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Pensions - how prepared are you for retirement? Do you know how much you're likely to have to live on?

(135 Posts)
littleredsquirrel Mon 09-Dec-13 13:08:11

Just curious really. I am currently trying to plough my way through all the paperwork to work out what my likely income levels will be when I retire.

I have a pension which I paid into for ten years but nothing being paid in at the moment. Trying to work out whether its worth putting more in or look at other forms of investment.

Currently my pension fund is projecting I'll have 24k pa (or £14k in real terms taking inflation into account.). I have 20 years to go if I want to retire at 60. Looks like we'd definitely be selling the house!

What arrangements have you made for retirement?

misscph1973 Mon 09-Dec-13 13:13:10

Not much! I had a a pension when I was a teacher, only for 5 years, and prior to that I was a student and didn't pay into any pension. I have been self-employed since 2008 and I haven't yet started paying in again, although I have promised myself I must start it up again this year where I turned 40. So far I am considering a cash ISA as I haven't got much faith in investment pensions. Any input is appreciated.

Am 55 and see a lot of old people so pension planning quite important to me.

I have a pension I pay into monthly but it's nowhere big enough Definitely plan to downsize and live on the house (luckily in South East and no mortgage).

DP has NHS final salary type pension but still has 17 years to go before he can retire so very hard to predict what that will actually be worth.

I think at the moment if I had a mortgage I'd be concentrating on paying that off rather than investing in a pension plan, given my house is part of my pension planning.

I'm just sorting out mine at the moment, as I have 3 funds floating around from previous employers and have just set up a 4th with my current employer. The combined transfer values of my funds are currently approx £40k (I'm 35), and I will be paying in around £300 per month going forward. I have no idea what this will give me though when I retire at (hopefully) 60, or any idea how to find this out easily.

£14kpa sounds loads though, if no mortgage or childcare to pay?

Beastofburden Mon 09-Dec-13 13:21:44

I have a mix of old defined contribution schemes from my first career and a defined benefit scheme from my second career. I have worked out that between us we will have roughly half what we get now. Given that we earn the same, and my salary goes on thi hs that will have stopped by then (mortgage, savings, care for my disabled son) I think we will be in equilibrium, as long as we both hang on in there and work until 67.

Retiring as early as 60 would be fab but not affordable I think.

Beastofburden Mon 09-Dec-13 13:24:18

Woodburner, your dormant schemes will write to you once a year with a statement of what they will be worth. Your current scheme you can ask them for a projection. Don't forget to add in the state pension.

People can be tempted to bring all the schemes together to keep it simple, but you lose a lot of money to fees that way, be careful.

Beastofburden Mon 09-Dec-13 13:28:37

If I had a poor pension I might join the grey army of people who buy a house or flat and let it out. As long as you use a reputable agent to make sure it's all managed to a good standard, and you have some spare cash for repairs when they are needed, the monthly rental on a home will always keep pace with inflation, I would say, and give you an income you can live off. But it's not money for old rope, you need to give them fair value for money in terms of repairs, gas certificates and so forth. And you need proper contracts and references etc. I would always use an agent personally, even if I was retired.

VivaLeBeaver Mon 09-Dec-13 13:36:43

Houses are a lot of hassle. I've just inherited one and have been thinking about keeping it and renting it out for an income and future pension. By the time you've paid tex on the rental income, repairs, agent fees, risk having unlet periods, capital gains tax and estate agent fees if you do need to sell I'm really not sure about it.

I'm thinking of selling it and trying to invest the money instead.

I've got a private final salary scheme which will pay out the equivalent of 1.5k per annum at today's rates when I'm 55. I'm now in the nhs defined benefit scheme. No idea how much it will be but I won't get it till I'm 67 at the earliest.

They are all stakeholder ones, therefore there aren't massive fees to transfer, I think this was one of the rules when the Government set up stakeholder ones. I've had advice from a FA about combining them, he suggested I sort out the transfers myself rather than pay him money to fill in a couple of forms!

Meglet Mon 09-Dec-13 13:44:44

I'm not sure blush. I have a few years of local government pension, a pension with my current employer and a small private pension I've been paying £10 a month into for over 10yrs now.

Maybe I should sort this out over Xmas. I'm nearly 40 so I should know about these things.

Beastofburden Mon 09-Dec-13 13:47:20

Viva, agree houses are work- Definitely worth involving a proper agent. But I think it's also a fair bit of work investing in the stock market, and that's taxable too.

True that a big disadvantage is you can't realise a few thousand if you need it- you either sell the whole thing, or keep the whole thing.

littleredsquirrel Mon 09-Dec-13 13:47:42

Misscph I'm in exactly the same position. I am self employed and pension slipped to the bottom of the list of priorities (hence the sudden flurry of activity to try to get it back on track again.

I would agree with vivalebeaver that property is a lot of hassle. Lots of people forget about capital gains tax completely and assume that any gain in property value belongs to them. Although I think (but might be wrong) that if you buy an investment property and then ultimately downsize and move into that property then since its then your principal dwelling the capital gains tax might not be payable. Would have to look into that in more detail though.

I agree that £14k doesn't sound impossible to live on but DH's pension is crap and so that's unlikely to pay out much. Also depends on how long the DCs hang around for!!

CogitoErgoSometimes Mon 09-Dec-13 13:48:24

£24k sounds pretty chunky to me!!! I'm still +/- 20 years off retirement and my fund projections aren't in that zone yet. However, the house is fairly expensive and I have ideas that I'll downsize to a luxurious flat to see out my twilight years, see DS set up with a place of his own.... and blow the rest on cruises. smile

Beastofburden Mon 09-Dec-13 13:49:23

Viva, if its a defined benefit scheme you have a defined benefit, ie, they know how much it's going to be, what you cant be sure of is how much ot will cost you. Probably based on your years of service by 67 and you salary, either now or career average. There will be a calculator on their website.

