Am aware of the general advice to save about half your age as a percentage when you start. Fortunate enough to have a fairly well paid job, am 26 at the moment, and pay 6% of my gross salary. Employer adds another 12%, which tends to suggest a fairly decent pension at 65, or a possible earlier retirement.

However… I have the option (and spare cash) to increase my contributions to 10%. Is it worth doing this, or is the money better invested in paying off my mortgage early? The other issue is that continuing with 10% contributions will eventually lead to a pension pot just in excess of 1.5 million at 65, which I gather is taxed very aggressively.

Or do I keep my 4% and buy a new bike? And failing that, recommendations for independent financial advisors welcome. 🙂

Yours in ignorance!

Contributions above 1.5million aren’t “taxed aggressively” they just don’t get any tax relief. Since there is no relief, there is little or no point in actually contributing any more than this.

As for whether you should put more into your pension, well that’s a tricky one. Will your employer match this additional contribution or is it the 10% it? If the former then I would, if not then I wouldn’t. I’m in a similar position and I’m using my spare cash to pay off my mortgage and make some other investments.

The ususal disclaimers apply.

Is it a final salary or money purchase scheme?

If it’s final salary, up your contribution and increase your accrual now, whilst your salary is lower (assuming that your salary is likely to inrease as your career progresses)

If it’s money purchase, and there’s a fair whack being paid into it already, I’d say pay down the mortgage.

However, increasing your contribution is also a sensible thing to so, as you’ll be buying assets now that have longer to increase in value (probably) before you retire. You can always reduce the contribution later, and you’re also effectively buying a ‘cushion’ for periods where you may not contribute at all (unemployment, career breaks etc)

I am, however, not a financial advisor.

I put a similar percentage in a pension. For historical reasons I do have a second little personal pension that gets 1% of gross or something like that.
The reason I have not rolled that contribution into the work pension is that my employer will not add any more to it so I might just as well put it with another pension company to spread the risk a little bit.
The thing with money in a pension is that you cannot get at it for a very long time, putting savings in an offset mortgage provides a zero risk rate of return that his hard to beat.

If you decide to invest the cash yourself (buy a better house possibly) then at least all your eggs are not in the same (company) basket. A guy I know had been putting cash in a private pension for years to be told it was effectively worthless, Proceed with caution and pension ‘experts’ may sell products that are more beneficial to them than you.

The reason I have not rolled that contribution into the work pension is that my employer will not add any more to it so I might just as well put it with another pension company to spread the risk a little bit.

You spread risk by the range of investments wihtin the pension, not by having separate pension providers. What you’re probably doing is paying two sets of management fees, and the fees on your work pension are probably lower.

Who’s supplied the pension pot figures and on what growth basis ?

Looking at your 1.5 million and working another forty years with low growth on your investment you will need to be contributing near to £30,000 a year.
Pension companies will provide you with GROWTH forecasts but not for flat or negative growth.
Look at the FTSE 100 figure 10 years ago and at the figure now.

IMO the only funds which will provide good growth are ones that are managed on a day to day basis.This is just not practical as most people just keep paying in and have no idea where their money is invested ,or just how good the investment is.
Why do we see rows of people in front of computer screens in investment companies?Its because they are constantly watching share prices and markets which will be primarily for their own investments ,not yours.
Pay off your mortgage!

I wouldn’t worry about hitting the £1.5 million ceiling. That is almost certain to be raised to allow for inflation.

As an example £500’000 in 1981 has the same real value as £1.57 million in 2011 taking into account an average 3.8% inflation over that period. So if inflation averaged around 3.8% over the next 30 years the pension pot limit would be somewhere around £4.5 – £5 million.

http://www.bankofengland.co.uk/education/Pages/inflation/calculator/flash/default.aspx

which tends to suggest a fairly decent pension at 65, or a possible earlier retirement.

but thats nother 40 years time, a lot can happen in that time like pension age being icreased, and comapnies squandering or stealing from your pension.

or just perhaps a change in the laws and you loose a lot of it, and have to pay more.

Pay off the house, easier, at leat youll have somewhere to store your bikes.

I’d pay down the mortgage, or if you really want to save/invest put it in an ISA.

For a basic rate taxpayer (well done if you’re not at the age of 26!) there is no difference in terms of tax relief between a pension or ISA – just when the tax relief is applied.

The ISA also has the benefit of being liquidated at anytime, unlike a pension, which you can’t access till 55 (IIRC).

Thats my 2p.

If the company aren’t matching you with the extra then I would put the money in an ISA (stocks probably). You will then have access to the money before you retire should you need it.

http://singletrackworld.com/forum/topic/getting-a-pension

? do you need a pension that big (*and as a complete aside I’m already failing to see why VERY large Private/Public pensions aren’t getting supertaxed as they’ve done a bit to well on the ‘tax relief’ front imho), what are your plans for the money on your demise.
ISA’s offer more flexibilty (with no initial tax relief).
Paying off mortgage seems sensible.
Search on Equitable Life regarding all eggs in one basket.