Automatic enrolment pensions and FIRE

Before reading this article- if you don’t know anything about pensions, please read the articles here & here first. I’ll assume that you now have and I’ll only be talking about automatic enrolment (defined contribution as it were) pensions in this article.

Should I use Automatic Enrolment pensions to FIRE?

Well, assuming that you plan on living longer than the current (private) pension age of 57 or so, then yes! I won’t go over the earlier post I linked– which says that you are more than doubling your input money. The only (slight) issue is that you cannot access any of this money until you hit retirement age (currently about 57). This age could change if the government change their mind- so just keep an eye on this, especially as you get closer.

Is Automatic Enrolment enough pension for you?

Well, the simple answer is- it depends. Not a great answer, I know, but it really does. What does it depend on? Well the following things:

  • How long are you going to work/contribute for?
  • How are/do you have the AE pension invested in? What are the returns?
  • Is the pension going to be the only income/asset you have at retirement age?
  • Do you think the state pension will still be there, and what value/income will it provide?

Some of these things can be calculated- or at least estimated. If you know you are only going to work for 20 years, and the starting salary is £20k, then you can work out how much you are going to contribute over this time period. Add in compound growth of 5 or 6% (after inflation) and you have some idea of the value of your pot.

A worked example

If you earn £20,000 (yes, yes, hopefully you will be earning more than this) then you will contribute 4%, tax relief of 1% and employer will contribute 3%. These are the legal minimums so it might be that you employer will pay more- check both now and anytime you change jobs. Also note that it isn’t 3% on the entire amount (check the fine print, but its only usually on earnings between £6,240 and £50k currently)

Is what you should see on a normal/default tax code, with £91.73 going into your pension every month. Doesn’t sound very much does it? Well, mainly because its not really- but as you (hopefully) earn more, the pension input goes up and compounding takes care of the rest. If you assume 3% wage growth each year 20 years paying in, you end up with something like this:

Hopefully however, you didn’t start at age 45 and work to 65, but rather you started at 25 and finished nice and early at 45. That means that actually that £53,726.73 isn’t the end of the story, as it still has at least another 12 years invested- and hopefully more like 20 (if you started earlier, or have a big enough bridge). So, let’s take that £53k and invest it for another 20 years at 6%.


Now we are talking! Added onto the state pension (hopefully) and you can live comfortably. Just remember- that this only cost you less than half the contributions (under £15k) and you have £177k that’s totally yours!.

Remember the pension is the end of the bridge- you still need to ISA on your way!

I’ve written about financial bridges before (here)- so I’m sure you are aware that the pension is the last step of FIRE really. You need to ensure that your ISAs (or other investments) take you from your planned retirement age all the way to when you can start withdrawing from your pension. There is no skipping this and withdrawing from your pension early. Any websites/services that say you can are all a scam!


Use the calculators I used in this article to run your own numbers:

Pension calculator

Compound interest calculator

Keep an eye, and every year do a review- make sure you are on target and make changes (increasing contributions) when required. Did I miss anything? Please leave me a comment!

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