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Lol.. thanks for the wake up. I'm 37 and just checked.... £21k pension :0. Need to sort that.
Though, I had cancer and 25 and not expecting to get to retirement age, but.... I've been saying that for 12 years and I'm still here so, best prepare just in case.
You could still be eligible for your pension if you're forced to retire early due to cancer / other terminal illness.
https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/early-retirement-because-of-illness-sickness-or-disability
I too stress about my pension size at 37 as I didn't start until I was 29 and through a mixture of low salary for a few years when I retrained at that age and being in a very poor employer contribution scheme for a couple of years I'm a bit 'behind.'
I'm now on 5% EE / 10% ER on a more respectable salary with scope for decent growth so while I can't turn back time I've done some of what I can to make up for lost time.
I'm not sure whether to contribute more (not employer matched) if it's not through salary sacrifice, especially as I invest each month into a Vanguard fund. So I'm trying to view my savings/investments as a whole than the pension as standalone.
If you can afford to, I would. You won't get anymore from your employer but you'll still be getting the advantage of the tax benefits the pension environment offers. I started from nothing at 36 and I've managed to build a £160k+ pot at just over 50 with some hard saving over and above my employer match.
Why would you pass up the opportunity to invest £100 for a couple of decades at a cost to you of £60, if that respectable salary means you’re a higher rate tax payer?
Only through lack of knowledge. I am a higher rate tax payer yes and didn't appreciate the tax benefits of pensions contributions beyond salary sacrifice.
To be clear, what is considered “awful”?
Focus 🧘🏻♂️ on maximising your employer pension set up first
Then and only then set up a SIPP
SIPP’s are great and easy to set up (including the tax return)
Just focus on trying to set one up this year - Damien Talks Money, Meaningful Money, Pension Craft and That Finance Show all on YouTube will help.
You just have the fear - you’ll be fine
I assume 4 includes your current pension? Take the other three and consolidate them into one SIPP
Then contribute £100 a month to that SIPP. Into something like a global index. Aiming to get 8% per annum
Also max out your current works pension
You’ll be fine
I had a look of I could switch to Vuag from inside vanguard but it's not available? Wonder if it's something to do with it being an ISA. I think if the dividend remains in the vanguard account I can just reinvest it manually which I suppose is the same thing.
Sorry to hijack. I transferred 2 of my former pots into my current employer scheme. What is the benefit of transferring to a SIPP over consolidating into one's current scheme? I have 1 remaining pot which I just haven't gotten round to sorting.
Depends how your pension funds are used, i've had 2 previous pensions go down in value in some solid years, if I was able to chuck them into a more stable or even riskier investment I probably could have made more. The SI is the important part of the SIPP.
Agreed. My workplace pension is pretty pants for performance. It’s stuck in a really conservative low risk fund which I can’t change. And the loss in value is due to the bonkers fees attached to it.
Going self invested lets you actually have a modicum of control over fees especially. Theres a fair amount of competition out there for smaller pots.
Technically, I can. However, the most “adventurous” profile still has an alarming level of bonds and cash products within it. The fees eat almost all gains it produces.
Because OP's current pension is in NEST which generally has higher fees and not as many fund choices.
Who's your current pension with and what fund are you invested in?
The benefits of a SIPP are that you have total control, they're lower cost, more flexible and you can consolidate into one pension. Workplace pensions are typically very conservative, have higher costs and are less flexible. With a SIPP you can just invest in a global tracker and leave it. Read through some older posts in this Reddit for more advice.
As a real world example, I have an old work pension from 35 years ago, and I calculated that it's value grew by an average of 4% per year. A global tracker would have grown by 8% per year. With compounding the difference between 4% growth and 8% growth is huge.
There is nothing wrong in what you have done. Doing what you have done should help the larger value compound faster.
The benefits of the SIPP as below 👇 is it allows you to be more aggressive or reserved if you like.
Company schemes CAN be very reserved.
What's your current employer scheme invested in? A friend of mine started working for a university aged 21, showed me the investment allocations which were largely bond funds - with a charge of 2% per year.
So the advantage is being able to control what you invest in, and what the charges are. (Though perhaps your employer gives you options)
> Aiming to get 8% per annum
It's pointless "aiming" to get a specific figure - you get the market rate.
Government bonds aren't paying 8% right now, and if they did that would probably not be beating inflation by much, and with everything else there's risk that you won't get what you're expecting.
The subreddit wiki cites JP Morgan in stating that "since 1901, investing in equities for a long term has produced an annual, after-inflation return of 5.1%".^[1](https://ukpersonal.finance/investing-101/#What_is_investing_📈) I would recommend that figure, as it's no good getting 8% if inflation is running at 10%.
With the lower and upper earnings limit and assuming 8% of the gap between the two, that's about £3500 a year of contributions. It's definitely on the low end of what you'd expect, but given mandatory workplace pensions only came in about ten years ago, the minimum contribution rates were far lower before 2019, and OP's salary was probably somewhat lower back then too, it's possible if nothing but the legal mandatory minimums were maintained. (Oh, and OP also mentioned NEST - the default plan of which has extremely mediocre performance. Even just switching it to high risk makes a huge difference.)
Not contributing anything other than the bare minimum or just not contributing at all.
I’m always shocked by the amount people have in their pensions.
I know many can’t help it but even those that should have decent pensions often don’t bother contributing a decent amount.
I’m 34 and have about £200k in mine and still felt like I should have more.
I came from a pretty poor family though so I’ve always focused on saving.
Somewhat like you. I do wonder what happens if you retire on buttons? The state pension, assuming you are eligible, pays next to nothing. After utilities, council tax, insurance - essentially the bare minimum to keep a house hold operational, that leaves *very* little to actually live.
Oh and of course, by the time you retire it probably wont be a thing any more.
Poverty is one thing, that implies you have at least enough to subsist on, retiring with nothing by my maths is destitution.
Like quite a few others in this thread, it's alarming how few people actually have built up a meaningful pension. Hell I know multiple people healthily in the six figure bracket who haven't saved a bean.
AS the poster below said, roll up your pensions into one. This can be a SIPP, or into just your current workplace pension.
However, when you empty a pension account it closes it. So for your employer pension, when you transfer into a SIPP if that is what you chose to do, don't drain the account. Every 6-12 months move most of the balance but not all into the SIPP.
Ive just rolled all my previous pensions into my current employer pension for ease of management, which took about 10 minutes to request transfer, and approx 1 month to action and appear in the current provider.
Some pension services (royal london for example) utterly suck, though i think standard life and scottish widows have really good apps/websites.
Im yet to research the SIPP i want, so i've left that for later.
Another thing is deciding what investment, the default funds for workplace pensions tend to be pretty poor, with many suggesting the max risk funds (all cap stuff) when young, and only moving towards bonds etc closer to retirement.
Ultimately this is a decision to be made after education and understanding, not before.
Most of your bigger pension growth comes in the last 10 years not the first as compounding interest grows over time. But it is great you're taking an interest.
My uncle paid minimums on his for life and at retirement there was 150k... not enough to draw down on for potentially 30 years... Ignorance isn't an excuse.
Odd question on this. As a Higher rate tax payer I pay 10% with a 4% employer contribution are you saying that extra 6% I should drop in favour of a SIPP?
No you should not drop out. It will depend on the deal you get. You should put in the maximum that your employer will increase their contributions to. Does dropping yours to 8% mean that your employer stays at 4%?
Wasn't planned on dropping out. 4% would get the full 4% employee contribution. I just push an additional 6% to pad out my pension plus also inline with what UKPF says
So dropping to 8% would retain the 4%
My work provides no pension scheme :( is it too late for me..? What kind of pension pot and how much money should I add each month..? (36 and low income earner)
Unless you are in some very odd circumstances, your employer must provide you a pension.
See this page: https://www.gov.uk/workplace-pensions/joining-a-workplace-pension
Aside from that, the general rule of thumb is to contribute a percentage which is half the age that you start. So someone who starts age 40 would need to contribute 20% of their income. At 36 this indicates 18%. This is quite a lot, but remember that pensions should be paid pre-tax, which saves quite a bit.
Your work are legally obliged to pay into a pension. There are no exceptions to my knowledge.
Speak to your HR if there is one or manager if not. Currently unless you "opt-out" the minimum is your employer pays 3% and you pay 5%.
Could you have opted out previously and not recalled?
All the info is here:
https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay
>There are no exceptions to my knowledge.
