To think we’re sitting in a pensions time bomb

[Iwanttobe8stoneagain]

I have been thinking more and more about my retirement I reckon I’ll have a pot (pension and other investments) equivalent to about £300k when I retire. But looking st what return I’ll get on this it’s about £11k year (plus whatever state pension still exists). My DH will prob have a little less. I thought we were doing quite well saving and certainly can’t afford any more. AIBU to be panicking over how we will be able to afford retirement and I suspect lots of people will have even less of a pot.

I recently bought an interesting book;

The Long and the Short of it: A Guide to Finance and Investment for Normally Intelligent People Who Aren't in the Industry

Have just read the first chapter and it seems interesting!

This terrifies me too. I'm 28 and due to ill health have never been capable of work, i survive on benefits, as does my dad who is my sole carer. I was on £9500 a year and him on about £3000 a year, but i've just had my benefit cut in the switch from DLA to PIP and from right now, will be on about £8400 a year which we will massively struggle with. It is terrifying to know that my entire life i will be reliant on ill health benefits, which can be taken from me at any time, and i have zero chance fo any kind of pension as i wont have one from working and theres simply no money left to pay in a private one, i am savingsless with no hope of that changing.

This has now turned into a really excellent thread imo and it's exactly the sort of thing mumsnet should be for, especially given that a recurring theme is our concerns for our children's generation!

Seconded to whoever it was above who advised that those of us who can should start investing a modest amount in a pension fund for our children. We plan to when ours is born, it won't make her rich when she's older but I will hopefully mean she's got a bit of a pension and thus won't end up being one of those pensioners who can't afford to turn the heating on. Nobody should have to live like that. 😢

Many thanks to all those who've contributed advice for those of us lucky enough to be in a position to make provision for our future as to how best to do it.

On a practical level, one thing I would invite as many as you as possible to consider is trying to get a civil service job for a while. They aren't all Whitehall jobs for Oxbridge grads! The pensions aren't what they used to be but its now a career average salary scheme instead, which I actually think is fairer to all. It means if I get burned out towards the end of my current higher risk, higher responsibility, higher reward role I can go back to a more modest role but my pension will still reflect the years I spent in the more senior role, and as such you won't get people hanging around in senior management posts they are too knackered for just to protect their pensions. If I've understood the Alpha scheme right, for every year you spend in the scheme, you get 1/42 of your career average salary, up to a max of half your salary. So if you do a decade in the civil service, you will get roughly a quarter of your career average salary as your pension. Say you earn the national average salary of £26k (I think that's the current average?) as your career average during your four years there, you'd get an annual pension of £6.5k. It's not a fortune but for a decade of pension savings you'd have to do quite a lot in the private sector to build up a pension of that level. If you own your own home and get state pension on top then you'd be alright on that. Not rolling in it, but you'd be able to cover your essentials and the odd treat here and there too. You can also choose to pay extra to buy the right to retire on your full pension up to three years early, which imo is well worth doing (so now I can retire at 65 rather than 68. Still not that young, but three years of freedom is a long time!)

I entirely agree with the posters above who've said one thing we need to adjust is our expectations, based on life expectancies and the cost of living vs wage rises (or lack of). Our current state pensions situation IS unsustainable long term and I suspect by the time I retire state pensions will be means tested, and if that does end up being the case I will be pissed off that as someone who has paid NI contributions my entire life I won't get it, whereas people who (for example) get NI credits as a result of choosing to stay at home with their kids because their partner earns enough for them to not need to work will still get it.

It is worrying how many people I know my age (mid to late 30s) who haven't made any provision for their retirement at all, or who have only just recently started doing so....and these are not people whose finances are on the margins either and couldn't afford to. There's a worrying amount of heads in the sand out there!

Yes- I know people with household incomes of more than 100k that make no provision

I think the government will provide for the poor and disabled in old age via benefits up to the amount of the value of state pension but probably not much more.

The only people who won't get a state pension or its equivalent in benefits are people who didn't work enough qualifying years but who do have other saving or assets - like a house.

Living just on state pension of circa 8k though will be very hard if you are used to living on much more. A general rule of thumb is that the average person need about 50 percent of what they earn at 40 to live on for retirement assuming they own their home

So if the average person earns 26k and will get a state pension of 8k then they need a private pension of 5k. At today's annuity rates a pension pot of circa 125k would provide that.

Because of marginal tax rates, that persons post tax income would be just over 1k a month in retirement vs 1.7k while working. Once the kids aren't a expense anymore and you've paid off your mortgage, that kid of drop seems feasible.

Owning a home obviously makes a big difference. I'd encourage families who rent houses to buy a small one or two bed flat for retirement if they can afford to and rent it out until they retire. Even if you still have to rent your family home for space needs, the flat will at least be something for the future.

