Starting a pension aged 31 - £1000 per month contribution?!!

[Prometheus]

I'm looking for some basic advice on starting a pension please. DH and I (both aged 31) met with a financial advisor recently to talk about starting a pension. I have no pension (as I'm not eligible to join my company pension scheme) whilst DH has a company pension but it is with his Belgian employer (where we live). We intend to move back to the UK within the next 2 years and we're not relying on his Belgian pension (no idea how we will claim it in euros in 30 years time but it is compulsory that he contribute so we can't opt out).

Financial advisor has suggested investing in a pension that is not dependent on us being resident in UK. Kind of 'offshore' he said. This way we can pay into it in £ or euros and when we retire can claim it in £ or euros depending on where we live. He did some calculations and suggested we should be paying minimum of £1000 per month into pension over the next 29 years. Thus paying in £348,000 between now and retirement!

Now I am clueless about pensions but this seems like an awful lot! I am worried that when we move back to the UK in 2 years we won't be able to afford £1000 per month. We will want to buy a house and I may have to give up my current job if we move back and start a new career from scratch.

Also - why don't we just put £1000 per month into a savings account and thus have £348,000 in hard cash for our retirement instead of relying on a pension which is market reliant and there is no guarantee the pot would be worth £348,000 in the year 2040.

Can anyone advise please?

Surely the ideal figures is dependant on your incomes? So if you earn £1400 a month then £1000 is clearly excessive, whereas if you earn £8000 a month it might be appropriate. We put in about 10% of our pre tax earnings but then we did start aged 24.

What's your joint income? Dh and I each pay in 6% of our pre tax income and our employers pay in 12%. I've been paying in since I was 21, I'm 31 now, and dh has been with his employer for 22 years. Obviously if you're only just starting now and don't have employer contributions to take a share of the £1k then your monthly payments would expect to be higher.

Over time money invested makes more than cash savings which depreciates unless interest exceeds inflation.

Thanks - at the moment we take home (under Belgain 50% income tax) about 5,500 euros per month so we could afford £1000. However when we move back to the UK we may lose my salary and would have higher outgoings so £1000 may well be one-thrid of our income at that point.

A pension adviser would work backwards from when you want to retire and work out how much income you want in retirement - usually around 2/3 or 1/2 of current income.

And if you are not relying on employers contributions, all of the payments need to come from yourselves.

Note that there is a change in the law here from April next year where employers do have to offer a pension if they don't already, so you might want to explore the benefit of working for a UK employer!

I work in the pensions industry (don't hate me). Some things to bear in mind:

1. a rough guide to the amount you you should be contributing to get a decent pension (half your salary) is a percentage of your salary equal to half your age (so 15% for a 30 year old 20% for a 40 year old). The reason you need to pay more as you get older is that you won't have as much time to make returns on your contributions.

2. you need to divide your pension pot at retirement by something around 28 so £350k would get you an annual pension of about £12,500 rising with inflation.

3. people almost always underestimate how long they will live for. A pension is insurance against outliving your savings.

4. the disadvantage of putting money in the bank is you won't have any chance of getting a decent return on your money. So everything in your pot at retirement will have to have come from contributions.

Sorry for the length of this. Hope it's some use.

I think, if you can afford to set aside £1000/month, you should think about spreading the risk. Pension pots are generally a good risk and they attract tax rebates but, if the market dips just as you're about to retire, or if the company you have selected fails (think Equitable Life), can not deliver all they might. There are other ways to save for your retirement which include investments, unit trusts, property & bonds as well as tax-free cash deposits like ISAs . You should also have some 'current' savings for a rainy day. It would be a pity to tie everything up until your sixties and not have enough for an emergency or a change in circumstances. So that's my take on the subject... spread the risk.

Thank you all for the advice. So it seems that maybe £1000 per month is not unreasonable. However due to the possible change in circumstances when we move back to the UK I may look into contributing around £850 (which would be 15% of our joint net income). I am loathe to work on gross figures as income tax in Belgium is 50% so gross figures are not really representative of what we take home.

Regarding the point that gettingalifenow mentions about employers being forced to offer a pension from April 2012 - can I ask if employees are forced to join a company pension scheme if they join a company that has one? In Belgium they are. I just don't want to start a prviate pension then in 2 year's time get a new job in the UK and be forced to contribute to that as well.

Thank you

Oh - and Cogito point taken about spreading the risk and maybe (whilst we can afford it) we could top up the £850 to £1000 but put this extra into a savings account (to be moved into an ISA once we return to the UK).

"I just don't want to start a prviate pension then in 2 year's time get a new job in the UK and be forced to contribute to that as well."

If the private pension you opt for is a portable stakeholder, money-purchase type then you may be able to agree with an employer that they put their contributions into it for you rather than you joining their scheme per se. 'Company pension schemes' used to be pots contributed into by employees & looked after by trustees that then paid for some final salary scheme. Few offer that type of pension these days because they are too expensive and employees rarely spend 30+ years with the same organisation... they want to move about and take their pension pot with them.

gettingalifenow is not quite correct all companies must currently offer a stakeholder pension if they have more than 5 employees. From April 2012 the phasing in of compulsory contributions 4% of salary from employees and 3% from employers this starts with the largest employers first and small employers will be by I think 2014. So Prometheus the legislation does not currently allow for opting out of these schemes, so you will be forced to contribute.
So over the next 3 years all employees will be forced to have 4% of their gross deducted - so a net pay decrease. A not much spoken about effect of this scheme. You also have to ask yourself how small employers are going to fund their 3%.