Pagwatch Mon 09-Dec-13 13:51:16

Pensioned up to the eyeballs. Plus ISAs and investments. The dc all have pensions started already.
It's dull but it's important to me.
When my dad died I paid off his debts and help support my mother. I would never leave my children in that position when I have the good luck to be able to make provision.

Spherical Mon 09-Dec-13 13:52:19

Don't forget to write to previous employers with your new address if you move so that they notify the right person to send you the statements that beastofburden mentioned.

Beastofburden Mon 09-Dec-13 13:56:02

Tiny bit of capital gains advice in general terms here.. I think it is still up to date but do check this if you intend to act on it.

If you have two houses, you need to tell the tax man which is your main residence. Assuming you did that, and the first house wasn't let out etc and you didn't do anything else funny, you sell your first house and there's no tax.

You move into the other house and tell taxman that its now your sole residence.

If you sold that other house, there would be some tax due. They basically take the profit and divide it by the number of years you owned it. The years it was your principal residence don't count. Some other years don't count, and there are various letting reliefs, annual reliefs, etc.

However, none of that matters until you sell it. Dying is not a chargeable event for CGT. If you live in it till you die, it's just subject to inheritance tax, which it would have been anyway.

Grennie Mon 09-Dec-13 13:56:44

I have been paying into a public sector pension for 25 years. It will give me a pension of £12k a year. But the retirement age has now been changed to 67 years of age. I am not sure if starting out again, if I would bother paying into a pension at all.

MoominMammasHandbag Mon 09-Dec-13 13:58:00

At the moment, £100,000 of pension fund seems to give you about £4,000 to £5,000 of pension fund. Depending on how good an annuity you can buy, how early you buy it etc.
You've done really well squirrel to get a pot of £300,000 envy

Beastofburden Mon 09-Dec-13 13:59:23

Grennie, I don't think they can change your prior benefits, just your new ones. So check- you may the right to take your existing pension earlier than you think.

MoominMammasHandbag Mon 09-Dec-13 13:59:47

Sorry, I mean £4,000 £5,000 of pension income per year.

CalamitouslyWrong Mon 09-Dec-13 14:06:36

I've got a final salary scheme, but it need to work for at least another 35 years to access it (probably more, as they keep putting the state retirement age up and my retirement age is tied to that). And by then they'll have changed the terms and conditions so I'll probably end up with a shiny button and a Mars bar each month in retirement. DH has the same pension, so maybe we'll have two buttons and a Mars bar each.

And no state pension, because I am 100% sure that there will be no universal state pension by the time they eventually decide to let me retire. My button and mars bar personal provision will disqualify me from state help.

littleredsquirrel Mon 09-Dec-13 14:09:48

Pagwatch thats interesting about childrens pensions. I was looking at that too and the website I was on made it sound like a very good idea. They get a 20 percent bonus on top of the investment and 18 years of additional growth. Does your scheme require hands on management (that's the bit that scares me)?

Cogito £24k does sound fine but on my pension providers website it gives you two different figures. One gives you the projection in actual terms (£24k) and the other gives you the figure in real terms taking inflation into account £14k. Not quite so good.

Yes, the £140 flat rate thing sounds good - I have 18 years contributions already, so I don't have to work for too many more years to get the whole lot - and I will be receiving CB for a child under 12 for the next 11 years whether I'm working or not, so I guess I'll get a full state pension - however, I too believe it will not exist when I get to 67 and 10 months, which apparently is my current retirement age...

littleredsquirrel Mon 09-Dec-13 14:14:31

Moomin my pot is currently just over £152k but I have another 20 years (of growth hopefully!) to go.

I am lucky in that I was a high earner and paid in 10 percent of my salary for ten years. Employer then paid in 6.5 percent too.

Now I'm self employed I obviously have no employer contributions and since my income fluctuates its tempting just to keep the money out and pay down on the mortgage instead. I also understand mortgages (unlike pensions!!)

GentlyGentlyOhDear Mon 09-Dec-13 14:16:20

DH and I are both 29 and neither of us have a pension - I'm studying and SAHM and he works FT.
No idea what would be the best option for us. Are private pensions any good?
His company don't provide one but they suggest one. Need to find out really if there are company contributions.
We are due to pay off mortgage (assuming we don't move!) in 20 years so that's one good thing I suppose.

littleredsquirrel Mon 09-Dec-13 14:17:53

Beastofburden so the tax efficient thing to do with property investment is to buy a property you'd be happy to downsize to and live out your days there having made some money from the sale of your previous home?

littleredsquirrel Mon 09-Dec-13 14:19:12

DH keeps saying we'll live on the proceeds of the house but the problem with that is once the money has gone its gone.

Beastofburden Mon 09-Dec-13 14:22:37

I believe so, little but I should emphasise that it is some years since I did tax advice professionally, so before you did that, you ought to doublecheck that its still true. I'm not allowed to give financial advice to people I don't know, as I don't know other things about their situation that might be relevant. It's like medical advice on MN- happy to give you the thought but please check with your GP smile

milk Mon 09-Dec-13 14:23:39

Not at all blush

CreamyCooler Mon 09-Dec-13 14:23:48

I have a final salary one which is 6/60ths of 60k, a pot with 150k, a pot with 120k, a small another small pension which will be about 1k a year. They have 13 years to grow and I'm hoping to have around 25k a year (dont know how to work it but hoping). If the pots don't do well or something goes belly up the plan is to downsize to a smaller property or cheaper area to free up some money.

Grennie Mon 09-Dec-13 14:25:59

The problem is for most people, you have to save an incredibly large amount of money to be able to have a decent pension.

littleredsquirrel Mon 09-Dec-13 14:31:27

Its also very difficult to work out what you'd even need in retirement.

I guess initially you look at current outgoings and strip out mortgage (hopefully) and any other outgoings like things connected to DCs, work related expenses such as travel to and from work that you don't get back. Then look at what's left and see what percentage of that you could realistically live on.

Indeed - I am paying 12% of my salary at the moment, with 2% employer contributions. This will rise to 6% employer contributions next year, but even with 18% of my salary going in, I'll be lucky to retire on half my current salary. And that's if I keep working, I work 4 days a week with 3 small children and it's killing me at the moment. Otherwise DH and I will have to work out another plan...

