today. That is why it is a very crude guide.

    Some people treat retirement planning like a tick box exercise. e.g. Pay into a pension - yes, 1% with employer. So, I can tick that off the list of things to do. The half age guide is to make them realise that they are way off the mark.

    Are you going to retire at 60 or 68? (big difference in contribution levels if you do)
    Are you investing low risk or high risk (or take a high risk or low risk view as a variation of that)? (big difference in contribution levels again)
    Are you annually increasing your contributions or keeping them level with perhaps occasional increases)? again big differences
    There are other things to consider as well. But those are just a few.
    Last edited by dunstonh; 08-05-2018 at 1:02 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • kev2009
    • By kev2009 8th May 18, 1:36 PM
    • 285 Posts
    • 405 Thanks
    kev2009
    Thanks all for clarifying

    I originally took out a private pension when i was just under 25 and not knowing the full ins and out's i chose a fixed amount to pay in each month and then the tax went in on top and i never increased it each year, it was always the same amount.

    I kept that going for i think around 10 years. About half way through i got a perm job and joined company pension scheme of which i didn't need to pay into.

    So after 10 years or there about's, I decided to transfer my private pension into my work pension and I then started to contribute a % of my salary into the company pension scheme which I have stuck with since. Main advantage being each pay rise, means a extra couple of quid goes into the pension.

    Looking at the rule, even if you ignored the Private pension, when i started to contribute to the company pension I did actually take my age, half it and between companies and my contribution I hit the figure which I've used since as a percentage, so if you like, the private pension being added has been a nice addition/top up

    i do from time to time play with the online tool my pension provider provides to see what i will get, I need to turn some things off such as 50% to partner as i'm single i'm not factoring that in, no dependants etc so no need in a guarantee x years for partner etc so that does help increase the figure they suggest I may get. Ten i toy with taking a lump sum or not, figure goes up more per month BUT it would take me approx 20+ years to make the lump sum payment so I may not bother with that, will need to assess when i'm closer to retiring and see what the situation is then.

    Kev
    • Prism
    • By Prism 8th May 18, 5:01 PM
    • 563 Posts
    • 467 Thanks
    Prism
    For me personally I wish at the age of 23 someone had explained what 'risk' meant in relation to investing. I might have made a slightly better decision.
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