The Student Room Group

Do you pay into a pension?

With auto-enrollment slowly being implemented across the country; more and more young people will begin paying into a workplace pension scheme.

Are you one of these people? How do you feel about paying into something you won't be able to access for 40 years? Do you think you pay in enough/too much.. or is the whole thing just something we should ignore until we're in our 40s?

Lets hear your views/questions TSR!

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Reply 1
Original post by Reue
With auto-enrollment slowly being implemented across the country; more and more young people will begin paying into a workplace pension scheme.

Are you one of these people? How do you feel about paying into something you won't be able to access for 40 years? Do you think you pay in enough/too much.. or is the whole thing just something we should ignore until we're in our 40s?

Lets hear your views/questions TSR!


Isn't it usually an additional benefit on top of income? Mine was at least, a flat 6% of my wage or something. I think my sisters is 8-10%.

I tended to never think about it, as it doesn't affect me. The fact I have 15 grand or so in a pot for when I'm old is kinda cool.
Reply 2
Original post by samba
Isn't it usually an additional benefit on top of income? Mine was at least, a flat 6% of my wage or something. I think my sisters is 8-10%.


No, most current pensions require you to contribute some of your salary into it.. which the employer then matches
Reply 3
Original post by Reue
No, most current pensions require you to contribute some of your salary into it.. which the employer then matches


Eek. That'd be something to think about. I'd probably still pay it, it's still free extra money. Depending on mortgages and other stuff though. But really, say you're on 30k a year or 22k after tax (very much napkin maths) - 6% is £1300 or something. Your likely mortgage 100k @ 25 years would be say 500 a month (i'm being generous) or 6k a year. Using that 20k and shaving 6 years off it for extra repayments (again I'm being very generous) saves about 10-12k in interest, whereas in a pension fund with another 20k from the employer it'd likely be worth 50-60k. So yea, fairly simple thinking about it like that as long as I wasn't in desperate need of cash.

Does that mean I could shove 80% or something into a pension though and expect my employer to match it? If so I might need a job!

edit: oops, forgot tax on the 1300, you'd pay off even less, so call it 5 years and 8-10k saved.
Original post by samba
Does that mean I could shove 80% or something into a pension though and expect my employer to match it? If so I might need a job!


Most (if not all) employers will only match up to a certain amount, either a % of your salary or a certain number of £k per year.
Reply 5
Original post by secretmessages
Most (if not all) employers will only match up to a certain amount, either a % of your salary or a certain number of £k per year.


As expected. To be fair, it was a flippant comment :p: Think I'll stick to employers that just pay into the pot without me worrying about it tbh if I'm ever employed again.
I was auto-enrolled into a pension scheme and I have to admit I've pretty much ignored it.

It's nice that my employer is more than matching what I'm putting into it, but is there any point in me doing it if I only plan to be working here for 2 years?
I only started in August and it's something that I haven't got around to actually figuring out yet.
Original post by Ian80
I was auto-enrolled into a pension scheme and I have to admit I've pretty much ignored it.

It's nice that my employer is more than matching what I'm putting into it, but is there any point in me doing it if I only plan to be working here for 2 years?
I only started in August and it's something that I haven't got around to actually figuring out yet.


Same here
Reply 8
Original post by Ian80
I was auto-enrolled into a pension scheme and I have to admit I've pretty much ignored it.

It's nice that my employer is more than matching what I'm putting into it, but is there any point in me doing it if I only plan to be working here for 2 years?
I only started in August and it's something that I haven't got around to actually figuring out yet.


Saving something is almost always better than saving nothing; especially if you have to pay income tax.
No. However, I'll be living in a country where income tax and corporation tax are 10% so I'll probably stick at least 10% of my earnings into a fund in case I need it in the future. There's no point in having a pension here as I don't plan on ever returning.
Reply 10
No, most current pensions require you to contribute some of your salary into it.. which the employer then matches

And your contribution has income tax relief.
Reply 11
The trouble with Auto Enrollment

AE is a somewhat limited scheme in that the typical minimum (which a fair number of employers will do no more than) maxes at 8%, 4% employee, 1% tax relief on employee and 3% employer.