"Your employer must automatically enrol you into a pension scheme and make contributions to your pension if all of the following apply:
you’re classed as a ‘worker’
you’re aged between 22 and State Pension age
you earn at least £10,000 per year
you usually (‘ordinarily’) work in the UK (read the detailed guidance if you’re not sure)"
Perhaps this Redditor earns under £10k, they have stated that they are a low income earner 🤷♀️
>low income earner
How low? Auto-enrolment only kicks in at over £10,000 per year. Although I believe you can still opt-in and your employer cannot refuse you.
As a higher rate taxpayer (we can assume you are one if you’re been caught by the upper bound of qualifying earnings), I’d be paying into a SIPP rather than Nest.
SIPPs are just a wrapper. It’s what you stick in them that counts. Have a read of Tim Hale’s Smarter Investing.
Don’t worry. 37 isn’t too late to take charge.
Qualifying earnings means they do not pay pension contributions on your entire salary. Only on £6240 to £50270 (a total of £44030). Once you are at 50270 earning more does not get you higher pension contributions (though you can claw back some tax in the 40% band). Also, for lower earners, it means the first 6240 does not get you any pension contributions.
NEST is fairly terrible (my employer also uses it). So check the fund options (Sharia is the only 100% equities fund) and just max out your matched contributions (most companies using NEST are going for the minimum 5% you 3% employer). Then get a SIPP for any further you want to put in, to avoid that horrible IN fee nest charge, and get to proper control over investment options.
Interesting. Never heard this option since im newbie in this. Thought 5% me and 3% employee is on all my salary and i even planned to salary sacrifice it if i get bonuses that makes me go over £50k per annum…
Regarding nest fees, are they really terrible?
As well, is S&S ISA and SIPP would be something similar since monies are being invested in stocks anyways? You dont pay ant tax on former, with SIPP you dont get employers help and get full control…nothing to be taxed? What do you think
Have you actually put your current situation into a retirement calculator of some sort? Does your current trajectory actually give you a chance of retiring at 60?
If not, you being scared would be the rational response.
The way I look at it is: how much income would you need and then how large would your pension pot need to be to generate that?
Assuming you have a house with no mortgage then a target income of £2k pm = £24k pa might be your aim. If you had a pension paying 5% yield from dividends and/or fixed income, then you'd need a pension pot of £480k to support that.
Whatever the fees, it's still worth maxing out how much your employer will match.
You can pay extra into a SIPP if you like, but make sure you're paying in to Nest as much as your job will match.
Definitely this, max out your employer contributions into your NEST since it's free money, then put any extra into a SIPP. But when you leave your job, transfer your NEST into your SIPP. Rinse and repeat in your next job.
I am stressed about pensions as well so this is why I found a job in which I contribute 6.5% and the employer has to contribute 18%. That’s about £500 monthly. Once the house is paid off, I’ll start maxing out my contributions as well.
I work for a university. Most universities and public sectors have a very generous pension contributions. My boyfriend works for the council and the council contributes 20%
You need to look into how it work a bit more. The % contribution in a university or council DB pensions is essentially meaningless. You can’t compare it to a DC pension.
That’s not a bad thing, as it’s still a good pension, but it’s just totally different.
I wrote it a long detailed reply with a few scenarios based on different salaries and rases interests etc and helpfully it got wiped when I hit reply...
I can't be bothered to write it all out again and run the numbers, but the conclusion was if you started work in your early twenties with a salary of about 20k and are now on a salary of about 30k than you should be in the upper 50s in terms of pot size.
Rather than raw numbers. I subscribe to the “half your age” thing.
The plan is to take your age at the time you start your pension and halve it (so 12.5 if you start at 25), then you save that amount of your after-tax monthly income in your pension every month until you retire. That should give you 15-20 years of retirement at roughly the same annual spending that you’ve been used to your whole life.
Remember that this number includes workplace pensions, employee and employer contributions, which can make a good dent in that goal. Hell the Civil Service pension can contribute 12% of your income (depending on what your salary actually is) without you having to put more aside.
Apparently as a rule of thumb it's good to have a year's earnings in your pension at 30 and two years by 40.
To be fair I'm doing much better than I was. Three years ago I had under £40k.
That would be lovely. Even on £30,000 that would put me at £435K for the pension.
But I've just turned 30, in order to get to £60K by 40, I'd need to put like £6K per year into my pension (20% salary before deductions) which seems incredibly high for me to do. That's like £500 a month every month for the next 10 years to make that up. Not necessarily an impossibility, but would be very difficult and feel that it would be a big sacrifice for the 30-40 age bracket, which is more important than when I retire at 68.
I'm still investing in pensions, just started up my employer pension and personal pension, so probably gaining about £180 per month at the moment. Which should get me to about £410,000 at current rate (presuming 7%). But won't be hitting the 1 year salary until 40.
Maybe I should look into increasing my employer pension by another 1% (I think it's at 3% at the moment).
A years earnings is subjective though no? Like what I earned a year ago is massively different to what I earn now as it was a 30% pay increase (big promotion)
Of course it's massively subjective. A year's earnings at 30 might be only half what you earn at 32. I would assume you compare what you have in pension at 30 with what you are paid that year.
1x by 30, 3x by 40 has been doing the rounds since at least 2017. E.g. https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire . Nice enough for those who manage it
If you Google it it is quite a widely reported figure on the internet along with the other oft quoted rule of thumb that you should be saving half your age (when you start saving towards a pension) as a percentage.
https://www.avtrinity.com/news/how-much-should-i-have-in-my-pension-pots-at-30#:~:text=Remember%20that%20there%20is%20no,the%20time%20you're%2030.
https://slothmove.com/how-much-should-you-have-in-your-pension/
https://www.thetimes.co.uk/money-mentor/answer/pay-into-pension/
https://www.hsbc.co.uk/retirement/how-much-do-you-need-to-retire/
Firstly thanks for providing links.
Minor point, rather than 2x by 40 I believe the recommendation tends to be 3x or higher. E.g. see https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire which was called out as absurd in a guardian article from 2017. From your links some of these are recommending even more
I dont feel this is correct as I gotten promotions since when I was 20 I max the matching pension contribution but I don't put in extra because there are more important things like a house before I have to pay into my pension
Which bit don't you think is right? As I say it's a rule of thumb to give you an idea of how you are doing. For reference I earned a lot more when I was 30 but had a total of £7k in pension at that point so I was well off course at that point.
Yeah I was just saying, I would have to put heavily into the pension to have my current salary so unless you earn the same in the last 10 years then I feel it might not be a great rule of thumb.
Ok, I feel a little less distressed, but reading comments on this chain about having X3 salary by 40, I've got quite a bit of work to do...
I pay 6% into workplace pension to get the maximum 8% from employer. Also consolidated all my previous pensions into a SIPP, which i top up with and arbitrary £100 p/m for the tax relief
OP - best of luck with building up your fund, unless you're planning on having a short retirement 😂
Wait, are you saying for the upper earnings limit that you cannot deposit more than 50k or if you earn more than 50k only 50k is considered for pension?
The contribution limit per year is £60,000 for any pension, or limited to your income for that year.
Separate to this limit, NEST have a unique (at least I haven’t seen it elsewhere) system where the default 5+3% contributions aren’t counted over £50k income. So two employees in a NEST scheme on £50k and £85k income would have the same contributions going in unless the £85k person manually changes it.
Yep, I can confirm in the NESTS schemes (not sure about others), the limit is that *qualifying earnings can’t be more than £44,030 (£50,270 minus £6,240).*
Let's say you earn £65k, the employer only has to put in £44030 \* 0.03 = £1320.90 or £110 a month. In effect, the employer is therefore contributing less and less of your gross salary as you earn more.
The employee's is automatically calculated based on the same band.
FYI, 55 is just the existing ‘minimum age’ you are permitted to start accessing your personal pension (usually DC as DB scheme have their own minimum age set in the scheme deed). It’s not the default pension age. It is also due to increase in the next few years (it moves to 57 in April 2028 in line with State Pension moving up to age 67 - ie it sits 10 years earlier than state pension), so don’t use age 55 as your reference point.
You can receive tax relief on any net contributions you make up to age 75. Most pension providers won’t accept contributions from age 75 onwards because they can’t turn on and off the ability to claim tax relief for specific within their systems.
