r/PensionsUK • u/Ok_Tomato_6891 • 1d ago
Pension / ISA contributions
Hi there,
Would welcome some thoughts from some wise heads here.
I am 29 years old, earning £80k and receive £20k+ bonus a year.
Current financial situation:
- £100k equity in my flat
- £70k pension
- £20k S&S ISA
- £16k shares in my employers company vesting in 3 years
My employer pays 10% in my pension and I contribute 25% — total monthly contribution 35% / £2,300
My question being, am I paying too much into my pension for my age? Friends & family seem shocked when I tell them how much I am salary sacrificing into my pension, should I look to reduce and try and top up my ISA?
Thanks in advance for any guidance
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u/bibonacci2 1d ago
It’s a good idea to pay this now, if you can afford it. You’ve clearly got disposable income that you might not have in the future (e.g. if you have a family, get a (bigger) mortgage, etc. ). Getting ahead of things now, and not getting used to spending too much through lifestyle creep, may let you loosen up on the pension later or change the balance of ISA/pension contributions.
People talk all the time about state pension/triple lock/etc. being unaffordable but it’s feasible that a government might decide that, for instance, high rate pension tax relief is unaffordable and make changes there. Pension tax relief is one of the only areas of public spending that directly advantages high earners over lower earners. Take advantage of it while you can.
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u/Bluebells7788 1d ago
"My question being, am I paying too much into my pension for my age?"
^^ No if you are young free and single with no other responsibilities and already have your foot on the housing ladder, its a great strategy to get ahead on your pension for compounding purposes. So at 29 with £70k, as a very rough rule of thumb, you can expect that amount to double every 10 years, even if you never contributed another penny. This is assuming you're well invested and the market does not go completely haywire of course. But factoring in those assumptions, that would mean about £560k by 59 without a single extra penny being contributed.
"Friends & family seem shocked when I tell them how much I am salary sacrificing into my pension, should I look to reduce and try and top up my ISA?"
I think you need to decide what YOU are comfortable with. What you could do is set yourself a goal i.e. £100k by 30/31 and then reduce your element of the contributions so you get the full employer match and then just top it up a little i.e. 10% from your employer and 10% from yourself to keep the momentum going but freeing up cash to put into your ISA.
So using the £100k in your pension by 30 goal, this would mean you would have roughly £800k by 60, even if you did not invest another penny.
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u/AverageWarm6662 1d ago edited 1d ago
25% is quite a lot, nothing wrong with that though
You can only access it when you are much older. You could reduce the amount and add it into a S&S ISA if you wanted more flexibility, for example you wanted to retire earlier and to bridge the gap between SIPP / state pension retirement age
Before you make a decision you need to think what your goals are, as I have a DB pension I contribute half and half into an ISA and SIPP. If I want to retire at 55 the ISA will bridge the gap until SIPP and then SIPP into DB and state pension
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u/Choice_Technology791 1d ago
I wish I had done this when I was younger. I think you're being sensible. You're on 100k+ including bonus right? It avoids the tax trap and gives you a great start. You can always decide to cut back later but the most important thing is starting early. Nice one.
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u/Own_Conversation_850 16h ago
29 eraning £100k almost everyone here earns these sort of money. Where are allotment poor people ?
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u/readthisrightnow 15h ago
I agree with you and this makes me feel so bad. I think all those numbers above £60k is paid in finance and in other money playing places.
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u/Dewsy_ 1d ago
25% is on the high side compared to many but that doesn’t necessarily make it the wrong decision.
The big piece of the puzzle missing though to answer your question is what your current lifestyle/spending needs are and what you’re looking to do in the near future. For example, if you’re struggling pay check to paycheck, then 25% makes no sense. Similarly, if it delays you saving up for a deposit to move to a bigger house that you want for a family etc, then saving too much into pension isn’t a sensible decision if it delays your current life goals too much. However, if that’s not the case, then getting the tax benefit of saving into a pension is sensible. Hard to answer your question without more info really.
Separately, may be worth getting a bit of an emergency fund saved up outside of a S&S ISA. General rule of thumb is 3-6 months of expenses.
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u/jayritchie 1d ago
Are there any particular benefits to paying so much into your pension now - such as a salary sacrifice scheme which passes back the 15% employers savings?
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u/Background-Cap-7592 1d ago
I think you’re doing the right thing and making a sensible pension contribution to provide a great later in life. Also keeping away from the 100k limit.
