Pension contributions - how much?

secretsam

Noo job, noo pension (again) - but what's the rule of thumb for the % of salary that should be injected - any wise investment type people out there?

FWIW, salary is in the higher tax band, age is 45, wife 'n' 2 kids (primary school), Mrs Secret Sam works.

Dippydog3

Absolutely nothing.

An ISA is a much, much better investment.

pblakeney

Dippydog3 wrote:

Absolutely nothing.

An ISA is a much, much better investment.

Not true.
For the higher tax payers then the tax savings on contributions alone make it a better investment than an ISA.

Anonymous

I contribute 5% and employer 10%. I doubt I could match that with an ISA. I am just below the higher rate band.

Pross

Government are bringing in legislation to make compulsory enrolment into a scheme with contributions of 8% I believe. At present my company pays in 3% and I pay nothing (I'm always in the 'I'll start paying next year when I have some spare cash' camp). Fortunately pre-recession the company paid in 5% and I have had a pension since I was 16 with the first 8 years or so being a public sector scheme that at current value would pay out £3,500 per year and I still have about 20 years left to pay in. I guess the percentage you need to pay in depends on your age, what you already have paid in over the years, what your salary is and crucially how 'comfortable' you want your retirement to be. Obviously on a lower salary you need to pay a greater proportion in order to get the same income in your retirement but possibly in that situation you are more used to living within your means and so don't require as high an income.

whoof

Currently have a works scheme that I pay 7.5% into and an additional one that I also pay 7.5% into.
I have two worries regarding pensions.
1. When I started the works scheme the retirement age was 65, then 66 then 67. Currently it's 67 or 68 and will be reviewed every five years so I can see it getting to somewhere in the mid-70s, will I ever get their?
2. The additional pension; If it does well some bunch or managers will get a commision and bonuses, they deserve it having managed the fund so well, and there may be some money left for me. If it does badly some bunch or managers will get a commision and bonuses, what can you do the whole market has done badly it's not their fault, and there will be very little left for me.

I therefore hope everything turns out OK but it's a bit of a punt. I pay in an amount that I can afford but don't go without now in the hope that in the future everything will be like a Wethers Original advert I also back this up with savings just in case.

In short if you knew the answer to your question you would be starting a new job making millions on the markets.

bianchimoon

Dippydog3 wrote:

Absolutely nothing.

An ISA is a much, much better investment.

My premium bonds have been performing better than ISA's!

bianchimoon

SecretSam wrote:

Noo job, noo pension (again) - but what's the rule of thumb for the % of salary that should be injected - any wise investment type people out there?

FWIW, salary is in the higher tax band, age is 45, wife 'n' 2 kids (primary school), Mrs Secret Sam works.

Get an IFA, taking financial advice off a bunch of strangers on tinterweb is not recommended!

Dippydog3

PBlakeney wrote:

Dippydog3 wrote:

Absolutely nothing.

An ISA is a much, much better investment.

Not true.
For the higher tax payers then the tax savings on contributions alone make it a better investment than an ISA.

That may be the simple case, but over the last twenty years successive governments have drastically reduced the amount of money that can be invested, the benefits, the draw down rules and the age criteria. If things stayed exactly as they are now then perhaps an Pension is a good investement.

However, I am of the view that this is far too easy a target future tax starved administrations. Far too easy to take away tax relief, push the ages out etc.

So, depsite being a higher rate tax payer I would rather pump money into an ISA. with good choices you should be able to grow it at 10 to 20% per annum. And if the government look like they are going to snatch it you can withdraw your money in a nano and stick it in a tin can in your garden.

Of course the OP should take independent financial advice (good like finding any), but he asked for internet opinions so......

Dippydog3

bianchimoon wrote:

Dippydog3 wrote:

Absolutely nothing.

An ISA is a much, much better investment.

My premium bonds have been performing better than ISA's!

You must be a very lucky person. The target return on premium bonds is less than 3%. Even a badly managed ISA should do 10!

pblakeney

Dippydog3 wrote:

PBlakeney wrote:

Dippydog3 wrote:

Absolutely nothing.