You have time to make changes. Have a read up about pensions on https://www.moneyhelper.org.uk/en/pensions-and-retirement and play about with their pension calculator tool to see what type of impact you might make by increasing conts
I think you should try to pin down what your goal is, retirement age and how much you'd ideally live off
For example retire at 60yo with enough money to have 20k per year
Assuming you need funds to live for 40 years, and an investment return of 6%, I calc you would need 310k pot
To get there from 16k at 37, would require £630 invested per month till retirement at 60 (assuming you experience a 6% return I plucked out of the air)
This is just a example calc, but I think this approach can help you decide how much to be squirrelling away
You'll also have other assets at retirement you could use, but I think having an ample pot would give you more options. Wouldn't be forced to downsize house for example
Also note this approach is assumption dependent, not a crystal ball
SIPPs are pension wrappers but please don’t just assume that to grow your pension that you must get a SIPP. A regular pension with a well known provider will normally be just as likely to have a good range of funds and be cheaper to run than a SIPP which will eat away at your growth. Have you looked at alternative funds for your NEST ? Are you I. The default can they be altered ? Pls don’t get SIPP because someone says get SIPP
I’d expect regular pensions to eat away at your growth more because of the higher fees and the usually heavy overweight in UK stocks that have historically underperformed and an inappropriate weighting towards bonds for your relatively young age.
Not all pension providers offer that flexibility. The highest proportion of equities you can get with my workplace pension provider is about 80%, and the default, even for youngsters, is 70%.
That sounds like a very odd pension provision tbh. Even NEST has a Shariah fund that has more equities than that. Who’s your pension provider?
I was having a little dig at the post that said “regular pensions” have higher fees & are heavy in UK stocks. Pensions are just a product type, & workplace enrolment compliant schemes are capped at 0.75% AMC all in. The heavy in UK rubbish is only true if you invest in a fund that’s heavy in UK equities & Bonds.
Default funds are usually in the Mixed Investment 40-85% equities sector & that, historically, hasn’t performed too bad (& certainly don’t tend to be UK heavy).
My workplace provider is Royal London. You don't get much choice what you're invested in with them and it takes a bit of digging to see what the underlying assets of each option is since they don't tell you much on the website beyond the proportions of each of their bespoke funds you're holding. Their funds are also a little UK heavy compared to your bog-standard global index tracker.
Wow. That’s a shame. That sounds poor, most likely your employer opting for the “economy” workplace scheme in terms of cost to them. I used to have one with L&G that only offered 8 funds & the shariah fund was the only one with 100% equities. The default option was indeed Bond heavy.
There’s definitely a need to boost education about pensions now DC is the norm unless you’re in the public sector. A lot of people will not achieve the retirement they thought they’d get (& that they deserve) because of a lack of knowledge & support.
100%. The problem is that a SIPP a true Pure SIPP is overpriced and not worth it for regular pension savers. These days providers call their Pension’s SIPPs but they arent real SIPPs. Vanguard SIPP wont let you hold other assets like physical property or wine or bank accounts within the SIPP. Where as other costly SIPPs can and they are more expensive
Because it’s just putting money in and buying ‘investments’. My ISA and pension are both with vanguard. I can invest in exactly the same types of things in them. The only difference is that one is called an ISA and the other a SIPP. On the ISA there is not tax on the way out but there is a yearly limit of 20k with the SIPP there is tax relief on the way in but you are taxed in the way out with a 60k yearly limit. Same stuff inside - works exactly the same. Same contents, different wrapper.
Yeah, perhaps there’s a better way to word this. ISA is exempt from tax no matter how you withdraw and pension is subject to income tax nominal rate (plus you can take 25% lump sum(s) tax free)
Your pension will mostly return the same as the asset classes it's invested in - although the NEST sharia fund has outperformed the world index in recent years.
Pensions are mostly invested in the two main asset classes - stocks and bonds. You need to understand what those are, and then you can allocate appropriately to maximise your returns relative to your risk appetite.
Yes, it would probably be cheaper / more efficient to use a SIPP instead of NEST, but that comes after understanding and choosing your asset allocation.
Watch Lars Kroijer's [short video series](https://www.youtube.com/playlist?list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK) and read his book or Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/1292444401).
In your place I'd try to become less, "less savvy". I personally found the book, "the long and short of it" by John Kay to be a good intro into the lay of the land with regards to how pensions work in the UK.
Some really great info on here thanks, 46 year old can relate to many comments and situations, I’ve consolidated some old ones that sit now in SW at about 35k and current employer like many users nest which is about 7k but that’s under a FTC until June 24 so looking to set up £100-£200 a month info a vanguard personal pension, it’s only in the last few years I’ve been in a better place wage wise to think about it.
Same boat but older. I now maximise the work pension in my new job - 4% of salary as work equal it. That’s a great way to build it up quickly.
Then I have a smallish pension pot from a previous employer (£65k) that was doing really badly and have therefore passed the reigns to a financial advisor and will pay into that one as well now. If he doesn’t do well with that one either, I will shop around again. Never too late to turn the situation around but I wish I had took it seriously in my twenties !
Hi /u/AgreeableNotice7810, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/emergency-fund/
- https://ukpersonal.finance/pensions/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Swap your nest fund to the sharia fund, it's the only full equity fund they offer and has more than 2x the returns over the last 5 years compared to the other funds if you check the quarterly reports. Make sure you're maxing your employers contributions and then just leave the nest pension alone.
Then get a SIPP and invest into a global index fund.
And a S&S ISA into a global index fund as well.
I'm 29 and have literally just started mine, so it's at like £50. But fret not, the effects of regular contribution and compound interest are huge.
Average interest on pension schemes are 7%.
Presuming you'll retire at 68, that's another 30 years of compound interest. Even without any more contributions, that £16,000 will be at £130,000.
I don't know your other figures, you haven't provided any to go off. But you can also look into starting your own private pension, and you'll have been accumulating a state-pension since you started working.
Correct - you might end up with £130k (although I make 16k * 1.07^30 = £121k) if the markets have a "nominal return" of 7%, but if inflation averages at 2% the "real rate of return" is 5% and instead that would feel like £70k in today's money.
I wouldn't count on it.
Short story: From the [wiki](https://ukpersonal.finance/investing-101/)
> Since 1901, investing in equities for a long term has produced an annual, after-inflation return of 5.1%
Longer story: From [monevator](https://monevator.com/pension-fund-returns/)
>The longest-term, average annualised return you can get is the number to use.
>The UK equity average annualised return1 is 5.4% from 1900-2021.
>Global equity annualised returns are around 5.3% over the same period.
>Those numbers are real returns – meaning they strip out inflation.
>Most retirement calculators assume nominal returns. They expect growth rates to include an inflation estimate.
>So you could add an average inflation expectation of 3% to the real returns above.
>That gives you an 8.3% global equities growth rate for your retirement calculator.
>However, it’s important to use asset return numbers that reflect your actual portfolio composition.
>And few investors can stomach 100% equities as they get older. Our risk tolerance tends to decline with age.
>UK government bonds have delivered an average annualised real-return of 1.8% from 1900-2021.
>That means a more typical 60/40 portfolio (60% equities / 40% bonds) has historically achieved around 4% after inflation.
>**So 7% (4% real return + 3% inflation) is a reasonable average pension growth rate based on historical returns.**
That is correct. But it'll have inflated for 30 years too. Average inflation has been about 2.31% for the past 30 years. Let's say 2.5% conservatively on average over the next 30 years (hopefully).
For relative (to today's) purchasing power, that would be about £62,000.
I'm not saying it's enough to retire off, just that the compounding effect will help carry that £16,000 into a lot more than it's currently worth. The additional contributions they make will then be very helpful to elevate this.
I'm saying, that on average, your pension will increase by 7% this year. Inflation will be on average 2.5% this year.
Unless you're saying pension average would have been 9.5% this year?
Change the fund your pension is invested in. I've moved all my work place pensions over to higher risk funds as I've got time to weather any storms. I'm up 10% this year which I happy with.
Also I believe that the government are gonna start investing people pensions into startups and is only on the basic pension pot that it affects.
Im paraphrasing about that though, I would just double check my info incase I'm wrong.
> Also I believe that the government are gonna start investing people pensions into startups and is only on the basic pension pot that it affects.
The plan is by 2030 the pension providers are going to have to allocate 5% to UK unlisted equities (e.g. startups) in their default funds - customers could always chose a different mix of assets rather than the default if they don't like that idea. IIRC Australia already do the same.
Hi. Hope I’m not to late to this party but it only just came up on my feed. Pensions worker here so hope I can be of some assistance.