If I contribute nothing more, the calculators online reckon I'll have about £80k pot - which won't buy much...

Pagwatch Mon 09-Dec-13 14:34:22

We don't manage them littlered - we just chose products with good reputations. But we do have a financial advisor and an accountant.i would be anxious about chosing on my own. I am really rubbish at all that stuff so I get good advice and get it double checked.

Beastofburden Mon 09-Dec-13 14:35:44

That's roughly what I have done. Essentially, my salary goes on things that will stop by then, and the balance we save, so we are already living off our pension, IYSWIM, because together we will get what DH earns now.

A good argument for downsizing is that in retirement you will be home all day, so you will need to heat the house and provide lunch as well as dinner every day.

Physical frailty can increase and that's expensive, so it is almost as important, I would say, to keep very active in your 50s and 60s - this from someone who hates exercise- so you can manage without domestic help and mobility aids for as long as possible.

littleredsquirrel Mon 09-Dec-13 14:36:49

Hmm I've just looked at a website called the moneyadviceservice which has a pensions calculator and it suggests that standard life's predictions for my annual income are wildly optimistic hmm

Dilidali Mon 09-Dec-13 14:37:32

I have a private pension with Legal and General since... before time, really. I didn't transfer it to the new employer, I just left it there. Should I pay into it? A bit like a mini savings account? I can't close it and it would be a hassle to add it to existing pension etc. would it make sense to continue it, dies anybody know?

Beastofburden Mon 09-Dec-13 14:41:10

Dilidali, I guess you should ask both providers to give you an estimate of what you would get from paying additional voluntary contributions. But if your current employer would match any additional voluntary contributions you make to your current pension scheme, you should put your money there instead, because that doubles your money before you start. And check that both would be tax deductible.

littleredsquirrel Mon 09-Dec-13 14:42:25

As you can see Dilidali I know very little about pensions but I would have thought you're better to increase your contributions to your work pension so that your employer's contribution also increases (unless you're already at the maximum employer contribution).

VivaLeBeaver Mon 09-Dec-13 14:44:13

Our current bills a month not inc mortgage, food or petrol are £600 a month.

So that's council tax, utility bills, car insurance, home and contents insurance, dog insurance, life insurance, phone, cable TV, Internet, mobiles. They're not all essential I guess and when I'm retired I won't be paying life assurance and maybe I won't have a car so could get the bills down a bit I'm sure.

So if you add another £400 for food I reckon 1k a month to live off would be doable. It wouldn't be cruises and living it up but it would be warm and food to eat.

Oh, I'm also assuming that there will be no inheritances to come. Friends of mine have retirement plans that appear to hang on inheriting money, without kind of realising this means their parents have to die...

Beastofburden Mon 09-Dec-13 14:48:26

Pleased to see you won't be giving up the dog, viva ;)

Beastofburden Mon 09-Dec-13 14:49:23

On the whole, parents sadly do have to die, but they might spend all their money first (on nursing care if not otherwise)

Grennie Mon 09-Dec-13 14:50:27

Wood - I think that is common from what I can see. But I also do see a lot of my friends inheriting substantial sums. DP and I both come from very poor backgrounds, so there is nothing to inherit.

randomquicknamechange Mon 09-Dec-13 14:51:07

There is currently £26000 in my pension pot, works out about 750 a year. I am only 30 though so another 35 years paying in left so hope will do better. And only have 8 years left on the mortgage so hope to put a lot more into it once that is paid.

VivaLeBeaver Mon 09-Dec-13 14:52:23

I think my dog haunts me on MN. I'm always going to be remembered for him I reckon. grin

VivaLeBeaver Mon 09-Dec-13 14:56:30

Dh banks on inheriting half a house from his mum for his pension. hmm

He has already inherited half a barn, half a stable block and half of 8 acres of land. If we could get planning permission for the fields we'd be laughing. grin. As it is its about 90k worth so if/when we come to sell that then its a bit of a lump sum.

I think I probably would downsize when I retire. We live in a three bed house but its got a massive garden so that makes it harder to maintain as well as more expensive. I'd hope if I moved to a two bed terrace I'd get 50k in the bank. But then not sure I want to live in a terrace house when I'm 70. Steep stairs and noisy neighbour potential.

VivaLeBeaver Mon 09-Dec-13 15:02:03

Just done the pension calculator. If I retire at 60 I can get £9,400 a year. No lump sum. But that's only rough as my pension is a career average one not a final salary one and it doesn't seem to take that into account.

Dilidali Mon 09-Dec-13 15:06:02

Thank you beast, it makes sense.

Been looking at SIPPS and trying to decide about that. Potentially I could turn the L&G pension into one and just 'play', we're not talking more than probably £4-5 thousands? So even if I muck it up royally, I won't go bankrupt, but the potential revenue might be slightly higher than what it is earning now.
It annoys me, it really isn't that difficult, getting your head around finances, but it is cloaked behind jargon and other rubbish, it's like learning another language.

Beastofburden Mon 09-Dec-13 15:07:03

Lol vita I didn't know about your dog, it was just you leaving the insurance there curious now

Career average vs FS- they won't know what your final salary is, so they have to assume it goes up by inflation to retirement. Which is actually the same basis as Career average. So yes, it would look the same.

if your salary goes up by more than inflation, you get more under FS, especially if you get a promotion; if by less, you do better under CARE.

<puts on sad pension geek knickers and shuffles away>

Dilidali Mon 09-Dec-13 15:09:20

Oh, and thank you littlered as well smile it does make sense.

VivaLeBeaver Mon 09-Dec-13 15:22:02

Beast, I had a massive thread some months back after my dog bit dh. About 300 people telling me I was irresponsible if I didn't put it down and another 100 telling me I needed to do more to help the dog.

I try not to mention the dog anymore for fear of stirring up one side or another so shhhh. grin

I guess they do have to die - but right now it's their money to spend (and my Dad certainly does, Mum not so much), and not mine to inherit.