An ISA is a much, much better investment.

Not true.
For the higher tax payers then the tax savings on contributions alone make it a better investment than an ISA.

That may be the simple case, but over the last twenty years successive governments have drastically reduced the amount of money that can be invested, the benefits, the draw down rules and the age criteria. If things stayed exactly as they are now then perhaps an Pension is a good investement.

However, I am of the view that this is far too easy a target future tax starved administrations. Far too easy to take away tax relief, push the ages out etc.

So, depsite being a higher rate tax payer I would rather pump money into an ISA. with good choices you should be able to grow it at 10 to 20% per annum. And if the government look like they are going to snatch it you can withdraw your money in a nano and stick it in a tin can in your garden.

Of course the OP should take independent financial advice (good like finding any), but he asked for internet opinions so......

You could be correct about the rules in the future but things as they stand are favourable towards pensions.

Please enlighten us to the ISA that is performing at 10-20%.
I, and I imagine quite a few others, would be very, very interested.
I have various ISAs and beating 5% would be an improvement at the moment.

secretsam

bianchimoon wrote:

SecretSam wrote:

Noo job, noo pension (again) - but what's the rule of thumb for the % of salary that should be injected - any wise investment type people out there?

FWIW, salary is in the higher tax band, age is 45, wife 'n' 2 kids (primary school), Mrs Secret Sam works.

Get an IFA, taking financial advice off a bunch of strangers on tinterweb is not recommended!

LOL agreed but thought I'd ask anyway!

bernithebiker

Having been scammed by a 25 year endowment scheme (Scottish Amicable, now Prudential), blatant theft, and having had other very poorly performing schemes, I will never touch another financial product like this again in my life.

Bear in mind that the tax regime of today will not be that of tomorrow.

Bear in mind that you are helping keep the financial industry afloat with juicy bonuses.

I was able to cash in my pension when I left Switzerland, and it all went into property.

southdownswolf

bernithebiker wrote:

....it all went into property.

My mother in law is an accountant and has never touched financial products, all her money goes into property. Not only is it going to earn her money when she retires, but it is already earning her money through rent. Always made sense to me.

whoof

southdownswolf wrote:

bernithebiker wrote:

....it all went into property.

My mother in law is an accountant and has never touched financial products, all her money goes into property. Not only is it going to earn her money when she retires, but it is already earning her money through rent. Always made sense to me.

Property works very well but is somewhat digital. You can't buy a bit, you either need to have enough to buy a place outright or a fair old lump to be able to get a deposit and then service a second mortgage. Interest rates are low at the moment and rents relatively high. You may well be able to afford buy a property as an investment and be able to survive comfortably. But if interest rates were to rise and you have stretched yourself too far you can loose your investment and your home. Again it's a gamble.

bianchimoon

whoof wrote:

southdownswolf wrote:

bernithebiker wrote:

....it all went into property.

My mother in law is an accountant and has never touched financial products, all her money goes into property. Not only is it going to earn her money when she retires, but it is already earning her money through rent. Always made sense to me.

Property works very well but is somewhat digital. You can't buy a bit, you either need to have enough to buy a place outright or a fair old lump to be able to get a deposit and then service a second mortgage. Interest rates are low at the moment and rents relatively high. You may well be able to afford buy a property as an investment and be able to survive comfortably. But if interest rates were to rise and you have stretched yourself too far you can loose your investment and your home. Again it's a gamble.

Wise words Woof, was just looking at the possibility of investing in a property for daughters uni days, unless as you say you have cash or a massive lump to put down, would be very difficult to make at least a worthwhile 5% return. On a pension note after 30 years of paying in i'm roughly 20k up on 'cash' invested, but now compound interest is kicking in it might be worthwhile eventually
To the OP, this is from the telegraph
"Which will give you a bigger pension: saving for 40 years or just 10?
Believe it or not, the answer is 10 – if those years are at the very beginning of your working life.
Someone who starts saving at the age of 21 and then stops at 30 will end up with a bigger pension pot than a saver who starts at 30 and puts money aside for the next 40 years until retiring at 70.
This astonishing outcome is entirely due to the power of compound interest – the way that investment returns themselves generate future gains. Having 10 extra years for compound interest to work its magic has the same result as all those years of extra contributions."

neal1984

9% which I think is matched by my employer. I'm on a final salary pension scheme with a 52nd accrual rate. Not a 100% sure how it all work mind.

me-109

At my company contributions are age related. In your age bracket individual contributions are 4%, whilst the company also pays in double that.