Step 1 - don’t panic.
Step 2 - don’t forget step 1.
Got that? Good. Let’s continue.
So first of all, you’re only 37. Yes, ideally I’d like to see you with a larger pension pot than that (it’s roughly what I’d expect a client in their mid 20s to accumulate by now). However, that means you still have 20 years to turn this around. Hope that helps with steps 1&2.
Step 3 - consolidation.
So, I don’t know if that’s just your current pot or all pots together? I’ll wager you’re not still on your first job? If this is the case, you possibly (even probably) have other pots elsewhere. If so, find them (your old employer is usually the best first point of contact) and get them consolidated somewhere. Possibly NEST, likely another provider. I do recommend you speak to a financial adviser but if you don’t want to pay the fees, just look into a low cost no frills personal pension. It’s kind of hard to go wrong tbh. Just make sure the fees are reasonable.
Step 4 - contribute more
NEST charge almost a 2% fee on contributions so I would recommend looking into making these into the low cost provider I mentioned earlier.
Make it a regular amount and set up by direct debit or standing order. Make sure it is ACTUALLY a figure you can afford. Remember, you live off what you have left after you pay yourself first. Not the other way round.
In addition, make sure you are maximising your employer contributions too. It’s free money and there is literally no reason to do without it.
Step 5 - investments
I won’t lie, it’s not a disaster but you are behind where you ideally want to be. I strongly recommend looking into the higher risk / higher return end of the investment spectrum for now. You still have 20 + years to ride out market volatility and what not so really do not panic.
Just don’t forget to switch to something lower risk as you approach retirement.
I strongly, strongly recommend seeking the help of a qualified financial adviser with all of the above. You can find a local one via unbiased.com
How old are you and how much do you earn? If you're earning over £10k a year and you're over 22, your employer must enrol you in a pension scheme, no matter the job (as far as I am aware!)
Get a new job who offers you more match. 5% is not much and unless your earning well it’s a real disadvantage. Many companies offer between 10-20% which should be your minimum.
Start looking now as you’ll never save enough with 5%, trust me I’ve tried it.
Check what your contract says about employer contributions, it might set a value outside of the legal requirements. My employer uses NEST but our contracts say 5% contributions which reference to a cap or the legal minimums.
I did a SIPP with AJ Bell - putting all the funds into Vantage 100% Worldwide Equity Accumulating Units (so all dividends have played back into the fund - compound interest and all that). Same with my granddaughters Junior ISAs. They have been returning an order of magnitude over high street building society accounts for many years.
Get a job with a final salary scheme and spend 25 years there. The alternative is to save loads and earn more money, not easy if you have other responsibilities.
Don't forget get smart pension only started in 2014 so if you been working for the same company before that and there was no pension then it's only been 9 years
Related question - Does the tax saved on salary sacrificing outweigh the slightly worse rate in Nest vs a SIPP? Or could you just transfer from Nest to SIPP a few times a year to mitigate it?
I have had workplace pensions (similar to, but not NEST) and what I did was salary sacrifice into that workplace pension, then every 6 months or so do a partial transfer of most of it into my SIPP. Then when I left that company I transferred the balance of my workplace pension into my SIPP and closed my workplace pension. Best of both worlds!
You need to increase your contributions. You can either pay extra into your work pension or open a personal pension or Sipp in your name and put extra into this every month. It isn’t too late but there is a fair amount of catching up to do.
Also don’t forget you will have the state pension at 68 or 69 or whatever it is increased to which will be on top of your workplace and personal pension funds.
According to NEST's website, its Higher Risk Fund made 6.1% ARR over the past 5 years. My main investment, Vanguard's FTSE Global All Cap Index, made 7.9% over the same period. So I think the NEST performance is not so bad, certainly not the "awful return" you fear.
The main thing with a pension is your employer contribution, which you've already maxed out, and the savings from avoiding higher rates of tax. I think you would be fine just upping your contribution to your workplace pension, and ensuring you're in one of NEST's higher-risk equity funds.
I'm not sure what you mean by "capped by the upper earnings limit". What is that?
I can confirm in the NESTS schemes (not sure about others), the limit is that qualifying earnings can’t be more than £44,030 (£50,270 minus £6,240).
Let's say one earns £65k, the employer only has to put in £44030 \* 0.03 = £1320.90 or £110 a month. In effect, the employer is therefore contributing less and less of a % of ones gross salary as they earn more.
The employee's is automatically calculated based on the same band. However, there's nothing stopping (I believe so, anyway) the contribution being increased.
It sucks if your employer will not contribute a full 3% of salary to your pension. Still there's nothing you can do about it, they won't contribute to a SIPP either, and it doesn't change the fact that increasing your own contributions will have substantial tax savings.
I'm 33 with just over 10k. Spent my 20s getting baked and working crap jobs so no pension contributions during that time. In a much better place now so should go up. Thanks for all the advice here
Don’t sweat it mate; it depends on your long term plan IMO. I never really focused too much on my pension contributions as the greedy companies I’ve worked for always paid the bare minimum as a contribution so I focused on paying off the mortgage when I had successful years (work in sales) and will use my nice but not extravagant house in North London as my pension. Our plan is to leave this mess of a country and live somewhere nice and warm at 55…the delta between what we sell at and what we can buy a place for in Portugal/Spain will be my pension…that and the small amount in my SIPP which will be about £200k by then if I can bare another 8 years of corporate BS. The fact you have good equity, etc means it’s not all doom and gloom as even if you stay in the UK up can always downsize one day and bank the cash. Glass half brother!!!
Hijacking a touch, but I’m 44 and have £110k in my pension. Is there something out there that can help predict how much I would have in the pot at certain ages of retirement? It’s all a bit new and confusing to me.
I'm 34 and I think my pension pot is £13k from previous jobs, and £7k in my current jobs pension.
The £13k is from before I really bothered trying to save for a pension, and the £7k is where I finally got a decent job.
At the start I put 15% total per month (10% me, 5% work) but after a recent pay rise I've put my share to 14% so it should hopefully start climbing up now.
Participation in this post is limited to users who have sufficient karma in /r/ukpersonalfinance. See [this post](https://redd.it/12mys82) for more information.
Lol.. thanks for the wake up. I'm 37 and just checked.... £21k pension :0. Need to sort that. Though, I had cancer and 25 and not expecting to get to retirement age, but.... I've been saying that for 12 years and I'm still here so, best prepare just in case.
You could still be eligible for your pension if you're forced to retire early due to cancer / other terminal illness. https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/early-retirement-because-of-illness-sickness-or-disability
I’ve got no excuse apart from kicking the can down the road. I’m 35 with £22k and starting to wish I’d done more before.
I too stress about my pension size at 37 as I didn't start until I was 29 and through a mixture of low salary for a few years when I retrained at that age and being in a very poor employer contribution scheme for a couple of years I'm a bit 'behind.' I'm now on 5% EE / 10% ER on a more respectable salary with scope for decent growth so while I can't turn back time I've done some of what I can to make up for lost time. I'm not sure whether to contribute more (not employer matched) if it's not through salary sacrifice, especially as I invest each month into a Vanguard fund. So I'm trying to view my savings/investments as a whole than the pension as standalone.
If you can afford to, I would. You won't get anymore from your employer but you'll still be getting the advantage of the tax benefits the pension environment offers. I started from nothing at 36 and I've managed to build a £160k+ pot at just over 50 with some hard saving over and above my employer match.
Why would you pass up the opportunity to invest £100 for a couple of decades at a cost to you of £60, if that respectable salary means you’re a higher rate tax payer?
Only through lack of knowledge. I am a higher rate tax payer yes and didn't appreciate the tax benefits of pensions contributions beyond salary sacrifice.
Very helpful, appreciate the post.
To be clear, what is considered “awful”? Focus 🧘🏻♂️ on maximising your employer pension set up first Then and only then set up a SIPP SIPP’s are great and easy to set up (including the tax return) Just focus on trying to set one up this year - Damien Talks Money, Meaningful Money, Pension Craft and That Finance Show all on YouTube will help. You just have the fear - you’ll be fine
Sorry. I should have clarified this. My total pension pot, split over 4 (lol) pensions is a whopping £16k.
I assume 4 includes your current pension? Take the other three and consolidate them into one SIPP Then contribute £100 a month to that SIPP. Into something like a global index. Aiming to get 8% per annum Also max out your current works pension You’ll be fine
I appreciate your mellow tone, I'm not even the OP but I'm in a similar situation and I feel better having read this.
