how can I prepare for retirement with no state pension likely?

[tabbyoak]

Hi all,

im just wondering if anyone has any general advice regarding retirement planning!

I’m mid twenties and currently a trainee. The field I work in has very poor pay as a trainee but excellent money and prospects once qualified.

I’m of the impression that state pension is very unlikely for me, or it will be means tested etc.

As a result I’m already quite panicky about retirement! Sounds daft I know! I love my job, but I don’t want to be forced to work at 70 because I need the money.

Obviously at the moment my wage is not great, but I am aware once I qualify it will jump massively which will make things a lot easier.

I’m mainly worried that as state pension age increases, as does private pension age, so what if state pension age becomes 80 and I can’t even get private pension until 70?!

At the moment I do the following;
pay into workplace pension to get the employer contribution
pay regularly into a s&s lisa
pay regularly into a s&s isa which is earmarked specifically for retirement

I could pay more into the workplace pension but it would mean not paying into the isas. As mentioned above, I’m worried about the goalposts on pensions being changed and therefore am reluctant to go crazy on those contributions. Particularly on a lower salary.

I will admit I’m not the most clued up on retirement savings, so I’m wondering if anyone has any advice or anything they would do differently? Should I change my methods when my salary increases too?

I've looked at things with this view too, although I'm 36.
I'm trying to plan for a retirement self-supported and therefore any state pension is a bonus.
Things I aim for are:

• 20% pension contribution (plus employer contribution on top of that). I didn't start out at 20% of course, but as I've gained pay rises, I've increased my pension contribution.
• Save every month - money in an ISA. Doesn't matter if you start of saving small amounts, getting in the habit of saving every month is important. I found it too easy to feel like 'great the bills are paid, what's left is my spending money' - now I put away a set amount at the start of the month as if it was a bill to be paid.
• Home owned outright by retirement age. No rent to pay when wage is gone. And if you can pay it off sooner, then what you did pay for a mortgage can be saved instead.

I'm not saying any of these are easy. And they start out small and grow with you. But my parents were very vocal about the need to plan for your old age as soon as you start working. They emphasised how hard it was at the start when they were counting the pennies, but the payout when they wanted to retire slightly early was more than worth the penny pinching early years. And if there is still state pension, great, you just have an extra buffer and can retire early, have some fun, travel, etc.

@tabbyoak I was anal like you at 21 over things like pensions, savings, house purchase. I'm 65 now and the state pension will.provide a miniscule percentage of my retirement income. Just keep doing what you are doing and also ensire you have some fun and enjoyment along the way. Life is also for living.

More boomer bashing.

Dont really see how I said anything negative about boomers here?

It always ends with, I won't get a pension, so why should I contribute to theirs etc. 1/3 of them are millionaires etc.

Owning your own property is a huge help in retirement whether or not you manage to upsize .
You are being very sensible. I suggest just continue saving what you can and keep checking the economic trends.

So you're just assuming where the thread is going rather than actually looking at what op is saying

@tabbyoak I'd say you're ahead of the game having a lisa, paying into pension and paying into s&s isa so early on. Keep doing what you're doing and just keep an eye on what you're doing when you get payrises, maybe allocate 50% to saving for a bigger house in the future if that's what you want. 20% to lifestyle increases and bills which will inevitably go up and 30% to increasing your pension or lisa/Isa contributions. Obviously you may need to adjust those percentages depending on your financial position but just make sure you have a plan of what to do with the extra money

Retired pensions consultant here.
(i) You are doing all the right things.
(ii) I agree that the State pension age will have to rise again. Many in the industry have been arguing for 70 (or even 72) since the 1990s.
(iii) I think it highly unlikely the State pension will be abolished or means tested out of existence - unless you are earning a truly massive amount. Remember that whatever the economic arguments, political ones always over-ride them. This has been the case throughout my career and I don't see that ending in the future (particularly with the standard of present-day politicos - of all parties).

Keep saving, don't put all your financial eggs in one basket, and remember that compound interest is your friend.

The younger generations have invented a myth or narrative that there wont be a state pension when they retire.

I dont know why or for what purpose.

@tabbyoak because you started early you have the benefit of time for your pensions to grow. What I’ve done is increase my pension contributions (via salary sacrifice) whenever I have had a pay rise and have also shoved any bonus in. You don’t miss the pay rise if you never get it in your pocket and you’d be surprised how quickly it adds up.

with regard to switching to high risk, obviously I’d say don’t do that with the whole lot, and of course generally as you get closer to retirement age then the pension companies usually suggest you go more cautious. I’ve ended up with one pot that has no more going in and another where I pay in from salary and I just have to decide when/how to start taking them (gap of 7 yrs to state pension age for me). I don’t feel ready to stop so thinking to go part time/cut contributions, but remembering you still have to pay NI until state pension age and tax if you carry on working or have other earnings.

You are being sensible. The conversation around pensions is constant. And people want the state pension means tested. However, as you suspect it may not mean any threshold set won’t keep reducing. If means testing came in. Probably far lower than people who argue to means test it anticipate.
Because Governments can change qualifying criteria with pensions I always think it’s very sensible to have money in your own accounts too.
Good you are thinking about it. Too many don’t.