DH's parents are reasonably well off, but you never do know - and his Mum's aunt died earlier this year at 102 years old, so we may be waiting 40 years if she follows that trend. (Think indestructible little old Welsh ladies and you get the picture...)

Geeky pension knickers at least means you will be able to afford new knickers, wash and dry them when you are retired... I'll stick with geek, thanks!

rpitchfo Mon 09-Dec-13 15:28:56

For me it's about the holy quartet and not putting all your eggs in one basket.

I think you need all of the following if possible or a combination if you haven't got the means.

Pension
Savings
Mortgage paid off
Inheritance
(State pension)

I'm 28 so probably a little naive in thinking i can get all these. Me and my partner both work for the NHS so have been paying into pensions that "should" at the moment payout ok.

We have started an ISA 3 years ago that we pay into each month.

We over pay on our mortgage

Both our parents are kind of ok in the money department so anything from them would be an added bonus but fingers crossed its while away yet.

YoucancallmeQueenBee Mon 09-Dec-13 15:39:12

I've got various small pensions, which will provide peanuts, one semi-decent one & I'm paying into another semi-decent one at the moment. I definitely don't have enough to live off comfortably yet. However, I will definitely be able to downsize and release some capital, plus I don't see myself retiring particularly early, so I'm hoping that by working well into my 60s (as long as my health holds) that I'll reduce the number of years I'm dependent on a pension alone.

I really fear for so many women currently in their late 30s & 40s who have literally nothing in terms of pension provision and who have taken long breaks from jobs where they might get a pension or earn enough to contribute to one - particularly those without husbands.

Pagwatch Mon 09-Dec-13 15:54:34

DH and I have had no help with none to come.
My family have nothing. Dhs family have a reasonable amount in the form of a paid off mortgage and savings but they have written us and our children out of their wills.
I think my very poor background has made me determined to try and leave my children some stability.

canutesauntie Mon 09-Dec-13 16:00:08

I had a letter this week saying my state pension age is now 66. All well and good but I am currently having to apply for early retirement due to ill health and would be delighted to know I will be collecting it at 66.

Thats why I'm posting really, my (potential) current pension plus one from my late husband will probably add up to a reasonable amount but not what I originally expected. My plan was to spend my 50s going full time and saving my socks off. Not going to happen now so please all of you have a think about Plan B in case things go tits up at any point!

We both have pensions (SIPPs and company) and fund ISAs, as does DD. I actively manage them all and am very happy with the returns to date. We also have invested in other areas - property, antiques, jewellery, land etc - to diversify the risk.

One other area that you need to monitor is your pension lifetime allowance - the rules on this are changing next year (for the worse) and you need to take action before next April to protect the current limit. Very important if you have been contributing for a long time or invested a lot early on. I will be writing our letters in the next couple of weeks.

Those with CTFs should also be aware that you will soon be able to transfer these into junior ISAs (which are a much better option) as the rules are changing on these also.

VivaLeBeaver Mon 09-Dec-13 16:06:03

I just don't know what to do. Keep the house I've inherited and rent it. Try and invest all the money. Blow it all on holidays and doing the house up! I really should be sensible but as I've just seen my dad become terminally ill and die at 64 I sometimes think fuck it about planning for retirement.

Talkinpeace Mon 09-Dec-13 16:14:09

I have savings but no pension
do not intend to get one
I plan to carry on working (part time, alternate months) till I drop

YoucancallmeQueenBee Mon 09-Dec-13 16:42:18

Viva - do a bit of both. Have a mad moment but do something a bit sensible too. Best of both worlds then. grin

littleredsquirrel Mon 09-Dec-13 17:28:03

We have some savings and should have paid off the mortgage in eight years since we overpay on it so hopefully we will have the house to fall back on. Its a reasonably expensive property too. The DSs won't be impressed though, they've already staked their claim on the house!

I doubt we'll have much in the way of inheritance. Both my parents and DHs parents have houses worth a couple of hundred thousand but if none of them need the properties to fund care I'd be very surprised.

I have asked DH to get a pension projection so that we can have a proper look at what we might have in the way of pension income. I think he has images of us spending our retirement skiing and travelling and so he might have a bit of a shock in store!

littleredsquirrel Mon 09-Dec-13 17:29:02

charleybarley what is it you have to do re pensions lifetime allowance? Not heard about that.

Talkinpeace Mon 09-Dec-13 17:32:36

www.hmrc.gov.uk/pensionschemes/understanding-la.htm
getting anywhere near the lifetime allowance is an utter pipe dream for 90% of the population
having £1.25 million in savings is unlikely to happen to most of us after all.

Dilidali Mon 09-Dec-13 17:35:39

charley lowering the pension lifetime allowance sum from 1.5 million £ to 1.25 millions is not going to affect me smile. But it is good to know smile

I will look up the junior ISAs, thank you.

littleredsquirrel Mon 09-Dec-13 17:37:31

That would be lovely but unlikely to affect me.

I didn't know about the CTF and the junior ISAs and that is good news. I was feeling very hard done by being stuck with a CTF for both DCs.

littleredsquirrel Mon 09-Dec-13 17:42:40

This is money website says that the changes haven't yet happened and aren't guaranteed to happen re CTF and junior ISAs. The government are just consulting on it apparently.

More information here littleredsquirrel

www.hmrc.gov.uk/pensionschemes/understanding-la.htm

As I said upthread you will most likely only need the protection if you started saving very early so maybe 30-40 years of contributions, made large lump sum contributions, or are in a final salary scheme. Your pension pot sounds fairly healthy and you still have a fair few years of contributions ahead of you.

This article explains why it will hit not just the wealthy

www.telegraph.co.uk/finance/personalfinance/10321002/Lifetime-allowance-How-to-avoid-a-big-tax-bill-on-your-pension-savings.html

They have to consult. GO has conceded that CTFs are not great value for money, see here for more information and they are promoting the JISA now.

Legislation is likely to be brought in from April 2014. You can register at JISA providers for legislation updates.

