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?

This may be stating the obvious @Coffeetreebut do you work in a profession where your company has a pension scheme and are you part of it?
Sounds as if you and your employer has never considered a pension scheme.

My ex boss, who considered himself a very generous employer, described a pension offer from some other employer as "shit". The look on his fucking face when I pointed out that he had only put a workplace pension scheme in place when it became a legal requirement...

I am on income related ESA and PIP. I don't know if that includes national insurance contributions. I think it might. Does that continue? I don't know how much the state pension is.

It's mind boggling isn't it - I have worked in finance and still get very confused by pensions. Have you thought about paying into your pension and spreading the mortgage over a few more years? You may well get more back from paying into the pension than you will save in interest on a small mortgage. Also, can you get some level of employer match for additional contributions to your pension (eg. if you put another 1% in the employer matches it - 'Additional Matched Contributions'). If you can do that it's well worth putting money in now as it will be worth double straight away, you get the tax relief and it will have 20 years to grow before you retire. I have many friends who were obsessed with paying off the mortgage in their 30s and 40s but would have been better putting their extra into the pension so it had time to grow before retirement. I'd seek some financial advice, you're not looking to retire tomorrow so have time to make changes.

As a teacher in my forties I have lost count of the number of staffroom conversations I have had with 20-something colleagues who are considering opting out of the Teacher’s Pension scheme, or have already done so. After student loan repayments and pension contributions many simply can’t afford to live unless they are still at home with their parents. It is an absolute timebomb.

There is a huge gap in the national understanding of what retirement preparation needs to look like and how early it needs to start.

OP, I’m not sure what sort of “advice” you’re after? If you don’t have a substantial pension pot then you’ll need to generate income (work), which you’ve worked out.

I think it’s really important that people talk about this and advice columns are part of that - people who are in a position to save need to know just how much they will need for the lifestyle they want/assume they will have.

No, it will be worth substantially more. You’re missing how valuable a guaranteed index-linked income for life is. A £300k pot in a private pension would buy an annuity (index linked and with a spousal element, equivalent to a public sector DB pension) of well under £10k a year, probably closer to £6-7k if you’re healthy. You could make more by staying invested and drawing down (maybe £12k drawing down 4%) but then you also risk losing your money.

Compare that with someone in CS Alpha (like me)- work for 30 years at an average salary of £30k and you’ll get £20k a year, index linked and guaranteed for life.

Well the advice above about prioritising pension over mortgage repayment was helpful. So that, I guess?

I too think budgeting and pension planning should be taught at school. I also think it should be mandatory for workplaces to offer pension advice every 5 years to all employees. They could get a pension person in. My son used to work at DHL and they had a pension person come in to help with pension planning because they as an employer match what the employee puts in up to a certain percentage but found very few employees wanted to put much in. They called in my son to ask why he was paying in the maximum amount because they wanted others to pay in more too. Turned out even though he had not been working there the longest by far he had the most accrued in his pension. He told his manager my Mum told me to pay the most pension I could whilst I'm single and have no kids. Not everyone gets good advice from their parents. That's why school needs to give the advice.

If it's a Defined Benefit scheme like most of the CS is then it sounds like you've read the statement wrong as there isn't a pot as such, just an income and a lump sum amount. After 20 years it's unlikely you'd only have an equivalent of £40k certainly

If you work til 65 a £300k pension pot is doable. You have 50k already, up your contributions, how long left on mortgage? If higher rate then rather than over pay add it to pension? You can take a lump out pre retirement if needed?

New style ESA does give NI credits, yes. PIP does not.
https://www.gov.uk/national-insurance-credits/eligibility

SP is around £11k currently.

Everyone should be encouraged to start paying into their pension from the day they start working, consider it a tax or money you never had and you will never not be able to afford it. If you pay a % in from day one, you'll have an adequate pension proportional to your earnings.

Obviously it is too late for many (this is a big part of the WASPI women's argument, many were encouraging NOT to have their own pension provision). But it is never too late, always worth contributing what you can even into your 50s, the tax relief makes it worthwhile.

A basic SP isn't enough for a luxurious life, no, but for the vast majority it is sufficient to pay the bills. I don't think there is any appetite to raise the SP to provide a higher standard of living, that's for individuals to save for, not the state to fund.

300k how hilarious. I have no plans to give up work.
My retirement age in 6 years is 67, the NHS will let me work until 75 so I'll do part time bank work then, there is always loads of work going.
Then I'll do my sideline of bookbinding until I drop.
I'm afraid retirement is not an option for me.

Perhaps that kind of article just isn't for you. And maybe it's not the article that's of touch. There are millions of people that are the target audience for that kind of advice.

If you have a CS pension it's not a pot you'll get X amount a year for life.

Your pension is usually better than the pot ones. Yours is £X for life.

DH worked for the railways for 42 years.

I know when he dies (assuming he goes before me which given the 16 year age gap is likely) I get 2/3 of his pension for the rest of my life. Obviously that will be eroded by inflation

Message I see coming through a lot is that DB pensions are "only for private sector". That is certainly true now. I worked for Universities all my life - never gave pensions a thought until my late 40s, and then woke up to find I was actually pretty well provided for. Luck and definitely not judgement.