I'm in my early 40s now and felt like you 20yrs ago.
I am with you that I am not relying at all on getting any state pension, if I do it'll be a bonus. I think it's likely to be phased out in some form as well although I hope I am wrong.
What I will say is that I've paid into my workplace private pension since I graduated, and to begin with seeing hundreds of £s in the pot was disheartening and felt like I wasn't getting anywhere with it. But as I've progressed, and as the stocks and shares it's invested in have thrived (my work provide a pension advisor who has helped create a portfolio appropriate for my age and pension pot size), I am now looking at being able to retire quite comfortably in my early 60s (and that assumes my salary doesn't increase beyond inflation).
I have always had the pension contribution come out (mine is 10% and matched by my employer) and so I never "miss it". It's just like the NI and tax.
So my view would be that you're doing all the right things - but if you want more assurance, speak to a financial advisor/pension advisor (maybe in a year or so if you don't feel you are quite there yet with qualifications etc) and find out what else you could do.
Starting early with pension contributions was the best thing I could have done.

Agreed. Whatever the financial arguments (& I don't believe there are any) no political party could survive the fall out from abolishing the State pension.

Of course the age might change, doesnt mean it wont exist

Do you know the history of the state pension, how long it was forecast to support someone? For a couple of years, it was to see them until death which at the time it was brought in wasnt long after retirement age

We have got used to retiring and expecting to live off that for another 20 years or so. Thats what is unsustainable. We live until our 80s, 90s sometimes. The state pension was never designed to do that.

So yes you'll get it and most people will get it, dont you know the average mortality in this country?

Sounds good so far. But do you want kids? That’s an extra cost but shouldn’t affect your pension really.

I haven’t said that though. I am happy for my taxes to pay for funding our society and those who need it, whether that’s through state pension or via other benefits too. I’m not naive enough to think I have a ‘pot’ of pension money waiting for me from the government, my NI funds public services and I am happy about this. Life is too short to think “I didn’t get this good thing so no one else should either!”

I am just trying to be realistic about the future. If I do get a state pension then fantastic! If not, I’d like to be prepared and comfortable anyway

It is sensible to be preparing for a means tested state pension or the state pension age rising as the birth rates have dropped and life expectancy increased, so there are less working age people paying taxes and national insurance and people receiving state pension for more years. So the easiest way for the government to lower the state pension bill is to increase state pension starting age. The state pension age has already increased over the last few years.
I am in my 30s and don't have great health, so the best way to ensure I can ensure my financial future is to pay into a pension, but also have savings I can access before pension age to bridge the gap if there is one. Also trying to make sure I'm mortgage free early enough to try max out savings as much as possible
We can't control what the government will or won't do to the state pension. But it doesn't mean we can't try to mitigate the risks

To answer a few replies in one, I think it’s reasonable to say the state pension won’t be abolished as a whole. However, I’m thinking for my personal circumstances. We’re lucky to own a home and will have very good incomes. To me, that means we’re unlikely to be in the group that will get it by the time we’re old enough as we’ll have too much of our own to support ourselves. I’m not complaining about this, just stating what I think will happen. I think the alternative to means testing will be that the age just keeps creeping up and up. If by the time I’m 67, state pension age is 80, well then that’s pretty useless to me anyway!

id essentially just like the financial freedom to be able to retire when I choose, not when I’m nearly dead!

thanks for all the helpful advice and comments so far, I’m glad I’ve got the right idea!

I think I should perhaps focus on the ISAs as a lower earner and then maybe increase workplace pension for tax benefits as a higher earner based on this advice

Check out the meaningful money podcast OP. These are great, have a scroll through. Some are back to basics type episodes and others are more specific and in depth.

https://meaningfulmoney.tv/?s=Pensions&cat=1842

None of which addresses what I said which was that the narrative is that there wont be a state pension at all.

This is so highly unlikely that I would eat my zimmerframe if it happened.

I doubt that it will be means tested. It may raise starting age, which has happened in my life time already which means Im now13 years away instead of 6 years away, breaking my social contract with the government from when I first started paying in

Nevertheless the reason is, the pension was designed to keep people going for around 5-8 years from projected death. That has now increased to over 15 years, sometimes 25ish years for women.

My view is that a combination of things will mean that you can't rely on state pension for any quality of living in retirement (that's basically the case now anyway if that's your only income).

• the amount given as a state pension could be frozen (or effectively frozen) - meaning in another 20-30yrs when people like me are retiring (at 70 +), it's worth significantly less.
• A top up would be means tested supporting the poorest retirees to a minimum standard
• if you own your own home this is part of the means tested value of your estate (i.e. "just sell your home to fund your retirement")
• the age is shifted up - as a 40ish yr old I'm expecting it to be at least 70 when I retire.

So whilst I may technically get a state pension when I retire, it's likely in my view to be largely worthless to me when I am retiring. It is incredibly important for the workforce to make alternative plans for their retirement - and the earlier you do this, the better prepared you are going to be.

My Dad, "Silent Generation" had 25 years of State Pension, 25 years of final salary pension and bought a house for 6K. They were the ones who had it the best, not the "Boomers", but we get moaned about.

Whether the risk is that the state pension could be abolished, means tested or the starting age could be increased. The reaction to the risks is the same, try to save enough to support yourself in the event you need to retire and don't have access to the state pension, whether that's due to age, earning too much or it not existing. I don't think it'll disappear completely, but I think age increases and mean testing are real possibilities
None of us can predict the future but it seems fairly obvious something will need to change to the state pension criteria and the ones furthest away from state pension age now, need to prepare as much as possible now to try to prepare themselves for all eventualities
I'm not sure what the problem is with doing this

Except no-one on this thread are moaning about boomers. Just simply trying to discuss best ways to save for retirement, while preempting that there will probably be some changes to state pensions in the next 50 years

The fact that the government set up their own private pension scheme for all employers to use and told employers they must use it was a big flaming red flag as well! (e.g. Nest Pensions).