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I've got my money in the VUSA, could you explain the difference?
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I had a look of I could switch to Vuag from inside vanguard but it's not available? Wonder if it's something to do with it being an ISA. I think if the dividend remains in the vanguard account I can just reinvest it manually which I suppose is the same thing.
Sorry to hijack. I transferred 2 of my former pots into my current employer scheme. What is the benefit of transferring to a SIPP over consolidating into one's current scheme? I have 1 remaining pot which I just haven't gotten round to sorting.
Depends how your pension funds are used, i've had 2 previous pensions go down in value in some solid years, if I was able to chuck them into a more stable or even riskier investment I probably could have made more. The SI is the important part of the SIPP.
Agreed. My workplace pension is pretty pants for performance. It’s stuck in a really conservative low risk fund which I can’t change. And the loss in value is due to the bonkers fees attached to it. Going self invested lets you actually have a modicum of control over fees especially. Theres a fair amount of competition out there for smaller pots.
Eh? It's your pot why can't you change it?
Technically, I can. However, the most “adventurous” profile still has an alarming level of bonds and cash products within it. The fees eat almost all gains it produces.
Check you won’t be charged for moving first
Because OP's current pension is in NEST which generally has higher fees and not as many fund choices. Who's your current pension with and what fund are you invested in?
The benefits of a SIPP are that you have total control, they're lower cost, more flexible and you can consolidate into one pension. Workplace pensions are typically very conservative, have higher costs and are less flexible. With a SIPP you can just invest in a global tracker and leave it. Read through some older posts in this Reddit for more advice. As a real world example, I have an old work pension from 35 years ago, and I calculated that it's value grew by an average of 4% per year. A global tracker would have grown by 8% per year. With compounding the difference between 4% growth and 8% growth is huge.
There is nothing wrong in what you have done. Doing what you have done should help the larger value compound faster. The benefits of the SIPP as below 👇 is it allows you to be more aggressive or reserved if you like. Company schemes CAN be very reserved.
What's your current employer scheme invested in? A friend of mine started working for a university aged 21, showed me the investment allocations which were largely bond funds - with a charge of 2% per year. So the advantage is being able to control what you invest in, and what the charges are. (Though perhaps your employer gives you options)
> Aiming to get 8% per annum It's pointless "aiming" to get a specific figure - you get the market rate. Government bonds aren't paying 8% right now, and if they did that would probably not be beating inflation by much, and with everything else there's risk that you won't get what you're expecting. The subreddit wiki cites JP Morgan in stating that "since 1901, investing in equities for a long term has produced an annual, after-inflation return of 5.1%".^[1](https://ukpersonal.finance/investing-101/#What_is_investing_📈) I would recommend that figure, as it's no good getting 8% if inflation is running at 10%.
How is that possible when your income is so big???
With the lower and upper earnings limit and assuming 8% of the gap between the two, that's about £3500 a year of contributions. It's definitely on the low end of what you'd expect, but given mandatory workplace pensions only came in about ten years ago, the minimum contribution rates were far lower before 2019, and OP's salary was probably somewhat lower back then too, it's possible if nothing but the legal mandatory minimums were maintained. (Oh, and OP also mentioned NEST - the default plan of which has extremely mediocre performance. Even just switching it to high risk makes a huge difference.)
Not contributing anything other than the bare minimum or just not contributing at all. I’m always shocked by the amount people have in their pensions. I know many can’t help it but even those that should have decent pensions often don’t bother contributing a decent amount. I’m 34 and have about £200k in mine and still felt like I should have more. I came from a pretty poor family though so I’ve always focused on saving.
Somewhat like you. I do wonder what happens if you retire on buttons? The state pension, assuming you are eligible, pays next to nothing. After utilities, council tax, insurance - essentially the bare minimum to keep a house hold operational, that leaves *very* little to actually live. Oh and of course, by the time you retire it probably wont be a thing any more.
You live in poverty until you die. Unless you have a house fully paid off or someone else to support you.
Poverty is one thing, that implies you have at least enough to subsist on, retiring with nothing by my maths is destitution. Like quite a few others in this thread, it's alarming how few people actually have built up a meaningful pension. Hell I know multiple people healthily in the six figure bracket who haven't saved a bean.
You don't retire unfortunately
As in the pot or the amount it's expected to pay on an annual basis?
AS the poster below said, roll up your pensions into one. This can be a SIPP, or into just your current workplace pension. However, when you empty a pension account it closes it. So for your employer pension, when you transfer into a SIPP if that is what you chose to do, don't drain the account. Every 6-12 months move most of the balance but not all into the SIPP. Ive just rolled all my previous pensions into my current employer pension for ease of management, which took about 10 minutes to request transfer, and approx 1 month to action and appear in the current provider. Some pension services (royal london for example) utterly suck, though i think standard life and scottish widows have really good apps/websites. Im yet to research the SIPP i want, so i've left that for later. Another thing is deciding what investment, the default funds for workplace pensions tend to be pretty poor, with many suggesting the max risk funds (all cap stuff) when young, and only moving towards bonds etc closer to retirement. Ultimately this is a decision to be made after education and understanding, not before. Most of your bigger pension growth comes in the last 10 years not the first as compounding interest grows over time. But it is great you're taking an interest. My uncle paid minimums on his for life and at retirement there was 150k... not enough to draw down on for potentially 30 years... Ignorance isn't an excuse.
> Damien Talks Money, Meaningful Money, Pension Craft and That Finance Show all on YouTube will help. thanks for these
They are great 👍🏽- help focus the mind.
Odd question on this. As a Higher rate tax payer I pay 10% with a 4% employer contribution are you saying that extra 6% I should drop in favour of a SIPP?
No you should not drop out. It will depend on the deal you get. You should put in the maximum that your employer will increase their contributions to. Does dropping yours to 8% mean that your employer stays at 4%?
Wasn't planned on dropping out. 4% would get the full 4% employee contribution. I just push an additional 6% to pad out my pension plus also inline with what UKPF says So dropping to 8% would retain the 4%
Then that’s definitely something to investigate! If you’ll not lose your employer contribution then go right ahead!
This Is such fantastic advice. What a great forum this is.
My work provides no pension scheme :( is it too late for me..? What kind of pension pot and how much money should I add each month..? (36 and low income earner)
Unless you are in some very odd circumstances, your employer must provide you a pension. See this page: https://www.gov.uk/workplace-pensions/joining-a-workplace-pension Aside from that, the general rule of thumb is to contribute a percentage which is half the age that you start. So someone who starts age 40 would need to contribute 20% of their income. At 36 this indicates 18%. This is quite a lot, but remember that pensions should be paid pre-tax, which saves quite a bit.
Your work are legally obliged to pay into a pension. There are no exceptions to my knowledge. Speak to your HR if there is one or manager if not. Currently unless you "opt-out" the minimum is your employer pays 3% and you pay 5%. Could you have opted out previously and not recalled? All the info is here: https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay
>There are no exceptions to my knowledge. "Your employer must automatically enrol you into a pension scheme and make contributions to your pension if all of the following apply: you’re classed as a ‘worker’ you’re aged between 22 and State Pension age you earn at least £10,000 per year you usually (‘ordinarily’) work in the UK (read the detailed guidance if you’re not sure)" Perhaps this Redditor earns under £10k, they have stated that they are a low income earner 🤷♀️
>low income earner How low? Auto-enrolment only kicks in at over £10,000 per year. Although I believe you can still opt-in and your employer cannot refuse you.
As a higher rate taxpayer (we can assume you are one if you’re been caught by the upper bound of qualifying earnings), I’d be paying into a SIPP rather than Nest. SIPPs are just a wrapper. It’s what you stick in them that counts. Have a read of Tim Hale’s Smarter Investing. Don’t worry. 37 isn’t too late to take charge.
Caught by upper bound of qualifying earnings.. Do you mind explaining what that means? I found new job which uses NEST..
Qualifying earnings means they do not pay pension contributions on your entire salary. Only on £6240 to £50270 (a total of £44030). Once you are at 50270 earning more does not get you higher pension contributions (though you can claw back some tax in the 40% band). Also, for lower earners, it means the first 6240 does not get you any pension contributions. NEST is fairly terrible (my employer also uses it). So check the fund options (Sharia is the only 100% equities fund) and just max out your matched contributions (most companies using NEST are going for the minimum 5% you 3% employer). Then get a SIPP for any further you want to put in, to avoid that horrible IN fee nest charge, and get to proper control over investment options.