Talkinpeace Mon 09-Dec-13 18:00:45

as per that link, 360,000 people will be affected by the change.
the rest of working adults - around 36,000,000 (ten times as many) will not.

the average public sector pension is under £8,000
not the £56,000 the Torygraph is faffing about
bear in mind that half the adults in the country get less than £19,000 when they are working, let alone as pensioners.

Yes talkinpeace, but you never know one of those 360,000 might be reading this, fsmile

It will affect civil servants, doctors, etc - not just bankers.

More of a Times reader myself but you cannot post through their paywall.

There is no downside, as far as I can see, of at least applying for the individual protection, as you never know what might happen in the future.

littleredsquirrel Mon 09-Dec-13 18:24:14

DH doesn't know what a boring night he has ahead of him. We are definitely sitting down and discussing this!

Oh yes, it is definitely tres dull fgrin

Beastofburden Mon 09-Dec-13 18:43:04

Viva, invest a bit in some real life financial advice. You need to talk through the whole situation with someone qualified. W shouldn't take guesses as what you ought to do, there will be many facts offline that we are not party to.

littleredsquirrel Mon 09-Dec-13 18:54:02

Blimey I'm quite shocked DH has just texted to say that he's asked a financial advisor he knows to set up an appointment for us. Think he was kicked into action by the £14k prediction.

CreamyCooler Mon 09-Dec-13 19:31:02

I think I read somewhere to get a pension of half your salary when you retire then you have to contribute half the age that you start at. For example if you start a pension at 30 you should put in 15% of your Salary etc.

Notmadeofrib Mon 09-Dec-13 20:08:29

You can't apply to protect your lifetime allowance unless:

1) FP14 rules - you make no further contributions

Individuals can apply for “FP14” to retain a lifetime allowance of £1.5 million.
- No new pension savings after 5th April 2014 allowed
- Cease money purchase pension payments
- Opt out of any final salary pension schemes.

2) IP14 rules - your fund exceeds £1.25M on the 5th April 2014

Individuals can apply for “IP14” to retain a personalised lifetime allowance based on the value of their pension savings at 5 April 2014.
- Can continue pension savings after 5 April 2014.
- Only 5 April 2014 pension value is protected.
- Pension value at 5 April 2014 must be greater than £1.25 million and only up to £1.5 million can be protected.

Any excess subject to the Lifetime Allowance charge.

Need to apply within three years from 6 April 2014.

Can have both FP14 and IP14, if eligible.

FP14 takes precedence.

You can't just apply and protect the lifetime allowance on the basis you may need it.

Sorry but not quite so simple as that

littleredsquirrel Mon 09-Dec-13 20:15:14

Thats really helpful notmadeofrib.

why are pensions so complicated <sigh>

Yes, the advice in the HMRC link makes that clear??

Notmadeofrib Mon 09-Dec-13 21:26:36

Well they are complicated in some respects, but in other ways they are very simple.
What often puts me off writing on here is the amount of caveats that I feel I need to write in order to be accurate and informative.

However the most simple thing I tell people is that if you don't save it, you can't spend it.

HOW you choose to save is another matter. Pensions are a wrapper, as are ISA's. In both you can put ETF's, UT's, OEICs etc and those are themselves a wrapper for basic stocks and shares.

Pensions make more sense if you get an employer contribution/match or are a 40% (or more) tax payer. If you are self employed or a business owner they can also be a good idea (due to certain protections). Pensions come with certain restrictions (although they are being reduced) and the tax uplift 'pays' you for that.
If you are a basic rate tax payer the pension V's ISA debate is inconclusive and is very much about personal behaviour and circumstance.

Talk of pension charges etc are a bit of a red herring. YES they are high in the UK, but you can minimise them to a certain extent (and you should, tracker funds such as Vanguard are excellent low cost funds). However, using cash ISA's to reduce costs and reduce observable risk is a costly exercise in the damage that inflation can do over 20 years and is a false economy. ISA charges (I'm talking stocks and shares here) and pension charges are often the same and ISA's can even be higher.

... there you go I'm starting to write an essay. But honestly see my earlier statement: if you don't save it....

<dismounts from soap box>

You've done the right thing IMO and sort professional advice!

Do you not need to apply for the Fixed Protection before April 2014 though? I agree on the lack of clarity - the details on the individual protection are very thin.

Cash ISAs are a waste of money - I have argued that point many times on MN. There are better options available.

littleredsquirrel Mon 09-Dec-13 22:15:56

Aagh, I am lapping up the financial information but everything I read makes me feel less in control.

Why are cash ISAs a waste of money charley barley? Is it because of inflation? Surely they are still better than any other type of pure cash savings though?

Talkinpeace Mon 09-Dec-13 22:19:28

charleybarley
what is better than a cash ISA for those who can only afford to save £2000 a year (ie the bulk of the country)

Notmadeofrib Mon 09-Dec-13 22:36:47

Fixed protection needs to be applied for by April, Individual Protection is based on the value as of April 2014 and you can apply afterwards. For IP the value must be over £1.25M at that time.

Notmadeofrib Mon 09-Dec-13 22:47:58

And my 2p on the Cash ISA issue...

Once you have an emergency fund (3 - 6 months money) and if you really can save 2k a year, then once you have a few grand and it's for your retirement then I would say a FTSE tracker income fund would be a better bet over a saving period of > 10 years.
Problem with this is that without ongoing advice and a bit of understanding then first business cycle, people panic and pull out their money. Hey presto, a loss.
This is why investments are all well and good, but if you can't afford the advice (or want to read around the subject) then actually they can be a costly learning curve.

If cash savings are being compared, yes put it in a tax shelter, called a Cash ISA.

N.B I would actually recommend a mixed asset allocation so a bit of rebalancing can be achieved which is about the only 'free lunch' you'll get in investing, but here I go again making it complicated.

littleredsquirrel Mon 09-Dec-13 22:54:59

I am determined to get to grips with all this over the course of the next few weeks.

