So now all I need to do is save up 300K--is this for real?

[Coffeetree]

An article from This Is Money showed up on my feed this morning. Basically someone with £290K in pension pots at 50 years old, asking whether they're on the right track for retirement. The rest of the article was various investment advice. Generally the advice was "You're nearly there."

I read these articles and I feel like someone is playing a joke on me. I usually feel very very privileged in that, at 52, I have a mortgage that I'll hopefully be able to pay off in 4 years, plus about £50K in pensions. No inheritances on the horizon. I've worked in charities my whole life, then became single about five years ago, hence not much saved.

So, after paying off my mortgage, I then need to buckle down and save up 300K? That's not going to happen. My plan is to keep working and then go part-time or contract when I reach retirement age.

Am I the only one who thinks these "retirement advice" articles are really out-of-touch?

The value of your "pot" in a DB scheme is calculated as annual pension you are due x 20 plus any lump sum. So if you are due a £20k pension and will get a £60k lump sum on retirement, then the value of your "pot" is £460k.

This figure is a nominal value is used for tax purposes. My figures may be out of date, but it is this sort of calculation.

If you get divorced and want half your husbands money, and he has a DB pension as above, this figure will be used to say he owes you £230k and the arguments then start!

https://www.nhsbsa.nhs.uk/sites/default/files/2018-07/Value%20of%20the%20NHS%20Pension%20Scheme%20FINAL%20%281%29.pdf

This explains the NHS pension scheme and has worked examples using a salary of £20,000, which illustrates how valuable it can be!

@EffortlessDesmond true. I'm in education and a big motivator for staying in the state sector has been the pension. There have been some private schools which belonged to the Teachers Pension Scheme but loads have now left as they can't afford it with the increased contributions they have to make.

As I said, it's always a trade off. I'm sure the longer holidays and small classes would be easier but my pension is worth more to me.

You need to be putting in more like 10% for your working life and probably 20%-30%+ now you are 50 in the position you are in....

You need to make sure your pension is invested in a high growth fund (although be careful, as it will need to come out again near retirement)

I now have employees and many do not contribute at all including missing out on tax breaks and pension matching from the company. I currently have one contributing 100% of salary (54yo) and 3-4 at over 20%, mostly older people.

It is not uncommon to realise this in later life!

Not taking it ‘early’ as in I’m planning on paying into a pension for the next 17 years and retiring at 60. I understand state pension won’t be paid at that age. Just didn’t understand why my pot is only increasing 15k whereas the PP says it doubles every ten years?

Yes but it looks as though my company only allows 10% max for salary sacrifice towards pension. But I'll check.

I was talking to a teacher at a private school last week. His school had pulled out of TPS and was transferring staff to a private, DC scheme. Many staff were planning to leave because of that!

This entire thread shows how confusing and fraught with timebombs pensions are. I'm hugely cynical about the whole thing; I sometimes begrudge paying into a pension because it feels increasingly unlikely I'll ever retire.

My employer used to have a DB scheme; I was in it for 5 years before they closed it and replaced it with a standard up-to-6% DC scheme, costing us all thousands in lost pension prospects. They also briefly had a salary sacrifice scheme, before stopping that too. My DB income is now negligible and my DC pot is currently forecast at around £125K. I'm fortunate enough to be able to expect a modest inheritance, though happily my parents are fit as fiddles and likely to live a long time, possibly till I am retired myself. I am DH's pension: he is notably older than me and has fairly small scattered pensions.

I'm mid 40s, and until about 10 years ago, didn't have anything spare to put in a pension. Needless to say, I also didn't have anything to put in savings, or a trust fund for my child, so carried guilt about that for a while. I'm redressing this with savings for DC and us as best I can, but with the cost of living crisis and things like home maintenance, this is going to have to pause for a while.

DC is off to uni next year. Then, I might look at switching to a public sector role, and/or upping pension contributions. But who knows what the economy's going to be like by then.

My employer used to have a DB scheme; I was in it for 5 years before they closed it and replaced it with a standard up-to-6% DC scheme, costing us all thousands in lost pension prospects.

Is that even legal 😳

What about the payments you had already made?

Other people have already answered you but it's really likely that an NHS worked (on £30k, say) will have a pension worth far more than the value of a £300k pot in a DC scheme.

It's hard to compare DB and DC schemes because they work so differently but in short, an NHS worker doesn't have a pot- they have a right to income (and a tax free lump sum but let's keep it simple) which accrues at about 1.85% pa. So, broadly, a worker on £30k a year will accrue £555 for every year they work, which they receive every year after they retire, and this will be adjusted to take account of inflation. So if they work 30 years, they receive £16650 (30 x 550) every year from retirement, until they die, and after that their spouse receives a small pension as well.