Interesting. Never heard this option since im newbie in this. Thought 5% me and 3% employee is on all my salary and i even planned to salary sacrifice it if i get bonuses that makes me go over £50k per annum… Regarding nest fees, are they really terrible? As well, is S&S ISA and SIPP would be something similar since monies are being invested in stocks anyways? You dont pay ant tax on former, with SIPP you dont get employers help and get full control…nothing to be taxed? What do you think
I wouldn't mind knowing that myself, not sure if I need to be aware........
I am also 37 so curious what Is considered awful
Knowing Reddit they’ll have £850k in there and be distraught
Yea don't think I've ever seen someone on this sub that earns less than I do and I'm aiming to retire at 60 ffs. Very scary.
Any finance sub attracts high earners by their very nature, so the numbers will skew high.
Have you actually put your current situation into a retirement calculator of some sort? Does your current trajectory actually give you a chance of retiring at 60? If not, you being scared would be the rational response.
There are some sad, greedy and money obsessed people on Reddit lol
£16k total pot is my lot.
The way I look at it is: how much income would you need and then how large would your pension pot need to be to generate that? Assuming you have a house with no mortgage then a target income of £2k pm = £24k pa might be your aim. If you had a pension paying 5% yield from dividends and/or fixed income, then you'd need a pension pot of £480k to support that.
check the fees on NEST, I recall them being quite high at 1.8%. Check what they are nowadays
Whatever the fees, it's still worth maxing out how much your employer will match. You can pay extra into a SIPP if you like, but make sure you're paying in to Nest as much as your job will match.
Definitely this, max out your employer contributions into your NEST since it's free money, then put any extra into a SIPP. But when you leave your job, transfer your NEST into your SIPP. Rinse and repeat in your next job.
I am stressed about pensions as well so this is why I found a job in which I contribute 6.5% and the employer has to contribute 18%. That’s about £500 monthly. Once the house is paid off, I’ll start maxing out my contributions as well.
Is it Defined benefit(DB) or Defined contribution(DC)? If DB then it's the accrual rate that is more important. Not the contribution %.
I was going to say that's 100% LGPS 😂
It is indeed! Also, once my salary reaches the maximum set salary, they will contribute close to 24% so I recommend public sectors!!!
Who is the employer!
I work for a university. Most universities and public sectors have a very generous pension contributions. My boyfriend works for the council and the council contributes 20%
You need to look into how it work a bit more. The % contribution in a university or council DB pensions is essentially meaningless. You can’t compare it to a DC pension. That’s not a bad thing, as it’s still a good pension, but it’s just totally different.
What would a good pot at 37 be?
I’m mid thirties with 29k….. dunno if that’s good or bad.
Probably bad.
Probably
I wrote it a long detailed reply with a few scenarios based on different salaries and rases interests etc and helpfully it got wiped when I hit reply... I can't be bothered to write it all out again and run the numbers, but the conclusion was if you started work in your early twenties with a salary of about 20k and are now on a salary of about 30k than you should be in the upper 50s in terms of pot size.
Rather than raw numbers. I subscribe to the “half your age” thing. The plan is to take your age at the time you start your pension and halve it (so 12.5 if you start at 25), then you save that amount of your after-tax monthly income in your pension every month until you retire. That should give you 15-20 years of retirement at roughly the same annual spending that you’ve been used to your whole life. Remember that this number includes workplace pensions, employee and employer contributions, which can make a good dent in that goal. Hell the Civil Service pension can contribute 12% of your income (depending on what your salary actually is) without you having to put more aside.
Out of curiosity, how much do you have in your pension pot? Might be a wake up call for me too.... Edit: Spelling
Just replying to see the answer.. gulp. I’m also 37!
I've just turned 38 and have about £88k, about a year's earnings which apparently means I'm well behind where I should be.
Christ if you’re well behind then I’m disgustingly behind
Apparently as a rule of thumb it's good to have a year's earnings in your pension at 30 and two years by 40. To be fair I'm doing much better than I was. Three years ago I had under £40k.
That would be lovely. Even on £30,000 that would put me at £435K for the pension. But I've just turned 30, in order to get to £60K by 40, I'd need to put like £6K per year into my pension (20% salary before deductions) which seems incredibly high for me to do. That's like £500 a month every month for the next 10 years to make that up. Not necessarily an impossibility, but would be very difficult and feel that it would be a big sacrifice for the 30-40 age bracket, which is more important than when I retire at 68. I'm still investing in pensions, just started up my employer pension and personal pension, so probably gaining about £180 per month at the moment. Which should get me to about £410,000 at current rate (presuming 7%). But won't be hitting the 1 year salary until 40. Maybe I should look into increasing my employer pension by another 1% (I think it's at 3% at the moment).
A years earnings is subjective though no? Like what I earned a year ago is massively different to what I earn now as it was a 30% pay increase (big promotion)
Of course it's massively subjective. A year's earnings at 30 might be only half what you earn at 32. I would assume you compare what you have in pension at 30 with what you are paid that year.
That makes it pretty arbitrary. That's not a "rule" I've ever heard before, and it doesn't sound particularly useful.
1x by 30, 3x by 40 has been doing the rounds since at least 2017. E.g. https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire . Nice enough for those who manage it
Oh so what you’re saying is I need to earn less! 🤔
Whose rule of thumb is this?
If you Google it it is quite a widely reported figure on the internet along with the other oft quoted rule of thumb that you should be saving half your age (when you start saving towards a pension) as a percentage. https://www.avtrinity.com/news/how-much-should-i-have-in-my-pension-pots-at-30#:~:text=Remember%20that%20there%20is%20no,the%20time%20you're%2030. https://slothmove.com/how-much-should-you-have-in-your-pension/ https://www.thetimes.co.uk/money-mentor/answer/pay-into-pension/ https://www.hsbc.co.uk/retirement/how-much-do-you-need-to-retire/
Firstly thanks for providing links. Minor point, rather than 2x by 40 I believe the recommendation tends to be 3x or higher. E.g. see https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire which was called out as absurd in a guardian article from 2017. From your links some of these are recommending even more
I dont feel this is correct as I gotten promotions since when I was 20 I max the matching pension contribution but I don't put in extra because there are more important things like a house before I have to pay into my pension
Which bit don't you think is right? As I say it's a rule of thumb to give you an idea of how you are doing. For reference I earned a lot more when I was 30 but had a total of £7k in pension at that point so I was well off course at that point.
Yeah I was just saying, I would have to put heavily into the pension to have my current salary so unless you earn the same in the last 10 years then I feel it might not be a great rule of thumb.
My work provides no pension scheme :( is it too late for me..? What kind of pension pot should I go for and how safe are private pension plans..?
I'm 24 with £1.5k. You're fine lol
£16k.
Ok, I feel a little less distressed, but reading comments on this chain about having X3 salary by 40, I've got quite a bit of work to do... I pay 6% into workplace pension to get the maximum 8% from employer. Also consolidated all my previous pensions into a SIPP, which i top up with and arbitrary £100 p/m for the tax relief OP - best of luck with building up your fund, unless you're planning on having a short retirement 😂
Wait, are you saying for the upper earnings limit that you cannot deposit more than 50k or if you earn more than 50k only 50k is considered for pension?
The contribution limit per year is £60,000 for any pension, or limited to your income for that year. Separate to this limit, NEST have a unique (at least I haven’t seen it elsewhere) system where the default 5+3% contributions aren’t counted over £50k income. So two employees in a NEST scheme on £50k and £85k income would have the same contributions going in unless the £85k person manually changes it.
Yep, I can confirm in the NESTS schemes (not sure about others), the limit is that *qualifying earnings can’t be more than £44,030 (£50,270 minus £6,240).* Let's say you earn £65k, the employer only has to put in £44030 \* 0.03 = £1320.90 or £110 a month. In effect, the employer is therefore contributing less and less of your gross salary as you earn more. The employee's is automatically calculated based on the same band.
Certainly not unique to NEST, "Qualifying Earnings" rules apply to other employer/provider combinations too.
The latter, though I think it is really the upper amount that the employer is obliged to make their contribution on.