Spoke to DSis this evening. She is 35 and has no pension provision at all. Plus her exH has a stake in her house and so do my parents and so she doesn't even have much there either. Scary.

YoucancallmeQueenBee Tue 10-Dec-13 09:00:53

Really useful info Notmadeofrib - thank you.

littleredsquirrel Tue 10-Dec-13 09:05:00

Yes thank you all who are contributing.

Earningsthread Tue 10-Dec-13 09:15:38

I have two defined contribution schemes to spread the risk. I plan to retire in 10 years' time so I am taking pensions seriously.

1. I pay £6k a year into this fund. The fund currently stands at £225k and is likely to provide retirement income of £12k per annum.

2. I pay £25k a year into the second fund which is mostly my contribution but there are some employer contributions in there as well. The fund currently stands at £250k and is likely to provide retirement income of £25k per annum.

DH has a public sector pension which should provide a pension of half his salary. We also have a small investment property that provides rental income of £9k per annum.

We have some savings (not a lot) and none of those are in cash ISAs, they are in stocks and shares ISAs. Saving money in bank accounts makes no sense - you are losing money in real terms because inflation is higher than any savings rate going. We save for the kids as we are hoping to pay their university fees and deposits for houses etc.

Notmadeofrib Tue 10-Dec-13 09:37:13

2 defined benefit schemes doesn't in itself spread the risk!

You could be missing out on savings from such a large fund if you were to consolidate.

Kevinsbowel Tue 10-Dec-13 09:47:40

Not made, that's interesting. I had heard that the fees from consolidation would outweigh any savings. Would you agree with that?

littleredsquirrel Tue 10-Dec-13 10:05:20

Wow earningsthread, you're sorted, particularly if you have another ten years to go!

Earningsthread Tue 10-Dec-13 10:06:18

What do you mean by missing out on savings? What savings arise on consolidation? There are hardly any charges at all in both schemes as they are employer run (the first scheme being from a previous employer who allows ex-employees to retain the status of employees).

clio51 Tue 10-Dec-13 10:32:44

I got my pension when I was 50 six years ago, it was a deal that was set up when I took severance package with my company. I work for that company for 21 years 12 years full time 9 part time. At 50 I received £24k and monthly pension of £365 month.
I thought I would have my state pension at 60 but the bloody government keeps moving the goalposts!! So 67 10 years to go.

My OH get his next Oct when he's 60 government pension lump sum of either £52k and 10k year or 36k 12k a year pension depending if he wants more lump sum and less per year. His state pension think is 67 so 7 years to wait for that.

Grennie Tue 10-Dec-13 11:00:53

Most public sector pensions are now tied to the state retirement age. You can draw your pension amassed from the date before this policy came into affect. But any pension after that date amassed, you have to wait until you are entitled to your state pension. This affects a lot of people.

Talkinpeace Tue 10-Dec-13 11:24:58

but for those of us without any sort of employers pension - public or private sector
and those without 3-6 months savings (the vast majority of the population)
is it really safer to trust the small family next egg (assume under £15k here) to the stock market where the capital could be depleted?

for a basic rate taxpayer who is extremely risk averse and may need to empty savings at short notice (illness, job loss etc) I really cannot see a better option that Cash ISAs

those of you who are investment advisers rarely see clients who are not higher rate taxpayers
so 68% of the adult population stays permanently off your radar

they are the ones facing real poverty in old age, who need advice about planning with what little they have.

Did you hear the chap from Hargreaves Lansdowne on the Today programme this morning talking about Annuities ?

YoucancallmeQueenBee Tue 10-Dec-13 11:32:24

Talkin, I think as of next year all employers have to offer the employees a pension. Employees will actively have to opt out, so hopefully that may help to include a lot of people currently falling under all the radars.

As I see it at the moment, most Cash ISAs are barely beating inflation, so you are not really making any money at all. Depending on the interest rate, you might actually be losing money - although probably not much. So whilst, they are not particularly risky, at the moment they are not a very efficient way of trying to save money.

Notmadeofrib Tue 10-Dec-13 11:32:34

Well depends how you're pension is currently managed. If you take 'walk in off the street' advice and don't negotiate, then it MAY not warrant it.
But considerations are:

Investment strategy
Age of contract (old style fees make me want to cry! Never leave a pre 2006 pension without a review).
Type of pension - DC, but OccMP or PP (that's a big difference as OccMP cost more to move, but generally have fewer reasons)
What service levels you currently have (you might be paying trail and getting no advice)
How much the fund is worth
Are there existing guarantees
Existing relationship
Time until retirement - a big factor
Changes since Jan 2013 mean there are savings to be had.

My point was more that 2 pensions doesn't in itself reduce risk, investment strategy and asset allocation do that. Staying put for that reason could be a false economy.

Again there are so many variables. In RL a quick look would tell me if it was worth a full review. Sometimes it's a no brainer, sometimes less clear, sometimes not worth the cost.

Talkinpeace Tue 10-Dec-13 11:36:53

youcallmequeenbee
there are six million self employed people in the UK : no requirement or entitlement to any pension scheme
and many, many more like me who earn very little through our employments so will not opt in
and many more who work for small employers so will not be auto-enrolled for several more years

and if cash ISAs are not beating inflation, where SHOULD people put their rainy day fund?

YoucancallmeQueenBee Tue 10-Dec-13 11:44:12

Talkin, when I as self-employed I paid into a personal pension. Not sure if that was the right or best thing to do, but its what I did at the time.

I'd seriously consider opting in, specially if your employer will be contributing as well. Doesn't matter if it's not much, it is still better than nothing at all.

I move my rainy day pots around. So Santander has got a good deal at the moment, with 3% on their current account for up to 20k, so if I had 20K, I'd be using that right now. Then when the next better interest rate appeared I'd use that. I have a small tracker fund and each year I use my ISA allowance, but only because it is tax free. The interest earned is so piddling as to make it barely worthwhile.