However....people forget that in the past almost all big companies also had DB pension schemes. My Dad worked in industry all his life, and his pension was more generous than mine. There was also a second state pension - SERPS, which was a DB scheme. I think if you had 40 years you hot 25% of pay. This means that an average punter who didn't think much about pensions but worked all his life would get the basic state pension plus 25% of pay.

Over the years these benefits havn't just disappeared, they have been actively taken away. Auto enrolment is an attempt to cover over the fact that the second state pension has been abolished, but it is virtually impossible for this to make up the loss.

What's more, the government now plans to allow financial institutions to access the little money that people have saved through auto enrolment in order to set up a fund to finance british start up companies. Hunt maintains that this could increase income by £1000 a year. This is possible but very unlikely. If our chancellor was a financial advisor, he would not be allowed to make a totally unsupported statement like that. What is clear us that financial institutions will be able to charge 2% to administer the investment fund. Since the government are talking about a £50 billion, this new scheme means that £1 billion pounds will be taken out of this fund as fees every year. That is money that people have saved for their future....there is no penalty for failure. Money from peoples pension savings is simply been transferred to company profits and if it doesn't work out well, the savers will pick up the tab. This is an absolute disgrace. People can tell their pension providers that they don't want their money invested in this way. No idea how, but it an opt out system.

Another thing which galls me is that sitting MPs have a pension that is far more generous than that given to nhs / teachers / civil servants. After 20 years as an MP you will have earned a pension equal to 50% of your parlimentary salary - this is an unbelievable return that is absolutely beyond the wildest dreams of anyone else.

I agree it's doable, especially if your mortgage will be paid off soon. Pay the extra money straight into a pension.

I do agree this needs to be on people's radar's when they're much younger. I did a PhD and then had a couple of years of precarious hourly paid lectureships, so only started really started paying into a pension when I was in my late twenties - and even then I only put 2% in. I was so poor on a day-to-day level that there was little left for the pension. Now I have a much better job, and DH and I are serious about it so we put a high percentage of our salary into our pensions every month. Even so, I wish I'd started earlier! Some of my friends are self-employed and don't have a pension at all which fills me with the fear on their behalf.

Why do you only have £50k in your pension pot at aged 52? That really is very little. Have you had long periods of not working, or not paying into a pension?

No I think the term 'comfortable' is misleading people and creating unncecessary worry here. The article that the OP is talking about must be this one https://www.thisismoney.co.uk/money/investing/article-12429949/Im-50-290-000-pension-pot-track-retirement.html (note that it is essentially a sponsored advert for Netwealth). It's using the retirement income targets that are based on this research https://www.retirementlivingstandards.org.uk . 'Comfortable' is actually their highest tier and includes things like replacing cars regularly, planning for new kitchens, holidays etc. Of course some people will want an even more luxurious retirement but effectively it's what most people would think of as a very decent retirement.

The figures for the more basic retirement are £13k for a single person and £20k for a couple. If you have the full state pension then that takes you a long way to getting to that standard. IIRC if you get the (new) full state pension then you won't get any pension credit (save for those with disabilities etc that mean they are eligible for a higher rate). This means there shouldn't be a disincentive in the future for people on lower incomes to save.

Out of touch in what sense? Unrealistic in that for many it’s not achievable maybe but it’s not out of touch in that is what you need to successfully retire. If you don’t you can’t retire comfortably.

I have been consistently saving into my pension at a rate of 3-7% since I got my first proper job at 20. I am now 39 and I only have £50k in it. I can't imagine being able to put any more than I currently do in until I've paid off my mortgage and even with a modest mortgage, that won't be until I'm at least 60. My plan is to significantly downsize once I retire and hope that the combination of my private pension, state pension and the equity in the house will see me through. It's madness, really.

Articles such as the one cited by the OP generally assume that people will be investing their pension contributions, not saving them. If invested in shares, for example, growth compounds over time so that you may find you end up with a pot much bigger than you expect. Towards the end of your investment journey, the majority of the increase in value of the pot comes from investment growth, not your contributions.

The key is to start early if you want a generous income in retirement, but it's never too late to make a difference. But it does mean sacrifices for most of us, depending on how old you are when you start. A 20 year old can get away with saving relatively little, but someone starting in their 40's would need to invest a decent chunk of their salary.

The article probably also assumes that the state pension will still exist in some form. That may be questionable, but I tend to think it will survive, albeit that the triple lock might not.

I don't understand why more people don't do this, instead of funding other people/organisations with pension payments that you might or might not recover.

Definitely rethink this.

Assuming you’re on a fixed rate mortgage and paying maybe 2.5%, your mortgage is basically a very cheap loan.

So every extra £1,000 you put into your mortgage is saving you £25 in interest.

Let’s just say that your 6% that you contribute amounts to £1,000 (just to keep figures very simple), and your company matches it, you have £2,000 going in to your pot. Then say your mortgage returns 6%, your now have £2,120 from your £1,000 investment.

And, of course, that initial £1,000 isn’t really £1,000 out of your pocket because of the tax free element.

An employer-matched pension is one of the best ways to get free money.