This is not applied to all earnings but to band earnings, over £5772 under £41,865. Employments are not connected so where someone has two part time jobs they will only have contributions over the minimum on each, so 2 employments at £10,000 p.a. gives 2 bands of £4,228 each with 8% contributions, not really a significant contribution at about £676 per year. Even if one employment of £20,000 the contribution is only £1,138 p.a.

The trouble is that lower paid employees, often shuffling two jobs, will consider they have taken care of their pension needs but what they will eventually receive as a pension from a lifetime into such schemes will just not be enough.

As a rough rule of thumb the norm target is a pension equal to 2/3 of salary when employed (and for the lower paid this will be pretty meagre), re my example this would be a £13,333 per year. The state pension is currently circa £5,876 so other pensions would need to be £7,457.

The sort of fund needed to currently buy an annuity at age say 68 of £7,457 with inflationary increase will be, in today's terms, circa £175,000

Now in real terms £676 per year over say 46 years is not going to do it.

So a scheme, brought in to protect the lower paid/ non pensioned ,is going to lull them into a false sense of security and come 2080 a lot of people yet again will not have provided for their retirement. And of course employers will gradually reduce the benefits they currently offer as has been the trend for years (Not many defined benefit private sector schemes these days, virtually all are money purchase)

So, the moral, do not depend on state sponsored schemes (they will probably get changed at least 7 times during your working life anyway) and start saving very early, a £1 saved in your 20s is likely worth about £5 in your 40s. Delaying starting is the surefire way to enjoy a meagre retirement.
Reply 12
Original post by DJKL

So a scheme, brought in to protect the lower paid/ non pensioned ,is going to lull them into a false sense of security and come 2080 a lot of people yet again will not have provided for their retirement.


Excellently put.
Yes, I do although I only work part of the holidays. I'd rather not and i'll look into whether I can reclaim contributions when I stop working for that employer or transfer the contributions to a different scheme.
Reply 14
Yes, the one I pay into is wildly considered to be one of the better ones. (I won't be going into details).

It is everyone's responsibility to take reasonable steps to ensure their future. No one should want to be a burden.
Original post by DJKL
The trouble with Auto Enrollment

AE is a somewhat limited scheme in that the typical minimum (which a fair number of employers will do no more than) maxes at 8%, 4% employee, 1% tax relief on employee and 3% employer.

This is not applied to all earnings but to band earnings, over £5772 under £41,865. Employments are not connected so where someone has two part time jobs they will only have contributions over the minimum on each, so 2 employments at £10,000 p.a. gives 2 bands of £4,228 each with 8% contributions, not really a significant contribution at about £676 per year. Even if one employment of £20,000 the contribution is only £1,138 p.a.

The trouble is that lower paid employees, often shuffling two jobs, will consider they have taken care of their pension needs but what they will eventually receive as a pension from a lifetime into such schemes will just not be enough.

As a rough rule of thumb the norm target is a pension equal to 2/3 of salary when employed (and for the lower paid this will be pretty meagre), re my example this would be a £13,333 per year. The state pension is currently circa £5,876 so other pensions would need to be £7,457.

The sort of fund needed to currently buy an annuity at age say 68 of £7,457 with inflationary increase will be, in today's terms, circa £175,000

Now in real terms £676 per year over say 46 years is not going to do it.

So a scheme, brought in to protect the lower paid/ non pensioned ,is going to lull them into a false sense of security and come 2080 a lot of people yet again will not have provided for their retirement. And of course employers will gradually reduce the benefits they currently offer as has been the trend for years (Not many defined benefit private sector schemes these days, virtually all are money purchase)

So, the moral, do not depend on state sponsored schemes (they will probably get changed at least 7 times during your working life anyway) and start saving very early, a £1 saved in your 20s is likely worth about £5 in your 40s. Delaying starting is the surefire way to enjoy a meagre retirement.

Some good points, but it isn't as bad as it sounds.

