Pension/ISA/savings split?

I'm 41 and my savings split is as follows:

Pension 1 (cash value adjusted for inflation) 16.5%+6% employer/me
Pension 2 (index tracker) 3%+3% employer/me
Company share scheme) 5%+2.5% employer/me

When the shares mature they get moved into an index tracker ISA.

My cash savings are hammered at the moment as I've recently moved house and there is a lot to do.

If you combine the pensions and share scheme I'm achieving 36% of income which I'm pleased with although my cash savings are rubbish and my current pension pot isn't very large (£20k + £6k per annum at age 60).

I've had a go at pension forecasting and think that at 65 I may have an income equivalent to my current salary, but this is dependent on good career progression in the near future.
 
It does seem everyone has a better pension than me!
16pc employer contribution is crazy

That's 4x mine.

But I guess pension + salary is always worked out. So if you get a higher employer contribution you'll probably get a lower salary (in equivalent job)
 
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The pensions that look crazy good are usually public sector, there'll be a lower salary, and you can't consolidate it, and you're heavily penalised for retiring before state pension age (about 5% per year).
 
throwaway4372 said:
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Notes:
- I have no idea how 'pro' this is, but I feel a lot better having gone through the process.
- I plan to retire at 50 in this example (if ISA does well then earlier becomes possible).
- It's possible for me to get enough NI years for full state pension at age 48, I'll just buy any years I miss, so this is based on getting the full state pension.
- Income required is £20k a year in todays money rising by CPI (a number I pulled out of my butt which I think I could live on comfortably).
- Stop driving at age 70 and gradually do less stuff as I get older (might give up driving earlier in reality, for me a car is a utility for accessing work).
- State pension triple lock continues, forecast at 2.5% as the minimum under the triple lock.
- I have another sheet for forecasting pension growth to see if it meets the required amount or not (if I end up with more than I need I get extra income).
- Same for ISA (if I end up with more than I need I retire earlier, or go on a cruise).
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This issue I see with this is that you have already adjusted for inflation, most if not all pension planners plan accordingly to todays pound value and makes the assumption that the pension pots will increase with the rate of inflation.

Based on the graph from 2056 onwards, the plan is mainly to live of the state pension?

The current state pension is £11,502.40 per year and if the triple lock says will basically only go up with the rate of the highest inflation.
Have you tried budgetting at the state pension amount as it stands now? minus mortgage/rent and work costs as one way or another you won't be paying for those in retirement.

It doesn't really matter if they increase the state pension to 50x the current amount as it just means the cost of living is 50x more expensive than it is now.
 
Im only saving into pensions, grand total of 23.2% of take home pay going in.
My plans to retire early got cancelled when the wife became a carer so we can't have savings over 6k anymore. I had planned to have about 5 years worth of retirement money saved into an ISA.
 
slinxy said:
This issue I see with this is that you have already adjusted for inflation, most if not all pension planners plan accordingly to todays pound value and makes the assumption that the pension pots will increase with the rate of inflation.
[..]
It doesn't really matter if they increase the state pension to 50x the current amount as it just means the cost of living is 50x more expensive than it is now.
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Thanks for questioning me, I hoped someone would, appreciate it.
How would it work if you didn't adjust for inflation? If you don't adjust living costs, and also don't adjust state pension, then you have to do the reverse for isa and sipp amounts to bring them back to today's money? And inflation happens during retirement, so if the values aren't changing during retirement they're surely not correct?

slinxy said:
Based on the graph from 2056 onwards, the plan is mainly to live of the state pension?

The current state pension is £11,502.40 per year and if the triple lock says will basically only go up with the rate of the highest inflation.
Have you tried budgeting at the state pension amount as it stands now? minus mortgage/rent and work costs as one way or another you won't be paying for those in retirement.
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Yeah so that's from age 70 for me. I noticed pension planners putting an age factor into the plan, at some point giving up a car, and over time spending less because you're too old to do stuff.
I found this quite hard to predict and in the end just put something in for the sake of illustration: giving up the car at 70 (a 20% reduction in spending, because that's what my current car spend is as a fraction of my budget), and then reducing spending by 1% per year after that.
I looked up my life expectancy, which iirc was 85, and tbh I doubt I'll make that, but I've planned ahead to 95 anyway just in case.
The state pension amount is actually very close to my current spend today, without the cost of a car, but even though the graph looks like mostly state pension at 2056 it's actually 25k of state pension plus 10k of sipp, so it's not that tight.
However, choosing to base it on an income of 20k in today's money is fairly low, this was meant to illustrate a minimum, rather than an ideal scenario, because I really, really, really, want to retire lol.
 
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throwaway4372 said:
Thanks for questioning me, I hoped someone would, appreciate it.
How would it work if you didn't adjust for inflation? If you don't adjust living costs, and also don't adjust state pension, then you have to do the reverse for isa and sipp amounts to bring them back to today's money? And inflation happens during retirement, so if the values aren't changing during retirement they're surely not correct?
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It is in an assumption that all retirement planners make that the amount you have invested with them is automatically adjusted for inflation and the amount you put in is increased with inflation too, hence why payments is done on a percentage not a fix amount.

Yeah there is the saying that assumption makes an ......

but say you had a £1000 pounds in your pension and it's invested in a single company, that £1000 of shares would automatic raise with inflation to whatever the future equivalent value of a £1000 pounds is. This is also backed up with everything else like profit margins staying the same by the company charging whatever £1000 pounds is for their goods or services.