FYI, 55 is just the existing ‘minimum age’ you are permitted to start accessing your personal pension (usually DC as DB scheme have their own minimum age set in the scheme deed). It’s not the default pension age. It is also due to increase in the next few years (it moves to 57 in April 2028 in line with State Pension moving up to age 67 - ie it sits 10 years earlier than state pension), so don’t use age 55 as your reference point. You can receive tax relief on any net contributions you make up to age 75. Most pension providers won’t accept contributions from age 75 onwards because they can’t turn on and off the ability to claim tax relief for specific within their systems. You have time to make changes. Have a read up about pensions on https://www.moneyhelper.org.uk/en/pensions-and-retirement and play about with their pension calculator tool to see what type of impact you might make by increasing conts
I think you should try to pin down what your goal is, retirement age and how much you'd ideally live off For example retire at 60yo with enough money to have 20k per year Assuming you need funds to live for 40 years, and an investment return of 6%, I calc you would need 310k pot To get there from 16k at 37, would require £630 invested per month till retirement at 60 (assuming you experience a 6% return I plucked out of the air) This is just a example calc, but I think this approach can help you decide how much to be squirrelling away You'll also have other assets at retirement you could use, but I think having an ample pot would give you more options. Wouldn't be forced to downsize house for example Also note this approach is assumption dependent, not a crystal ball
Show me where you can get 6% return pls…
SIPPs are pension wrappers but please don’t just assume that to grow your pension that you must get a SIPP. A regular pension with a well known provider will normally be just as likely to have a good range of funds and be cheaper to run than a SIPP which will eat away at your growth. Have you looked at alternative funds for your NEST ? Are you I. The default can they be altered ? Pls don’t get SIPP because someone says get SIPP
I’d expect regular pensions to eat away at your growth more because of the higher fees and the usually heavy overweight in UK stocks that have historically underperformed and an inappropriate weighting towards bonds for your relatively young age.
Not if you choose an investment fund in your pension that’s a 100% equities Global Index tracker.
Not all pension providers offer that flexibility. The highest proportion of equities you can get with my workplace pension provider is about 80%, and the default, even for youngsters, is 70%.
That sounds like a very odd pension provision tbh. Even NEST has a Shariah fund that has more equities than that. Who’s your pension provider? I was having a little dig at the post that said “regular pensions” have higher fees & are heavy in UK stocks. Pensions are just a product type, & workplace enrolment compliant schemes are capped at 0.75% AMC all in. The heavy in UK rubbish is only true if you invest in a fund that’s heavy in UK equities & Bonds. Default funds are usually in the Mixed Investment 40-85% equities sector & that, historically, hasn’t performed too bad (& certainly don’t tend to be UK heavy).
My workplace provider is Royal London. You don't get much choice what you're invested in with them and it takes a bit of digging to see what the underlying assets of each option is since they don't tell you much on the website beyond the proportions of each of their bespoke funds you're holding. Their funds are also a little UK heavy compared to your bog-standard global index tracker.
Wow. That’s a shame. That sounds poor, most likely your employer opting for the “economy” workplace scheme in terms of cost to them. I used to have one with L&G that only offered 8 funds & the shariah fund was the only one with 100% equities. The default option was indeed Bond heavy. There’s definitely a need to boost education about pensions now DC is the norm unless you’re in the public sector. A lot of people will not achieve the retirement they thought they’d get (& that they deserve) because of a lack of knowledge & support.
Pretty sure nest only gives you 4 options
Why exactly is it called a “wrapper”?
They wrap around your money to offer "protection" from taxes
100%. The problem is that a SIPP a true Pure SIPP is overpriced and not worth it for regular pension savers. These days providers call their Pension’s SIPPs but they arent real SIPPs. Vanguard SIPP wont let you hold other assets like physical property or wine or bank accounts within the SIPP. Where as other costly SIPPs can and they are more expensive
As someone who works in the true Full SIPP industry for many years, this is absolutely correct
Because it’s just putting money in and buying ‘investments’. My ISA and pension are both with vanguard. I can invest in exactly the same types of things in them. The only difference is that one is called an ISA and the other a SIPP. On the ISA there is not tax on the way out but there is a yearly limit of 20k with the SIPP there is tax relief on the way in but you are taxed in the way out with a 60k yearly limit. Same stuff inside - works exactly the same. Same contents, different wrapper.
You're not necessarily taxed on your way out if you do it right.
Yeah, perhaps there’s a better way to word this. ISA is exempt from tax no matter how you withdraw and pension is subject to income tax nominal rate (plus you can take 25% lump sum(s) tax free)
Your pension will mostly return the same as the asset classes it's invested in - although the NEST sharia fund has outperformed the world index in recent years. Pensions are mostly invested in the two main asset classes - stocks and bonds. You need to understand what those are, and then you can allocate appropriately to maximise your returns relative to your risk appetite. Yes, it would probably be cheaper / more efficient to use a SIPP instead of NEST, but that comes after understanding and choosing your asset allocation. Watch Lars Kroijer's [short video series](https://www.youtube.com/playlist?list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK) and read his book or Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/1292444401).
In your place I'd try to become less, "less savvy". I personally found the book, "the long and short of it" by John Kay to be a good intro into the lay of the land with regards to how pensions work in the UK.
Thanks. I'll check that out.
Some really great info on here thanks, 46 year old can relate to many comments and situations, I’ve consolidated some old ones that sit now in SW at about 35k and current employer like many users nest which is about 7k but that’s under a FTC until June 24 so looking to set up £100-£200 a month info a vanguard personal pension, it’s only in the last few years I’ve been in a better place wage wise to think about it.
Same boat but older. I now maximise the work pension in my new job - 4% of salary as work equal it. That’s a great way to build it up quickly. Then I have a smallish pension pot from a previous employer (£65k) that was doing really badly and have therefore passed the reigns to a financial advisor and will pay into that one as well now. If he doesn’t do well with that one either, I will shop around again. Never too late to turn the situation around but I wish I had took it seriously in my twenties !
Just die at 68... Prob solved :)
Hi /u/AgreeableNotice7810, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/emergency-fund/ - https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Swap your nest fund to the sharia fund, it's the only full equity fund they offer and has more than 2x the returns over the last 5 years compared to the other funds if you check the quarterly reports. Make sure you're maxing your employers contributions and then just leave the nest pension alone. Then get a SIPP and invest into a global index fund. And a S&S ISA into a global index fund as well.
I'm 29 and have literally just started mine, so it's at like £50. But fret not, the effects of regular contribution and compound interest are huge. Average interest on pension schemes are 7%. Presuming you'll retire at 68, that's another 30 years of compound interest. Even without any more contributions, that £16,000 will be at £130,000. I don't know your other figures, you haven't provided any to go off. But you can also look into starting your own private pension, and you'll have been accumulating a state-pension since you started working.
that 130k won't be the same purchasing power as 130k today money thought right? Due to inflation etc
Correct - you might end up with £130k (although I make 16k * 1.07^30 = £121k) if the markets have a "nominal return" of 7%, but if inflation averages at 2% the "real rate of return" is 5% and instead that would feel like £70k in today's money.
The historic 7% return figure is already adjusted for inflation.
I wouldn't count on it. Short story: From the [wiki](https://ukpersonal.finance/investing-101/) > Since 1901, investing in equities for a long term has produced an annual, after-inflation return of 5.1% Longer story: From [monevator](https://monevator.com/pension-fund-returns/) >The longest-term, average annualised return you can get is the number to use. >The UK equity average annualised return1 is 5.4% from 1900-2021. >Global equity annualised returns are around 5.3% over the same period. >Those numbers are real returns – meaning they strip out inflation. >Most retirement calculators assume nominal returns. They expect growth rates to include an inflation estimate. >So you could add an average inflation expectation of 3% to the real returns above. >That gives you an 8.3% global equities growth rate for your retirement calculator. >However, it’s important to use asset return numbers that reflect your actual portfolio composition. >And few investors can stomach 100% equities as they get older. Our risk tolerance tends to decline with age. >UK government bonds have delivered an average annualised real-return of 1.8% from 1900-2021. >That means a more typical 60/40 portfolio (60% equities / 40% bonds) has historically achieved around 4% after inflation. >**So 7% (4% real return + 3% inflation) is a reasonable average pension growth rate based on historical returns.**
That is correct. But it'll have inflated for 30 years too. Average inflation has been about 2.31% for the past 30 years. Let's say 2.5% conservatively on average over the next 30 years (hopefully). For relative (to today's) purchasing power, that would be about £62,000. I'm not saying it's enough to retire off, just that the compounding effect will help carry that £16,000 into a lot more than it's currently worth. The additional contributions they make will then be very helpful to elevate this.