8% of the band contribution of a £10k salary adds up to a pension pot of £44k after 45 years in work, assuming no pay rises in real terms and a 4% appreciation in real terms. That isn't a huge amount but at, say, 8% (a plausible annuity rate - you've taken current estimates which are at an all-time low due to the effects of current monetary policy on the bond market) it gives an annual income of £3,500/year. Given that the state pension isn't likely to drop to zero, this provides a reasonable chance of that person maintaining their in-work consumption levels imo.

40hr/week for 48 weeks at the minimum wage with the same assumptions gives £68k/£5.5k.

Median income (about £28k) gives £266k/£18k. Again, pretty reasonable considering there's a good chance this person will also own their house and have other savings by that point.

At the £41865/year we get £366k/£29k (admittedly very few people will be earning this at age 23!).

People who put this policy on cruise control and do nothing else probably will not have luxurious retirements, but have a good chance at maintaining something pretty close to the standard of living they're used to without massive upheavals and median earners have very little chance of falling into actual poverty regardless what other terrible decisions they might make or adverse policy changes might affect them. The real exceptions are people who spend a lot of time unemployed or withdraw from the scheme for some reason. In the simplified model I used this especially true in the early years when contributions compound the most, but in reality most peoples' income will probably increase a lot throughout their life, diluting the "I'll worry about that next decade!" effect somewhat.
(edited 9 years ago)
Reply 16
Poor annuity rates are not just a function of low interest rates, they are also a function of life expectancy.

Accordingly whilst I accept they are currently low due to monetary policy, even with higher bond yields in the future ( The current ogre/ scare of deflation and Japan's last 20 years still need considered) ever increasing life expectancy may chip away at the income per 100k of fund; it has been quite a few years since I last saw RPI escalating annuities at 8%, flat annuities are possible but inflation would ravage the income in retirement which could be a very long time. (By 2060/2070 if still retiring at the current target age of 68 could easily live 35-40 years in retirement)

Don't get me wrong, anything that encourages people to save for their retirement is a good thing, there are plenty now in their 40s with nothing in their pensions-just a SERPS augment to their basic state pension. My warning was there is not enough "education" re pensions/ retirement savings and people will blithely consider that at 8% of band earnings (not that a fair number will appreciate what contributions are actually being made) they have the issue covered,;bit late, after 35 years, trying to catch up lost ground if they find they are wrong in that assumption.

(You must be a glass half full sort re your forecast annuity rates, I am likely a bit older and a bit more cautious, I am more glass half empty- I would prefer to bank on a worse outcome and get a pleasant surprise rather than be positive re future annuity rates and suffer significant, non repairable, disappointment)
Reply 17
Original post by DJKL
The trouble with Auto Enrollment

AE is a somewhat limited scheme in that the typical minimum (which a fair number of employers will do no more than) maxes at 8%, 4% employee, 1% tax relief on employee and 3% employer.

This is not applied to all earnings but to band earnings, over £5772 under £41,865. Employments are not connected so where someone has two part time jobs they will only have contributions over the minimum on each, so 2 employments at £10,000 p.a. gives 2 bands of £4,228 each with 8% contributions, not really a significant contribution at about £676 per year. Even if one employment of £20,000 the contribution is only £1,138 p.a.

The trouble is that lower paid employees, often shuffling two jobs, will consider they have taken care of their pension needs but what they will eventually receive as a pension from a lifetime into such schemes will just not be enough.

As a rough rule of thumb the norm target is a pension equal to 2/3 of salary when employed (and for the lower paid this will be pretty meagre), re my example this would be a £13,333 per year. The state pension is currently circa £5,876 so other pensions would need to be £7,457.

The sort of fund needed to currently buy an annuity at age say 68 of £7,457 with inflationary increase will be, in today's terms, circa £175,000

Now in real terms £676 per year over say 46 years is not going to do it.