Further to the earlier post on compound interest, the same applies to mortgages, so the earlier you can make capital repayments above your repayment schedule the better. The overall effect of a £500 capital repayment made within the first ten years of a 25-year mortgage is huge.

ugo.santalucia

I pay over 10%, the employer pays 14% and the pension I am likely to get is still way below what one needs to live to a decent standard... it's even one of the revered final salary scheme... but 30% of the final salary is somehow not that attractive... I frankly don't know if it's worth to bother.
If you don't have anything better to do with that money, then yes, but if you have a good idea, you could invest it in a sideline business and get much more out of it... both in terms of money and satisfaction.

rick_chasey

southdownswolf wrote:

bernithebiker wrote:

....it all went into property.

My mother in law is an accountant and has never touched financial products, all her money goes into property. Not only is it going to earn her money when she retires, but it is already earning her money through rent. Always made sense to me.

Any type of investment is risky.

Property is no different. House prices can go up as well as down...

ugo.santalucia

southdownswolf wrote:

bernithebiker wrote:

....it all went into property.

My mother in law is an accountant and has never touched financial products, all her money goes into property. Not only is it going to earn her money when she retires, but it is already earning her money through rent. Always made sense to me.

That's a game you can only play if you are well off. The money you put on a pension scheme will not buy a mortgage in this country... unless you go for an interest only one, which is a gamble

norvernrob

bianchimoon wrote:

Wise words Woof, was just looking at the possibility of investing in a property for daughters uni days, unless as you say you have cash or a massive lump to put down, would be very difficult to make at least a worthwhile 5% return. On a pension note after 30 years of paying in i'm roughly 20k up on 'cash' invested, but now compound interest is kicking in it might be worthwhile eventually
To the OP, this is from the telegraph
"Which will give you a bigger pension: saving for 40 years or just 10?
Believe it or not, the answer is 10 – if those years are at the very beginning of your working life.
Someone who starts saving at the age of 21 and then stops at 30 will end up with a bigger pension pot than a saver who starts at 30 and puts money aside for the next 40 years until retiring at 70.
This astonishing outcome is entirely due to the power of compound interest – the way that investment returns themselves generate future gains. Having 10 extra years for compound interest to work its magic has the same result as all those years of extra contributions."

Ouch, I joined Royal Mail aged 20 and didn't join the pension scheme until I was 29. I lost out on 9 years of final salary contributions because I had many more 'important' things to think about at the time.

VTech

My advice will be argued with here simply because its me but for anyone even remotely interested in my view, I would say don't bother.
There are too many factors within a pension to enable it to be a good investment, it is actually possibly one of the costliest schemes you will ever join with one of the worst payouts.
I never joined a pension scheme, I worked for a company who offered it but at the time due to my young age I didn't prioritise but as things took off I put my money into other things and almost all will pay out more than a pension of equal input.

You have to remember the cost of living, given a starting age of lets say 20 and your average pot is around £38,000 with a reality of the pot needing to be £160,000.

Money will half roughly every 18 years so your already fighting an uphill battle :shock: :shock:

I could think of 10 things before putting into a pension that given the last 50+ years have paid out massively more. Its actually quite laughable really.

orraloon

S-Sam. As said above, risky tactics to take advice off the internet, from a bunch of bikers as well.

Slightly less risky, possibly, is to go on to the Motley Fool website and have a rootle about on the discussion boards there. fool.co.uk
Various pensions and other investment discussions, with pension vs ISA debates common.

norvernrob

VTech wrote:

My advice will be argued with here simply because its me but for anyone even remotely interested in my view, I would say don't bother.
There are too many factors within a pension to enable it to be a good investment, it is actually possibly one of the costliest schemes you will ever join with one of the worst payouts.
I never joined a pension scheme, I worked for a company who offered it but at the time due to my young age I didn't prioritise but as things took off I put my money into other things and almost all will pay out more than a pension of equal input.

