How screwed am I with Pension investment to date?

[doveofpeace]

Stupidly, about three years ago, I opted out of my previous companies pension scheme. It was based on qualifying earnings and thought it was generally just a poor scheme.

Fast forward to April 2022, landed a new role. Was auto enrolled for a few months but decided (for whatever reason) to opt-out again, as I'm trying to save for a mortgage.

Almost two years down the line and I'm starting to panic.

No house to speak of and have all but given up that dream, with paying London rents. I now earn a good salary of 72k a year, but severely worried about my pension pot at 34 years of age.

To break it down, within my pots I have;

Aviva 1: 1,380.90
Aviva 2: 1,602.87
Aviva 3: 1,238.56
Aviva 4: 1,429.77
SW: 1,384.69

Total: 7,036.79

TfL (DB): 2,131.37 per annum when I reach 60.

Auto Enrolment levels are 4% and 4%, where the employer doesn't match any increase above this.

Is this bad? I'm worried that when I reach retirement, I'll have nothing to show for it. No house, no pension. I still want to save for a mortgage, but margins are very tight, especially if I sacrifice more into my pension.

 

[lifecouldbeeasier]

@doveofpeace Best thing to do is start now.

There’s a rule of thumb that says whatever age you start saving for retirement at, you should contribute half your age. For you that would mean a total contribution of 17%.

May sound like a lot, but you’re in the 40% tax bracket, so you won’t feel as large of an impact on take home pay than someone in a lower tax bracket.

 

[macbashfeed]

@lifecouldbeeasier As a note for OP, this 17% includes the company contribution. This would mean increasing personal contributions from 4% to 13%.

 

[jjan3]

@macbashfeed When people say to increase contributions, does this mean setting up additional payments into the pension pot from a bank account or should employers allow you to increase your contribution directly from your paycheck?

 

[justvisitingrealquick]

@jjan3 Yes generally you would arrange with your employer to increase your contribution percentage.

 

[hemantbobby]

@jjan3 Your employer is likely to allow you to make Additional Voluntary Contributions (AVCs) and that way you'll get the tax benefit directly. Your pension scheme may allow you to make one-off payments directly to them but if you do that you'd need to claim the tax back on a tax return.

 

[zogy101]

@hemantbobby get salary sacrifice if you can OP ... then there's no tax return to file.

 

[herbiggestfan]

@zogy101 Plus you save national insurance with salary sacrifice

 

[candelandsweete]

@hemantbobby As a 40% tax payer you still need to file a self assessment to recoup half the tax from AVC’s - the pension provider will automatically top up assuming you pay 20% tax leaving a shortfall to be reclaimed. This may also apply to your initial contribution.
If your employer offers salary sacrifice then use that as the money is simply not taxed under that process.

 

[thehappypainter]

@jjan3 Depends on your employer. Most will allow you to make additional voluntary contributions (AVC) and most of those will be via salary sacrifice - these will come from your paycheck and make NI savings too, which your employer may also put in your pension. But if they don’t or for self-employed etc I believe you can make your own payments from your bank account into a SIPP and claim back the relief.

 

[resjudicata]

@lifecouldbeeasier Laughs at almost 40. I've only 10k in the pot with a 6/5 (11% total) scheme and I feel fucked no chance of raising it to 19/20 while paying for a mortgage.

 

[resjudicata]

When do you pay your mortgage off? Change your pension payments to match your mortgage amount once you do. That way you'll not miss the money.

Just put what you can afford to put in before then, there's not much else you can do. 11% isn't bad honestly. You must have avoided pensions for a while to be only on 10k though?

 

[resjudicata]

I didn't get a proper career until I finished uni (went back as a mature student to finally sort my life out from being useless) and got my first careery job in 2019 (I just bought a house shortly after) then I've only just recently bumped the default % on the pension upto 6% from the default 2 or 3% now things are a bit more "stable", most excess money I'm throwing into my S&S ISA as a sort of savings (for the good or bad of volitivity of stocks), basically if I hammer savings I should be able to pay the mortgage off in ten years or hopefully less as a lump sum etc.

 

[julia736]

@resjudicata Your S&S ISA is part of your pension for these purposes - it's still retirement savings.

Do not pay off your mortgage early if you're worried about your pension - that's giving your retirement savings less time in which to compound.

If you have an outstanding mortgage of £100,000 and your pension and S&S ISA outperform it by 2% then that's £2000 a year that you're getting "for free", plus compounding. And, over long periods, stockmarket investments can be expected to outperform mortgage rates by a little more than 2%.

 

[resjudicata]

Paying off the mortgage early is generally not seen as a great idea here, it's more of a psychological decision rather than a financial decision.

You'd be better off just finishing your term and keeping the S&S ISA towards your retirement. From a financial point of view anyway.

 

[green520]

@resjudicata If you think it's unlikely you retire before 57 I wouldn't put much in S&S ISA, but in the pension. You can always put more money there if you get closer age decide you want to retire at 53 for example.

 

[theropod]

@resjudicata Anything extra is a bonus. Just £10 a month extra will make you a couple of grand over 10 years when you consider returns and tax relief.

 

[resjudicata]

@theropod You mean into the pension right?

 

[theropod]

@resjudicata I do!

 

[resjudicata]

@theropod I'll definitely see about adding to the voluntary contributions, is there a calculator I'd be able to work it out you think?