Contrast this with a DC pot of £300k. That's £300k TOTAL, not per year. The person with that pot can either buy an annuity which pays out every year- that's guaranteed and you can choose one which will be adjusted for inflation and pays a spousal pension as well. But £300k will only buy the right to an income of about £6-7k per annum if you want it to keep up with inflation. Alternatively, the person could choose to keep their £300k invested and draw an income from it. Drawing an income at 4% (the maximum recommended if you don't want to run out) gives an income of £12k per annum.

So, the NHS worker who worked for £30k for 30 years gets £16,650 per annum. The person with a £300k pot gets somewhere between £6k and £12k per annum.

That's a slightly simplified calculation but I hope it illustrates the difference and just how valuable a DB pension, such as the NHS pension, really is.

How to invest the money contributed to a personal private pension or a SIPP is largely dependent on age.

The rule of thumb says the farther off retirement is (or the younger you put the money in) the greater the risk you can afford to take. When I worked for a very large American pension company in the 1980s, the standard advice was use the equity option until the age of about 50, and after that transfer a % every three years so that by the day retirement rolls around the vast majority of your fund should be in low risk investments.

In my case, as I was 28, almost all my money went into the stock market where the scope for capital growth is greater. If I had still worked there the last year before I retired, my pot would have shifted into mostly fixed income securities, which pay a guaranteed rate of interest and the capital value is also fairly steady.

Always with the warning that money invested is not guaranteed. You may get back less than you put in. The past record is not a guide to future performance etc.

At the moment my plan is to plough as much money into being able to buy a home. I can then look at offsetting the money we were used to saving into bumping up a pension. To me, bricks are worth more than a hypothetical pot I might never even access.

@R4ID, don't fret too hard about there being no state pension in 17 years. There probably will be one, but the point of forcing employers to provide workplace pension schemes was to encourage the majority of people to save for their own retirement. In fact, in 17 or 20 years, the state pension is likely to be under less stress because the boomers will be dying off... I shall be nearly 90... hence there will be fewer for taxpayers to support financially.

However, this thread is a warning to everyone to pay attention to everything about pensions, and to think carefully about your choices. Ignoring the subject is the fastest and most certain route to being insecure and poor in old age.

Think you misunderstood what I meant. I meant I want to retire at 60, I understand state pension will be paid at a later age than that

@redrighthand83 Once you're on the property ladder and paying that mortgage, there's a point at which it makes more sense to contribute to the pension than to overpay the mortgage interest, but it moves around and varies with interest rates. There was a good post earlier on the subject earlier, late morning IIRC?

Sorry I did misunderstand @R4ID. I thought I would retire at 60 too, but I was one of the WASPI generation. Sadly, none of us know what stunts politicians might pull but we all have to keep an eye on the b*ggers! And right now, life expectancy appears to be going into retreat which is a very double-edged sword.

St Gordon Brown singlehandedly did more damage to UK pensioners with his first budget (by removing the Dividend Tax Credit) than most people who revere that government's memory will ever comprehend.

Yes, but £200k will only be worth £50k because that's how inflation works.

There's no point at all looking at future values. Just work on today's figures because the inflation rises in your funds will be matched by inflation increases in your costs.

So, decide how much income you want in retirement (factor in care fees as well), decide when you want to stop work (you might be surprised to find that most people don't want to work into their seventies, and many people actually can't for various reasons), then add any other assets - money if you can downsize (so many people say they will do this but when it comes to the crunch they don't, or are already too old, or the housing stock isn't available because there is massive demand for smaller houses for obvious reasons), inheritance, other savings, and so on - and try to work out how you are going to fund that gap.

@WolfFoxHare Politics. My DH has similar on financial services though. Some of that contribution comes from salary sacrifice and employers NI is added to pension instead.

They may only match to 10% but you can pay in what you want up to £60k pa - unless it’s a DB/ civil service type scheme where it’s fixed

Thank you. The language on our pamphlet specifies that for salary sacrifice pension contributions, the maximum an employee can make is 10%, and the maximum contribution the employer will make is 6%. But yes, gov website says I can actually contribute up to 60k. So I'll ask them. Cheers!

It’s risky if the marriage fails (and financial settlement can be very contentious) or if the husband dies before the wife. Women need to think very carefully about their financial independence and this includes pension planning.

That is a terribly worded leaflet. And then they wonder why people don't maximise their contributions!

Ah ok, if you count NI contributions too mine will be higher than 10%.

No actually I think I’ve misunderstood this - what do you mean about salary sacrifice and employers NI being added instead? Sorry I’m feeling a bit dim now!

I'd have to save my entire salary over the next 10 yrs to save 30k
So not going to happen.