I think a lot of women who have divorced or separated from their partners will find it hard going. Once children have left home benefits and tax credits drop dramatically and now state pension age has risen to 67. If you have a substantial amount of savings you won't get anything at all from the state if you don't work. and aren't on disability benefit before you are 67. Only JSA and that's means tested too after a certain amount of time.

After 67 you won't get your state pension topped up if you have savings. So again careful people lose out. Spenders will get the benefits.

I think investing and financial planning should be part of the school curriculum

I wholeheartedly agree. I was lucky my parents gave me the talk after University & made sure I put 25% of my salary into a pension.

So there are different groups of people do big things in different ways...

• renters on low wages unable to save and hit with double whammy of having to pay rent in retirement.
• homeowners on low wages who can't afford to save for pensions not for whom a paid off house will be some sort of cushion in retirement
• savers who have saved who may be bitter about others -possibly including the above group - who have saved nothing but who may receive top up benefits.
• Carers and the disabled who also cannot afford to contribute to pensions / saving
• divorcees who have 'lost out' on their partners pension savings, rightly or wrongly. Single people generally...
• SAHM who don't feel 'worthwhile' enough to at lest make the minimum tax efficient £2880 annual contribution despite their husbands making large contributions (personal bugbear!)
• the self-employed who often don't do the traditional pension thing as they don't trust them ... but do they save anyway? Don't know.
• those in civil service and others whose jobs with matched pension contributions who are range from those who will survive ok to those who will have a lovely retirement using pensions and other investments.
• people on MN who read this who CAN put more aside and treat these threads as a nudge to do so. Probably also quite a few in this category.
• wealthy parents who also open a pension for their own children to take advantage of the extra years...
• plus the feckless few who just don't give two hoots and survive on the state

And probably lots of different groups in between of people I've missed out. Certainly there's a huge difference in what the poorest to the richest KNOW about pensions and hence their financial readiness to retire. Before you consider people's individual ability to pay into one...

I don't know why I felt compelled to wrote this all down. Maybe I should retrain as an IFA.

Yep so for lots of different groups of people it's kind of too little, too late to be bringing in mandatory NEST pensions now...

I'm looking at £159 state pension per week.
I'm planning on downsizing to fund retirement (Londoner here) but that's still a risky game to play.
I guess free fuel/travel etc. will be means tested by then too.
I'd say a bleak future lies ahead for everyone but I can't see that it's anyone's (specifically, the government) fault per se. People are just living longer.

viviennemary - if a divorced woman's kids have left home, why shouldn't she be working? Why should she expect anything more from the government once her eligibility for tax credits has ended?

People who can't work because of disabilities etc get my sympathy. People of pre retirement age who choose not to work and want to be kept don't.

I'm not saying anybody should rely on the state. But what I am saying is that people getting benefits whilst their DC's are still at home are going to find things a lot harder when they've lost those benefits and the maintenance.. I don't think people appreciate that single people benefits are very much less generous than for people with children. Even in proportion. And retirement age will be 67. There will be fewer and fewer folk working till retirement and will claim disability benefits. That's what's going to happen.

Zillionth - I detect a tone of disapproval in your comment about savers being bitter towards those that haven't saved getting extra state help! If so, I think you are being harsh on the squeezed middle...especially those in the squeezed middle that can't afford to buy their own home. I very much doubt anyone begrudges those that can't work due to disability or ill health getting extra help when they retire, but I think those who have spent their entire lives earning a fairly modest salary, paid into their work pension scheme, and still end up with a fairly meagre income in their retirement are entitled to feel a bit annoyed that those who haven't made any effort to put any money aside for their retirement will get given as much as the low income pension contributors will be receiving by way of retirement income. Because I strongly suspect that will be the case for some people....

Wow some great advice here and glad to know I’m not alone. I think many people are so bogged down with dealing with the pressures of now that we struggle to defer part of our income for 40 years. I also think part of the way pensions are structured puts people off.People like access to their money. I can recall when my dad was seriously ill my parents could have done with accessing some of his private pension. You are effectively handing over money waving goodbye for decades. My dad retired right at the nadir of the stock market and basically gets fuck all now after paying in all his life what he could afford. fwiw we have decided to buy a holiday home that we can use and rent out to cover costs and move in when retired and sell main house when retired to add to funds (guess we’ll have to swallow the upfront costs of hiked up stamp duty) but at least we can access if needed.

But OP, if your dad basically gets fuck all now, how much less than fuck all would he be getting if he'd been able to access his pension when he was ill?

I agree with the rules about access.
It's not like you get nothing in return for accepting the rules - you get a hefty tax benefit.