Beastofburden Tue 10-Dec-13 11:44:37

That's interesting, notmade, thank you. I have a right old bundle of three or four linked schemes from my first employer, defined contribution, and a new final salary scheme with my current employer. When I looked at using the DC schemes to buy some more years in the DB scheme, it didn't look good value, they would only buy me 2-3 years more service. I was wondering about leaving them to run, and taking my retirement lump sum out of the DC schemes, leaving the DB scheme untouched and so paying out better.

Notmadeofrib Tue 10-Dec-13 11:47:41

earningsthread well then you've considered cost (which is obviously critical). You said you're motivation for the split was reduction in risk, I was addressing that point. TBH this is why boards like this are of limited use, there are too many other factors that were unsaid to make a single comment very useful.

littleredsquirrel Tue 10-Dec-13 11:50:16

They may have some limitations Notmadeofrib but they are extremely helpful when you're trying to get to grips with a topic that is full of jargon and technicalities.

Talkinpeace Tue 10-Dec-13 11:50:59

Queenbee
do you move your ISA pot? Just that I'm getting 2.5 on my whole cash pot : I move all of it every year
and 3% after tax is around the same

my employment income is the shiny total of £3000 from one company and £7000 from the other ..... 3% of that per year is not going to keep me in much beer when I hit 75 !

beastofburden
the DB scheme you can pretty much not worry about - as they will have managers who worry for you
checking out the DC schemes is probably well worth the effort

which reminds me I really should move my old dormant SERPS DC scheme ....

Beastofburden Tue 10-Dec-13 11:53:42

Thanks Talk. I would say that the no brainer place is to buy extra DB years with my transfer value, as if I get a pay rise all years inflate automatically- would you agree? To add to the complexity, the DC scheme has my protected rights service in it.

Notmadeofrib Tue 10-Dec-13 11:55:38

Rainy day funds just have to stay in a Cash ISA, no doubt about that.
Talkinpeace you originally suggested savings beyond that (or that's how I read it) and I said that something that protects against inflation is worth due consideration.

Investment risk is fundamentally the risk that you need your money when markets are low. Money you may need to access is therefore totally unsuitable.

FWIW, I do see basic rate tax payers, but admittedly not many.

Annuities, oh God it's horrific at the moment, but I don't think people realise annuities are interest plus return of capital.

YoucancallmeQueenBee Tue 10-Dec-13 11:57:56

I move my ISA pot every year, in the same way it sounds you do.

Thing is if you don't start paying 3% of it in, then it is never going to keep you in the odd smartie, let alone a can of cheap larger! grin

If you paid in & your employer paid in, then you would at least have something & you may be able to make additional voluntary contributions to top up further if you had a few quid spare everynow & then - I think you can still do that.

Talkinpeace Tue 10-Dec-13 12:00:43

Beastofburden
as if I get a pay rise all years inflate automatically
probably, but you may need to move very fast because LGPS 2014 starts on 1st April next year and all contributions and earnings made after that date go into the average salary scheme, and only the pension from before that stays in the final salary part

also, is your DB scheme actually a funded one (ie not NHS, Teachers, MOD, Civil service - which are just parts of general taxation)

because the rules are in constant flux at the moment

Notmadeofrib Tue 10-Dec-13 12:01:56

Beastofburden, it's not a simple question and there is no simple answer, but if you can access a DB scheme on the same terms (double check that), then it is likely the low risk option. For an experienced investor with other assets the answer could be different. You are in a way paying for peace of mind and an easy option.

Beastofburden Tue 10-Dec-13 12:05:55

Talk, yes my scheme is funded (I say funded, it has a deficit of course) , and I have been a member so long that I do not have to move to career average, all my years are final salary. It's different for people who joined more recently.

Thanks notmade, I think I am too busy with the day job to manage an investment portfolio properly IYSWIM so perhaps ought to pay the premium for someone else to handle things.

I agree with notmadeofrib, cash ISAs are fine for very short term and small amount savings but not for long-term saving, for example akin to a pension.

Talkinpeace
The nominal rate that you are getting for your cash ISA is 2.5%. Inflation (RPI) was 2.6% in October (down from 3.2%) in September. This means that your real rate of return on your cash ISA is negative. Your money will buy you less than when you put it in.

I am not a financial adviser, but maintain a reasonable balance in an easily accessible account, with the rest invested in either stocks and shares ISAs, SIPPs or other assets such as property, antiques etc. Though I am considering adding whisky at the moment.

littleredsquirrel Tue 10-Dec-13 14:22:26

I might buy tinned food and keep it all under the bed. Then I'll beat food price inflation and not have to worry so much about the cash I have in my old age fgrin

fgrin

littleredsquirrel Tue 10-Dec-13 14:39:10

I think its actually a good plan. Old people people like tinned carrots and corned beef.

YoucancallmeQueenBee Tue 10-Dec-13 14:40:43

Fits with your name too! wink

littleredsquirrel Tue 10-Dec-13 14:43:46

"Darling we don't need to have that conversation about financial planning anymore. I've decided to invest all our money in minestrone soup."

LadyKooKoo Tue 10-Dec-13 16:30:01

I am 33 and don't have a pension. I have a rental property which is mortgage free and am in the process of buying another one. We would like another 5 properties by the time I am forty. Our own home has a mortgage but we are overpaying and all being well will be mortgage free within the next 15 years.

Juliet123456 Tue 10-Dec-13 19:37:14

A reasonable sum in a SIPP and I manage the shares in the fund. I will work until I die from choice and I have another business which will probably continue to yield income so not putting more into pensions now. I feel the rules change too much and so many people without employer contributions hardly get back what they paid in now despite the tax relief. The life time limit on the pot before HMRC effectively start confiscating it gets lower and lower too and may well go even lower in due course so I'm not sure I'm prepared to take the risk.

For low earners I advise to contract out of automatic enrolment by the way once it hits your workplace. Keep your money.

Dilidali Tue 10-Dec-13 21:25:33

Interesting, Juliet, I opted out of the automatic enrolment due to other but financial reasons, but why don't you recomend it?