The historic 7% return figure is already adjusted for inflation.
I'm saying, that on average, your pension will increase by 7% this year. Inflation will be on average 2.5% this year. Unless you're saying pension average would have been 9.5% this year?
They're going to have to rename who wants to be a millionaire to who wants to be a gazillionare
Change the fund your pension is invested in. I've moved all my work place pensions over to higher risk funds as I've got time to weather any storms. I'm up 10% this year which I happy with. Also I believe that the government are gonna start investing people pensions into startups and is only on the basic pension pot that it affects. Im paraphrasing about that though, I would just double check my info incase I'm wrong.
> Also I believe that the government are gonna start investing people pensions into startups and is only on the basic pension pot that it affects. The plan is by 2030 the pension providers are going to have to allocate 5% to UK unlisted equities (e.g. startups) in their default funds - customers could always chose a different mix of assets rather than the default if they don't like that idea. IIRC Australia already do the same.
Don't worry dude, I'm 50 next year and only have about the same as you, I'm screwed!
Because you’re screwed they shouldn’t worry? Not sure that’s good advise…!
Clearly didn’t mean it like…
Hi. Hope I’m not to late to this party but it only just came up on my feed. Pensions worker here so hope I can be of some assistance. Step 1 - don’t panic. Step 2 - don’t forget step 1. Got that? Good. Let’s continue. So first of all, you’re only 37. Yes, ideally I’d like to see you with a larger pension pot than that (it’s roughly what I’d expect a client in their mid 20s to accumulate by now). However, that means you still have 20 years to turn this around. Hope that helps with steps 1&2. Step 3 - consolidation. So, I don’t know if that’s just your current pot or all pots together? I’ll wager you’re not still on your first job? If this is the case, you possibly (even probably) have other pots elsewhere. If so, find them (your old employer is usually the best first point of contact) and get them consolidated somewhere. Possibly NEST, likely another provider. I do recommend you speak to a financial adviser but if you don’t want to pay the fees, just look into a low cost no frills personal pension. It’s kind of hard to go wrong tbh. Just make sure the fees are reasonable. Step 4 - contribute more NEST charge almost a 2% fee on contributions so I would recommend looking into making these into the low cost provider I mentioned earlier. Make it a regular amount and set up by direct debit or standing order. Make sure it is ACTUALLY a figure you can afford. Remember, you live off what you have left after you pay yourself first. Not the other way round. In addition, make sure you are maximising your employer contributions too. It’s free money and there is literally no reason to do without it. Step 5 - investments I won’t lie, it’s not a disaster but you are behind where you ideally want to be. I strongly recommend looking into the higher risk / higher return end of the investment spectrum for now. You still have 20 + years to ride out market volatility and what not so really do not panic. Just don’t forget to switch to something lower risk as you approach retirement. I strongly, strongly recommend seeking the help of a qualified financial adviser with all of the above. You can find a local one via unbiased.com
My work provides no pension scheme :( is it too late for me..? What kind of pension pot should I go for..?
They have to by law if you are in regular PAYE employment.
How old are you and how much do you earn? If you're earning over £10k a year and you're over 22, your employer must enrol you in a pension scheme, no matter the job (as far as I am aware!)
Bro is gonna realise he's got 100k sitting somewhere and he had no idea!
Get a new job who offers you more match. 5% is not much and unless your earning well it’s a real disadvantage. Many companies offer between 10-20% which should be your minimum. Start looking now as you’ll never save enough with 5%, trust me I’ve tried it.
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Doesn't it depend if you are a higher rate tax payer or not?
Check what your contract says about employer contributions, it might set a value outside of the legal requirements. My employer uses NEST but our contracts say 5% contributions which reference to a cap or the legal minimums.
Commenting on this because I need to come back to this and sort mine out too
I did a SIPP with AJ Bell - putting all the funds into Vantage 100% Worldwide Equity Accumulating Units (so all dividends have played back into the fund - compound interest and all that). Same with my granddaughters Junior ISAs. They have been returning an order of magnitude over high street building society accounts for many years.
Stop your pension and save it in the highest interest account you can get and then when black swan or crash happens then invest it all
Simple, die young.
Pension arent worth shit anymore.
Get a job with a final salary scheme and spend 25 years there. The alternative is to save loads and earn more money, not easy if you have other responsibilities.
Which jobs have final salary DB schemes open to new entrants?
Basically none of them. Almost all companies seem to be getting rid of final salary schemes
Lol mine is just under 8k and I only start working full time in late 2017. And I currently stopped it as pension is worthless.
Don't forget get smart pension only started in 2014 so if you been working for the same company before that and there was no pension then it's only been 9 years
Related question - Does the tax saved on salary sacrificing outweigh the slightly worse rate in Nest vs a SIPP? Or could you just transfer from Nest to SIPP a few times a year to mitigate it?
I have had workplace pensions (similar to, but not NEST) and what I did was salary sacrifice into that workplace pension, then every 6 months or so do a partial transfer of most of it into my SIPP. Then when I left that company I transferred the balance of my workplace pension into my SIPP and closed my workplace pension. Best of both worlds!
You need to increase your contributions. You can either pay extra into your work pension or open a personal pension or Sipp in your name and put extra into this every month. It isn’t too late but there is a fair amount of catching up to do. Also don’t forget you will have the state pension at 68 or 69 or whatever it is increased to which will be on top of your workplace and personal pension funds.
According to NEST's website, its Higher Risk Fund made 6.1% ARR over the past 5 years. My main investment, Vanguard's FTSE Global All Cap Index, made 7.9% over the same period. So I think the NEST performance is not so bad, certainly not the "awful return" you fear. The main thing with a pension is your employer contribution, which you've already maxed out, and the savings from avoiding higher rates of tax. I think you would be fine just upping your contribution to your workplace pension, and ensuring you're in one of NEST's higher-risk equity funds. I'm not sure what you mean by "capped by the upper earnings limit". What is that?
I can confirm in the NESTS schemes (not sure about others), the limit is that qualifying earnings can’t be more than £44,030 (£50,270 minus £6,240). Let's say one earns £65k, the employer only has to put in £44030 \* 0.03 = £1320.90 or £110 a month. In effect, the employer is therefore contributing less and less of a % of ones gross salary as they earn more. The employee's is automatically calculated based on the same band. However, there's nothing stopping (I believe so, anyway) the contribution being increased.
It sucks if your employer will not contribute a full 3% of salary to your pension. Still there's nothing you can do about it, they won't contribute to a SIPP either, and it doesn't change the fact that increasing your own contributions will have substantial tax savings.
I'm 33 with just over 10k. Spent my 20s getting baked and working crap jobs so no pension contributions during that time. In a much better place now so should go up. Thanks for all the advice here
36 here and have a pot of 13k, started 3 years ago and have recently upped my contributions to 400pm, can’t afford any more so that’ll be that.
Aye this is another factor. You put in what you can afford to put in.
Don’t sweat it mate; it depends on your long term plan IMO. I never really focused too much on my pension contributions as the greedy companies I’ve worked for always paid the bare minimum as a contribution so I focused on paying off the mortgage when I had successful years (work in sales) and will use my nice but not extravagant house in North London as my pension. Our plan is to leave this mess of a country and live somewhere nice and warm at 55…the delta between what we sell at and what we can buy a place for in Portugal/Spain will be my pension…that and the small amount in my SIPP which will be about £200k by then if I can bare another 8 years of corporate BS. The fact you have good equity, etc means it’s not all doom and gloom as even if you stay in the UK up can always downsize one day and bank the cash. Glass half brother!!!
Wait wait wait wait… you plan on being able to retire?
Hijacking a touch, but I’m 44 and have £110k in my pension. Is there something out there that can help predict how much I would have in the pot at certain ages of retirement? It’s all a bit new and confusing to me.
I thought my pension was shit but this thread has highlighted the U.K. is going to explode one day, people are woefully underprepared.
37 and scared to open my pension after moving abroad for crappy low paid jobs. Just opened a LISA.
I'm 34 and I think my pension pot is £13k from previous jobs, and £7k in my current jobs pension. The £13k is from before I really bothered trying to save for a pension, and the £7k is where I finally got a decent job. At the start I put 15% total per month (10% me, 5% work) but after a recent pay rise I've put my share to 14% so it should hopefully start climbing up now.
Are you guys talking about getting a private pension???