To forecast that a £1000 pounds will only be worth £500 pounds in x years time so you need £1500 to pay for something that is worth £1000 today is just pie in the sky maths.

both are making assumptions but one isn't pulling a magic number out of the air.

throwaway4372 said:
Yeah so that's from age 70 for me. I noticed pension planners putting an age factor into the plan, at some point giving up a car, and over time spending less because you're too old to do stuff.
I found this quite hard to predict and in the end just put something in for the sake of illustration: giving up the car at 70 (a 20% reduction in spending, because that's what my current car spend is as a fraction of my budget), and then reducing spending by 1% per year after that.
I looked up my life expectancy, which iirc was 85, and tbh I doubt I'll make that, but I've planned ahead to 95 anyway just in case.
The state pension amount is actually very close to my current spend today, without the cost of a car, but even though the graph looks like mostly state pension at 2056 it's actually 25k of state pension plus 10k of sipp, so it's not that tight.
However, choosing to base it on an income of 20k in today's money is fairly low, this was meant to illustrate a minimum, rather than an ideal scenario, because I really, really, really, want to retire lol.
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We have a long life expectancy in our family, my granddad lived into his 90s and my dad is in his 90s now. I'm planning till I'm 100.. lol
I'm budgeting for £3,000 per month or the future equivalent, that's a lot more than I'm actually spending a month now once I take out my mortage and the amount I'm saving or investing per month. I'm not planning any reduction in the cost of living, god knows what services we would have to pay for in 30 years time. people didn't think we would have to pay for internet boardband, subscription tv in the 70s, I'll most likely be subb'ed to some kinda AI service and robot home care.

The following is how much you would need in today money for different retirement styles:

Home - PLSA - Retirement Living Standards

Home - The Retirement Living Standards have been developed to help us to picture what kind of lifestyle we could have in retirement.
www.retirementlivingstandards.org.uk www.retirementlivingstandards.org.uk

To answer the OPs question, put enough into your pension so when you do retire, you don't have to work.
ISAs are great for early retirement..
Savings are there to fund you in certain situs till you get to retirement.
 
slinxy said:
Snip

To answer the OPs question, put enough into your pension so when you do retire, you don't have to work.
ISAs are great for early retirement..
Savings are there to fund you in certain situs till you get to retirement.
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For me I'll need to work longer because I wont have enough. I am aware of that at least.
Unless, I mean when, I win the premium bonds or something I'll certainly need to work past 55.

I'm OK for that, as it would be too much a compromise on "good years" to try and retire a few years earlier but miss out now.


I guess that's it for me. I don't really have a fixed date. Not sure how I could do. Too many variables.

I'm not confident a pension or NHS will even be around, in which case probably can't retire anyway. Just too many unknowns at this point.
 
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slinxy said:
To forecast that a £1000 pounds will only be worth £500 pounds in x years time so you need £1500 to pay for something that is worth £1000 today is just pie in the sky maths.
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That is roughly speaking what inflation does. What counters it is investment growth, not inflation.

For example if you assume that inflation is 2.5%, also assuming that your investment growth will be 2.5% would be a mistake because that's very low growth. It may be true for a lot of people who leave their pension in the default mainstream pension funds with high fees and poor returns - but the point of a sipp is to have low fees and higher returns. Investment growth also varies by risk appetite, one person might have a bunch of bonds and another person has none - so there's no "one size fits all" number for pension growth, and it certainly isn't always the same as inflation.

That requires a forecast to have an input which represents the individual's expected pension growth. Another reason it's not inflation is because the individual's risk profile changes over time, as they near retirement they might have more bonds and therefore expect more growth, and further still once they're in retirement. It all depends on the investment decisions they expect to make.

^ Long way of saying investment growth and inflation aren't the same.

Edit: someone might also take a different risk profile in their ISA than in their SIPP, or have other types of pensions that are also different.
 
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throwaway4372 said:
That is roughly speaking what inflation does. What counters it is investment growth, not inflation.

snip

^ Long way of saying investment growth and inflation aren't the same.

Edit: someone might also take a different risk profile in their ISA than in their SIPP, or have other types of pensions that are also different.
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And this is why pensions are worked out todays monterey value as inflation is calculated in... when people say the stock market has returned 6% on avg every year, that's 6% after inflation.
 
Over the very long term investment growth should outstrip inflation growth. But guessing what the state pension will be on 30 years etc is confusing. I'm with slinxy here, throwaways inflation assumptions are just confusing things.
 
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200sols said:
Over the very long term investment growth should outstrip inflation growth. But guessing what the state pension will be on 30 years etc is confusing. I'm with slinxy here, throwaways inflation assumptions are just confusing things.
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I'm trying to understand how to do a version without adjusting for inflation. If you can think of a way to explain it that might help me understand that'd be helpful.
To start with, you don't know what your target income each year will be (it definitely isn't the same throughout retirement). And you need that before working out how you're going to fund each year from the various sources.
 
As my new employer has no matched pension I am starting to favour a stocks and shares ISA over pension contributions. Unlike pension contributions any capital growth/dividends are tax free and not just tax deferred (albeit maybe at a lower rate). The tax-free lump sum is a benefit of pension contributions but I think there's a high risk that disappears by the time I retire.

Depends on your personal circumstances though. If for example you're earning between £120 - 126k then it's hard to ignore the 62% relief you can get from pension contributions where its very likely you'll end up paying a much effective lower rate when you draw down.
 
Selekt0r said:
I thought employer matched contributions of a minimum of 3% was a legal requirement now?
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Yes it has auto enrolment as legally required. I wouldn't refer to that as pension "matching" though as if they've set it up senisibly the employee can opt out of all contributions whilst the employer still contributes their share.
 
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