Theee are other ways to save - at £20K the ISA allowance now is pretty hefty, so whilst you don't get the tax rebate added to your contribution, you are at least not raced on the gain. So there are alternatives.

I agree with the lack of access partly, I'll admit, in a nanny state way. I think some people would make poor decisions in withdrawing it. That's harsh on those that wouldn't, I know!

But the lack of accessibility also really protects people. Lose your job with £16K in the bank? No JSA. (I'm not disagreeing with that!)
But lose your job with £16K in a pension? It stays there.

Similarly thinks like debt and bankruptcy.

I read the MSE Pensions forum. Not unusual for those in debt to ask if they can access the pension early. Because they can't - and because their creditors can't force them to - they can go down the difficult but effective routes of IVAs, DMPs, even bankruptcy. Often, that means paying back a fraction of the debt and have interest frozen.

If pensions were accessible, do you think DMPs would exist?! Nope - they'd get swallowed up and no creditor would be holding the interest when they could scare a debtor into paying from their pension pot - or even force them to.

I am sure that there are many individual situations where it would be better to be able to access. But on a wider level, I think it's a bad idea.

There is a good reason for pensions being protected from bankruptcy. The idea is that the money saved for retirement is protected so you are not left destitute. It's also an excellent reason for any sane person to fund their pension.

There are a lot of people who could save more but have a warped idea of what they need. I'm mid 30s and I'm shocked at how many people are not saving for their retirement. It's a necessity for the vast majority of people. Even my BIL who was diagnosed as terminally ill with two years to survive and hasn't stopped saving because my SIL will benefit from his pension.

Bad news for you on that front I am afraid. almost your whole pension can disappear as long as you get a tiny shitty amount of it. It is not the safe investment people think it is.

Oh, did you mean if you go bankrupt they cant touch your pension? Yes, thats true, and wrong imo.

Painting your first comment is very unclear.

Also, people who save and work will get more than people who don't save and work- I think that's getting lost in some of the back of forth.

Anyone who works the 35 qualifying years will get state pension. If you don't work the qualifying years and have no savings or assets, the government will likely provide top up benefits to at most equal the state pension so people don't starve.

People who work and save will get the state pension plus a private pension which will give them a better quality of life than those who don't.

If you have savings but don't work enough to get the 35 years of contributions required for the state pension, I doubt you'll get any top ups but this will be a very small group of people who have assets but didn't work enough.

@AlmostAJillSandwich if you're claiming benefits then afaik your NI stamp has/will be paid. So you will be entitled to the state pension. Check with them that it has been.

Sorry
You can lose pretty much all of your future pension if your company or the pension company go bankrupt, or worse, if they go almost bankrupt and reduce your entitlement from 20k a year to 5p a year (as the govt does not then step in to subsidise it a bit)
It is not as safe as people think

I worry for generation rent. House with morgage paid makes a significant drop in the amount needed in retirement. These kids pensions wont cover rent they are screwed. Pointless paying into a pension if you are renting in your 30's you will be worse off that omes who didnt bother.

Worry for the government paying all that housing benefit!
Invest that money in buy to let granny flats ...

Painting that's only true for a defined benefit pension / final salary scheme that are underfunded.

A defined contribution scheme isn't within a company or tied to its finances and defined contribution is what the vast majority of people are offered these days unless you work for th civil service.

Personally, I'd always opt for a defined contribution scheme over a defined benefit scheme

Eatlot for most people I don't think that's true. If you save regularly you can save enough to cover rent as well but obviously you need to save more.

In the example I gave above of someone on 26k, if they saved 35 years they need to save 5 percent of their income to likely get that size pension pot. If some on that wage also needed to pay rent they'd need to save closer to 10 percent of their wage for 35 years.

Via auto enrolment, over the next 18 months, employers will have to contribute 2 percent and then 3 percent to employees pots. Meaning someone who is renting would have to contribute 7-8 percent of their pretax income. On a wage of 26k, that's losing less than 30 pounds of week from their take home wages.

Im only going through this as I think it's very dangerous to put out the message to young people that saving is so impossible they shouldn't even bother. It discourages young people when the reality if you start young, it's easiest and manageable.

And if you do own a place and you are on 26k a year you can save less than that or just have a nicer retirement :)

However if you have only 25 years to save vs 35 years until retirement, you have to save more than double that amount to have the same pension pot in the future because of how investment returns compound.

Delaying saving makes things increasingly harder but it's always still worth doing whatever you can as some extra money in retirement is always better than only living off the state pension which for the average person would be very meagre

Painting, LondonGirl - the Pension Protection Fund should ( and generally does) mean that pensions are not lost even if company goes bust. It was set up after Maxwell scandal.