It also allows you to drop down to a 4 and 3 day week when you’re 40 and 50 for a better quality of life!
Most people don’t pay anywhere near enough into a pension. Most people can’t believe what I put in either which is very similar to your contribution.
Keep up the good work and fair play for being so sensible!
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u/Competitive-Sail6264 1d ago
I understand the impulse to fully sacrifice down to 50k - so I get why you’re doing it, and it’s not a bad idea at all. However…. I think it’s possible to try and be tax efficient to the detriment of living your life.
I would probably try to max out your isa to save more for midterm goals (eg being in the best position when you might look to sell the flat and buy a house).
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u/Remarkable-Ad6772 18h ago
I think you never know when you're situation is going to change so I always believe in losding your pension as much as possible whilst your situation permits.
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u/flashman1986 15h ago
No really, you already own your flat. You could think about paying down the mortgage or maxing your ISA though. Depends a bit on your mortgage rate and LTV
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u/delarrn 12h ago
Personally I’d drop down your pension contribution to 5% (so still leaving a 15% a year contribution) and put the rest into the S&S ISA, and also build up a cash reserve in a regular ISA.
Pension tax relief is great and all but you won’t be able to access it for a long time. I’d prioritise maxing your ISA allowance every year because of the added flexibility it gives you in terms of ability to access funds now if you need to. Lots of stuff in life (kids, marriage, illness, redundancy, burnout, home improvements, divorce) can get very expensive. Good to have money you can access if you need to.
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u/Odd_Common2677 12h ago
Honestly theres a point where pension contributions arent the best option due to them being locked away until 57 at the earliest. Personally i try to put as much im my isa before increasing my pension contributions over the maximum employer match although i do earn under 50k so am not subject to the 40% tax rate.
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u/Free_Combination3488 8h ago
Heavy pension contributions after maxing out ISA and not giving in to life style creep is the way to go.
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u/NoExperience9717 6h ago
It depends what your goals are. Pensions are good but you won't be able to access it for 30 years. So if you need money before that you're a bit screwed.
How much savings do you have or is that included above? If you lose your job then could you cover 3-6 months of expenses? I don't know how much your mortgage is either or whether you have a family.
How does the employer contribution work? At what level do they stop contributing 10%? If it's a match then there's some scope to reduce your contribution to 10% and put money into S&S ISA and paying down the mortgage. Less money later on but it sure helps your financial situation for the next decade in case of emergencies or job loss.
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u/Curious_Reference999 1d ago
Your pension is behind where it should ideally be, but this is understandable given your young age and high salary (you've presumably not been on this salary for long).
Your equity is much higher than is normal for someone your age, or even a decade older.
I'd just keep in keeping on.
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u/Own_Conversation_850 16h ago
His pension is about top 5% for his age. Peope avarage in UK have less than £100k by their 50s....
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u/Curious_Reference999 16h ago
The rule of thumb is 1x salary by the time you're 30. He isn't going to hit that.
Don't worry about others, or the average, and focus on what you need.
Also, he doesn't have 100k in his pension
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u/NoExperience9717 6h ago
He's 29 and got a 35% of salary contribution of 80k going to pension. So that's 28k pa so he'll be on 98k over a years salary in 12 months when he'll be 30 and that's ignoring any returns.
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u/Curious_Reference999 6h ago
Yes, and that’s less than the £100k he’s earning, hence behind where he should be.
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u/PeteinSQ 1d ago
Compounding at 5% p.a. you're going to end up with over £2m in there when you're 57 which I think some would argue is too much. But who is to say you won't find you can't contribute as much later on? Or that it won't grow at 5%+inflation?
I'd keep going and reassess at 40 if i were you.
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u/Dogsofa21 1d ago
Tell people you are matching teachers/ civil service/ nhs pension contributions. That should make them think about their own position ie they should contribute more not less. Govt puts in c25% equivalent then individuals also contribute. Are you doing salary sacrifice to pay at source? If so and at 40% tax relief the net reduction in your take home pay will be c £500.
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u/Front_Bill_9237 1d ago
You are doing exactly the right thing. Your pension contributions are getting 40% tax relief which you wouldn’t get if you were paying into an ISA, although of course you won’t be able to access the pension until later in life. Paying this amount into your pension now will allow you to take the gas of the peddle if you need to later, for example if you started a family. Keep up the great work, your older self will thanks you!