Juliet123456 Wed 11-Dec-13 11:55:45

If you do not earn much by the time charges are applied you may not get that much back. Even with private pensions ni many cases the sum you go off to buy an annuity with gives you back not much more than you paid in and you have so much less control over a pension fund than your own savings. There have been some press articles on whether auto enrolment is state sponsored scam.

www.theguardian.com/money/2012/jul/13/pensions-automatic-enrolment-pay

and "Workers on £20,000 a year saving for decades are going to be lucky to see £100 a week during retirement." I think it may be best if you earn very little to keep out of it and keep your money to feed your children. It is not going to make your fortune. Also those without much when they are older will have the £140 a week state pension too if they have 35 years of contributions including childcare years and possibly housing benefit and pension credit.

MoominMammasHandbag Wed 11-Dec-13 12:28:21

But I don't think there are any guarantees there will be State Pensions and top ups and housing benefit in 20-30 years time.

Talkinpeace Wed 11-Dec-13 12:51:24

I just take the view that if I put money into a pension I lose ALL control over it to faceless people in the City who have never been held accountable for past misdeeds

if I have a variety of savings and income streams I keep my options open

a family member bought a £100,000 annuity and then died 36 days later before a single payment was ever made
nice profit margin for THAT company, but not the family.

Juliet123456 Wed 11-Dec-13 17:31:51

I am the same as talkinp (but I can work until I die and I see no reason I'd give up the business). Also my father worked full time to 77,put all his spare money all his life into pensions and then died aged 79 (not a great investment).

Juliet123456 Wed 11-Dec-13 17:32:42

( I should add that you can take a lower annuity and buy a guaranteed 10 years etc of the pension and some people take a lower annuity and it continues for their spouse if they have one of course which is some protection for early death but any way view is pension bad deal but do do save something instead).

littleredsquirrel Thu 12-Dec-13 08:09:46

I do take your point juliet but its not about making your fortune for the vast majority, its about having something, anything (!) to live on given that the state pension is already inadequate and is likely to be much lower or non existent in the future.

Plus its all very well if you have your own business but those planning to go and work in B&Q are going to be fighting the youngsters for those jobs! We are all needing to work for longer but there are likely to be fewer jobs to go around.

SMorgauseBordOfChristmasTat Thu 12-Dec-13 08:29:22

We're retired now and are "comfortable". We both took out pensions as soon as we started work and have always overpaid into them. After the DSs left home we saved as much as we could and lived quite frugally for 10 years and threw all spare money into pension funds and investments.

Dh retired at 60 but isn't yet getting his state pension. I get my private pension and state pension and also still work part time.

We've encourage DSs to take out pensions as well because by the time they retire the state pension will be hardly worth having. They have friends who say they cannot afford to have a pension but they really cannot afford not to, long term.

Grennie Thu 12-Dec-13 12:43:00

Tat - You know lots of people my age did the same and now have private pensions that are worth less than they paid into it? Pensions are a gamble, and we should be honest about that.

littleredsquirrel Mon 13-Jan-14 08:46:59

Still can't decide what to do about this. DH thinks we have enough tied up in pensions at the moment and should look at other assets.

SMCGWealth Tue 28-Jan-14 15:59:17

Message deleted by MNHQ. Here's a link to our Talk Guidelines.

Putthatbookdown Tue 18-Feb-14 15:32:43

With pensions the earlier you start saving for one the better whatever scheme you are in People who started in their twenties are laughing by their forties Investing in a buy to let property is a common way of saving for a pension Again those who bought early are laughing given the rise in property in the last 20 to 30 years

thriftymrs Wed 19-Feb-14 10:51:55

Juliet - really interesting to read what you say about opting out of automatic enrolment. I've just found out our company scheme starts in July and the company are going to contribute 1% of salary. If I do the same it will be about �50 a month going into a pension (I have no previous pensions worth mentioning, just a couple of tiny short-lived ones from years ago). I realise this is �25 a month from my company that I get, effectively, for free. But is it worth it or should I just spend my �25 and over pay the mortgage, or put �25 a month into an ISA or similar? (I'm 50 and due to retire (currently) at 66).

Secondly, would you advise starting pensions now for my two teenage DCs who are still in full time education?

I worry about putting money into pensions because they get so much bad press and a family member lost everything in their pension fund when the company they had worked for for 40 years suddenly and unexpectedly folded.

LadyLapsang Fri 21-Feb-14 23:50:35

DH & I both fully paid up for state pension. I have a live final salary scheme and am now buying extra years too. DH has a paid up final salary scheme and two live private schemes. Both pay in ISA limit each year and could be mortgage free but keep the offset for flexibility; may want to give DS money for first property in the future.

May receive money from both lots of parents but frankly I encourage them to enjoy it - as I say to my ma in law I would rather you are gadding about abroad etc. than in a nursing home & it's cheaper too! I have always told them that I see it as my responsibility to plan for my own retirement. Any money we get from them would be great (I would like to pass some down to DS) but my retirement plans have never been based on their money / houses.

alanapartridge Thu 24-Apr-14 00:23:31

At the age of 58, I´ve found myself in a wonderfully enviable position. Ten years ago our 20 year old business failed. We lost everything, including our home and have never really managed to get back on our feet. Both oh and I are self employed and just barely earn enough to live. We are about 6 years behind in our stamps so won´t even qualify for a full state pension. We rent our home and neither of us stand to inherit a bean. Therefore, my pension plan is as follows - work till I´m 80 odd (although hopefully I won´t live that long), have a day off, then kick the bucket.

lovingmatleave Sat 03-May-14 18:14:00

I have worked for 14 years in public sector, so of which ptime, and currently working ptime. My projections are sent to me yearly from my pension scheme provider. It is about I think about £4.5k per year at current amount invested and will have another say 20 odd years of contributions so not much really. That is for a relatively well paying job in the sector.

I keep meaning to start AVCs but something always crops up. Am investing a small amount monthly in a stocks and share isa though. Husband has MUCH better pension provision, but I would like to see myself have enough to support myself as you never know what the longer term future holds.

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