The new personal accounts regime that companies have to contribute to is automatic enrolment - so you will automatically be enrolled in the company's scheme but you can opt out. Where have you read that there is no opt-out Lizcat?

If you start up a personal pension scheme, you can usually decrease or stop your contributions and would either be able to transfer the sum in the pot to another provider (subject to the rules of the receiving scheme - so you may be able to transfer it into an employer's company scheme) or leave it as a 'deferred' pension (paying no more contributions but retaining its value until you retire).

So you needn't end up paying for 2 pensions if you don't want to. Start your personal pension now and then review when you get a job in the UK.

PS The employer contributions don't start at 3%, it's phased in up to 2017 - see this from the NEST website:

"How much will the legal minimum be?
In 2012 the legal minimum will start at 2 per cent of a worker?s qualifying earnings. Of this, you need to pay at least 1 per cent. You can pay more if you want to.

By 2017 the minimum contribution level will rise gradually to 8 per cent. Of which you will need to pay at least 3 per cent."

I think it is a good thing that people are more strongly encouraged to save for retirement. The new regime does not go as far as the Australian system of compulsory contribution, but perhaps it should.

Oops I was wrong just re-read the document on DWP website. So everyone is automatically enrolled, you then have 30 days from enrolment to opt out. In reality like very few people have opted into stakeholders very few people will opt out as the timescale is very short. Have also noted that small employers have until 2016 to implement this.

I think the aim is to discourage opting out as much as possible. I remember when they were still drafting the legislation they were talking about having to re-do the opt out every 3 years or something, so you would be auto-enrolled after the opt-out expired - to get as many people in as possible. I don't know if that has been carried through as not looked at pensions legislation for ages and ages (thank goodness)!

emsyj I kinda understand about not wanting people to opt out, but think that most people don't know what it means. So if I enroll someone on the first of January and then they get their pay slip on the 31st January they will have gone past the 30 days. Yes they will get all the facts on enrollment, but how many will read them.

They can still stop contributing - it's just that the money already paid in will stay in.

I think it is better on the whole to try and shift the nation's pensions inertia with auto-enrollment given that, as you say, most people won't pay much attention when told that they need to save or that their employer offers X pension scheme, send in this form to join. I am for it, can you tell?

Thank you - can I just ask one more queastion please?

I'm assuming that the financial advisor would think we would have a joint pension (if this is possible?) Now I am not planning to divorce DH at any point in the future but, having divorced parents myself, it is something I guess I should consider. Would we be best to get 1 pension each and put in £500 each or a joint pension with £1000? If we divorced further down the line would we lose the pension (i.e. split it in any divorce and take the pot of money?)

Thank you

No, you don't have a joint pension - your pension rights and contributions are individual. It may be different in Belgium, I'm not familiar with their pension rules although there is some EU wide harmonisation so I would be surprised if they did have joint pensions - having done pensions work on international transactions I have never come across a scheme where pension rights are joint.

I am not a divorce lawyer, but my understanding is that the pension rights you have form part of your marital assets so on divorce you (or your DH) could obtain a pension sharing order, which requires that a specified proportion of the spouse's pension is transferred to you.

Once you have paid in, you can't just cash in the pot of money. If you cease contributing to a particular scheme within 2 years, you can usually get a refund of your contributions (subject to you paying the necessary tax) but after that the funds are stuck in the scheme until you reach retirement age (which can be anything from age 55). This is for UK pension schemes, I don't know about Belgium.

Great - thank you! Will check this out with the financial advisor then as he was talking about 1 pension with £1000 monthly contribution. He is advising an 'offshore' pension (whatever that means) that can be paid out in either £ or euros so I don't know what rules would apply (EU rules rther than UK natioanl rules?). However I will ask him about having two pensions with £500 contributions each. Thank you!

I have no idea what he is talking about re: 'offshore' pensions - presumably he wants to offer you something that will be portable so that when you move to the UK you can keep the same pension, but ask him about charges, investment returns etc - ask if you would be better off taking a Belgian pension now, then stopping contributions and starting up a new arrangement when you come to the UK and leaving the benefits in the Belgian scheme as deferred.

I am not an IFA (am a lawyer) so maybe there is some sort of pension product that I've never heard of called an offshore pension... Intriguing! Might go and have a google...

Aha, had a quick google and looks like offshore pensions are quite a common product! I wouldn't have come across them as my advice work was for employers/pension scheme trustees and they haven't ever come up. Interesting stuff!

There seems to be some suggestion that they are expensive, but no doubt your IFA will advise you about the cost/benefit.

Hi emsyj - thanks for that! He has just sent through his recommendation which, looking at various money forums on the Internet, as you say seems quite expensive. I have no idea - the brochure talks about units and percentages which mean nothing to me.

Plus have also just researched the company he works for (massive global company with a name that sounds like to De Beer) and it looks like he is just salesman and not a qualified IFA. Googling him shows that he did a completely different job this time last year!

Oh dear - we may just forget about the pension until we move back to the UK as it seems silly to have an expensive, offshore pension when we may be back in the UK shortly and never move abraod again!

After living in Belgium for almost a decade, we want it to be a clean break when we leave. Tax and admin here is so frustrating and customer service is non-existant so never want to deal with anything Belgian again! Hence reluctance to get a Belgian pension!