You have to remember the cost of living, given a starting age of lets say 20 and your average pot is around £38,000 with a reality of the pot needing to be £160,000.

Money will half roughly every 18 years so your already fighting an uphill battle :shock: :shock:

I could think of 10 things before putting into a pension that given the last 50+ years have paid out massively more. Its actually quite laughable really.

Surely the average pension pot can't be only £38k? If I stay at RM until I'm 65 my projected pot is £200k+. I pay 6% and RM pay (i think) 11%.

VTech

NorvernRob wrote:

VTech wrote:

My advice will be argued with here simply because its me but for anyone even remotely interested in my view, I would say don't bother.
There are too many factors within a pension to enable it to be a good investment, it is actually possibly one of the costliest schemes you will ever join with one of the worst payouts.
I never joined a pension scheme, I worked for a company who offered it but at the time due to my young age I didn't prioritise but as things took off I put my money into other things and almost all will pay out more than a pension of equal input.

You have to remember the cost of living, given a starting age of lets say 20 and your average pot is around £38,000 with a reality of the pot needing to be £160,000.

Money will half roughly every 18 years so your already fighting an uphill battle :shock: :shock:

I could think of 10 things before putting into a pension that given the last 50+ years have paid out massively more. Its actually quite laughable really.

Surely the average pension pot can't be only £38k? If I stay at RM until I'm 65 my projected pot is £200k+. I pay 6% and RM pay (i think) 11%.

There will always be exceptions to the rule. The army for example is good but on average of isn't worth it.
It's a shame really but remember that when these services were first introduced, people didn't live to 80 on average.

kajjal

If you are higher rate tax payer investing in a pension can be a good investment. Rather than losing 40%+ of your income to tax the gross amount goes into your pension. Added to that is the employer contribution which is often 8% if you put in 4% which means you get 12% for the price of 4%. If you put enough in this can bring more of your wages, benefits etc into the lowest tax band so you effectively take home more of your income.

The downside is unlike a savings account or ISA you cannot easily access your whole fund whenever you want. Also starting young in the past gave a great benefit through compound interest. There is no right answer it just depends what you need and how much of what type of risk you want to take.

Stevo_666

If you're prepared to tie up the money long term and you are prepared to take the risk on how well the fund is managed then it is very a tax efficient investment for higher rate tax payers. Especially in the £100k - £120k if anyone is lucky enough as the marginal rate in that bracket is 60% due to the withdrawal of the personal allowance at those levels of income.

Unless you plan on retiring with a big pot of cash/assets instead if you fancy you chances investing it yourself.

verylonglegs

Don't think it would be the first time I've said on here but my stance is that to me pension plans via employers and their financial advisers make no sense. Why would you hand over money you'lll be dependent on in your most vulnerable adult years to a what is ultimately a stranger who has just as much chance selecting decent investments as you do?

The only useful advice they can offer is regarding tax rules and even then as others have already said that could change on the whim of governement. The only people I've ever known to defend the financial services are those that have worked within them at some point. Some guy in a executive saloon and tidy suit rolls up and says 'OK, give me hundreds of pounds of your income every month and I'll see you right'...yeah, sure you will pal, now bugger off.

I manage my own retirement plans through shares within ISA'a and a SIPP. I don't claim to have the answers, not all my investments work out, but looking at the benchmarks I'm marginally better off and more importantly I'm happy it's my money under my control and no-one else is having a gamble or a good time with my future without recourse. Incidentally some of my best investments for my own fund have been life assurance and financial companies which look after everyone elses pensions. Go figure.

Stevo_666

@verylonglegs - most people probably do it because their employer contributes to a fund.

rick_chasey

Stevo 666 wrote:

@verylonglegs - most people probably do it because their employer contributes to a fund.

This. Basically.