So a scheme, brought in to protect the lower paid/ non pensioned ,is going to lull them into a false sense of security and come 2080 a lot of people yet again will not have provided for their retirement. And of course employers will gradually reduce the benefits they currently offer as has been the trend for years (Not many defined benefit private sector schemes these days, virtually all are money purchase)

So, the moral, do not depend on state sponsored schemes (they will probably get changed at least 7 times during your working life anyway) and start saving very early, a £1 saved in your 20s is likely worth about £5 in your 40s. Delaying starting is the surefire way to enjoy a meagre retirement.


Not a problem with auto-enrollment, its a problem with NEST.

You've put things a bit worst case too.
Original post by DJKL
Poor annuity rates are not just a function of low interest rates, they are also a function of life expectancy.

Accordingly whilst I accept they are currently low due to monetary policy, even with higher bond yields in the future ( The current ogre/ scare of deflation and Japan's last 20 years still need considered) ever increasing life expectancy may chip away at the income per 100k of fund; it has been quite a few years since I last saw RPI escalating annuities at 8%, flat annuities are possible but inflation would ravage the income in retirement which could be a very long time. (By 2060/2070 if still retiring at the current target age of 68 could easily live 35-40 years in retirement)

Don't get me wrong, anything that encourages people to save for their retirement is a good thing, there are plenty now in their 40s with nothing in their pensions-just a SERPS augment to their basic state pension. My warning was there is not enough "education" re pensions/ retirement savings and people will blithely consider that at 8% of band earnings (not that a fair number will appreciate what contributions are actually being made) they have the issue covered,;bit late, after 35 years, trying to catch up lost ground if they find they are wrong in that assumption.

(You must be a glass half full sort re your forecast annuity rates, I am likely a bit older and a bit more cautious, I am more glass half empty- I would prefer to bank on a worse outcome and get a pleasant surprise rather than be positive re future annuity rates and suffer significant, non repairable, disappointment)

Personally I don't intend to buy an annuity at all. But the self-invested stock/bond split pension planners all seem to take 4% of the initial pot size in real terms as a perfectly fine withdrawal rate. Most of those pots have a lot left in them at death and many have a lot more in them than they started with - so a 2-4ppt premium for an annuity isn't unreasonable. Right now of course bonds are paying almost nothing while the stock market is skyrocketting, and annuity companies mostly invest in bonds, which is probably why inflation-adjusted annuities are often providing less than this amount.

I do sympathise with your position though. We don't get to choose (within reason) when we retire, and if you retire when the bond market is doing badly you can end up in a bad position.

Ultimately though I doubt people who earn £10k throughout their lives are going to need to worry. Their standard of living will be low but it will probably be entirely preserved in retirement by transfer payments anyway. It's people in the £20-30k band who I can see dropping suddenly into the £10k on retirement. This reform doesn't totally preserve a £30k income, but from my numbers, even with the returns halved the median income guy is getting £9k/year from the basic private pension, with any additional savings, home ownership, and basic state pensions adding up to something not that far removed.
Reply 19
Original post by Quady
Not a problem with auto-enrollment, its a problem with NEST.

You've put things a bit worst case too.


I had NEST described to me as where you go when you can go nowhere else.
Having said that whilst NOW, Peoples etc have a little more admin support (templates) none of them are a hands free admin run for the employer and the traditional pension companies appear less than keen re smaller schemes.

I think the whole idea is good but ill thought out for smaller employers- man running the corner shop or shop that is seasonal (tourist items) where staff, if they hang around long enough, are going to jump in any out of theshold. The admin issues/ notifications/ letter writing will be a pain- the system should have allowed for very simplified procedures for smaller employers but instead it is a one size fits all.

I act as treasurer to an after school club charity with six members of staff for which using thresholds would have two receiving contributions, two never going over threshold and two jumping in and out. All of the staff also work elsewhere- they each have two jobs. We are intending to overcome the admin nightmare ( an entity with only parent volunteers managing it) by just paying everything as employer contribution and making all earnings qualifying earnings in the hope that nobody will ever opt out and enrollment will become part of the routine when new staff are taken on-this is to design as bullet proof a system as possible for future committee members to be able to run and comply.

The idea is good but the red tape that goes with it is not very small business friendly and a simpler scheme ought to have been devised.

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