Come and talk to me about your pension

[Paintyourbox]

I don't have a pension yet (I'm 26) and the scheme my company have isn't that great (they don't make any contributions) and it is not based on my final salary.

With that in mind I am going to try and "do it myself" so I'd like to ask you about your pension plan.

How much do you save per month? How does it all work? I sometimes think just stashing cash in ISAs or a buy-to-let property may be the way forward but not very sure!

Probably not the answer you're looking for, as I'm lucky enough to have a good company pension that I contribute to and have done for 12 years (I'm mid thirties). I contribute 7% of my salary and I think my company pay 12% (although rather embarrassingly I'm not sure!).

I do know that it is extremely rare to find a final salary pension these days, as they are just too expensive to run and many companies in the private sector have closed them.

I would recommend seeing an independent financial advisor, who can talk you through the ins and outs of what options are available to you. We were fortunate enough to find a great one who talked us through our insurance/pension needs. Maybe it's worth posting on your local board for a recommendation? I think most do a free hour/half hour consultation, and if you can get one with a recommended IFA, all the better.

Hopefully someone more knowledgeable will come along soon for you.

Good luck!

I'd second the idea to talk to an independent financial advisor. What you're looking at really is 'retirement planning'. Pensions are one way to finance retirement and they have certain advantages and disadvantages, but there are other ways to invest money or acquire assets. I have a contributory company (money purchase) pension into which I put 4% of my salary each month. But besides that I also have a property, investments, cash deposits and other bits and pieces, some more financially risky than others. I'm hoping that, if one doesn't perform, the others will make up the difference.

Auto enrolment has now started and this is a compulsory scheme which employers will have to offer to eligible employees. As part of this the employer has to also contribute as we'll. it may be worth looking at this as an option.

How many employees work for your employer?

One of the key things to understand about pensions is that if you pay into a pension scheme then in most cases that will only provide a pension for you and possibly your spouse from when you retire until you die. When you die all the "asset" dies with you - if you live for longer than the actuaries predict then you "win" as you get back more than you paid in but if you die sooner than expected then the scheme wins. You cannot leave your pension pot to your family. However if instead you buy shares or a property then these are assets that you could earn an income from in old age and have an asset that you can pass on to your family when you die.

So if work are not contributing anything then you might want to think about shares or a property. These could be invested in a SIPP - self invested pension plan. If you end up in a job where your employer does make a contribution then it makes sense to take advantage of this "free money".

Be aware that if you do not pay any kind of fee to your financial advisor yourself then they will be earning their income from the commissions they make on the products they sell to you. This ought not to sway their advice - but it is up to you to ask the questions about commissions and then make up your mind if their advice is truly independent.

Please note that I am not a financial advisor and have only recently started thinking about this myself and am much older and nearer retirement !

My company is quite big- over 1000 employees so not sure why they aren't better at the pension thing- I keep nagging payroll about an information pack re the company pension but still have not recieved one.

I used to work in the NHS and had a great, final salary pension. These are long gone now and I am considering the self-investment option.

I would really like to have assets which could be transferred to other family members should the worst happen.

I think it helps to separate the planning between the things that provide an income and those that are a realisable asset. You could, for example, go heavily on investments and rely on dividends as your regular income.... would have been a risky strategy if you'd retired in the last few years. You could build up a fund of bonds and other cash deposits and live off the interest... also would have come unstuck in the last few years. You could buy properties and use the rental as your regular income... neatly combines realisable assets with income but there are set-up and ongoing costs. A pension pot traditionally buys an annuity which provides a guaranteed income but which dies when you do. There are others, of course. They've all got pros and cons

Keep nagging payroll.

Keep nagging payroll about the new government scheme. I work for a very small employer so I don't think I get the government scheme until 2016.

I've had a small personal pension for 12 years and I don't really understand it. I pay in about £50 a month (including the tax bit the government adds) so my pension pot grows slowly.

I try to have a range of assetts, such as being a home owner (well I have a mortgage but in 13 years that will be paid off if things don't change), Have Cash ISA, some premium bonds, some small investments in fixed term corporate bonds. I have not dabbled in the stock market, though perhaps I should by having a stocks/shares ISA.

I feel that money going to a pension is lost - you can't withdraw it in a time of crisis. So I like having money I can get hold of but interest rates are terrible at the moment. Hard to know what to do.

Are you already filling your Cash ISA each year? If not, I would do that first, then do pension (if your employer adds some contribution).

Seeing an IFA may help but pay them for their time so you don't feel you have to take their advice and any products suggested.

@nannynick... have you asked your pension provider for a statement and a forecast?

if you pay into a pension scheme then in most cases that will only provide a pension for you and possibly your spouse from when you retire until you die. When you die all the "asset" dies with you

Wrong, wrong, wrong! There are many ways that this can be made to be untrue even for annuities, so please do not tell people this. The size of your pot plays a part, but the asset can live on. It is true to say that various options give a greater or lesser degree of flexibility and some have a cost attached to them. It is not a clear cut or as drastic as your statement suggests.

Advice from a well qualified IFA with a special interest in retirement planning is the best thing you can do.

CogitoErgoSometimes - Yes, gives things like plan value like £9400, yearly pension forecast £660.

The rate of return seems very low but I guess so is the pension pot, it's all relative.

How do you know if it's worth putting money into a pension, or if it's better to have that money available to spend in a time of crisis?

You don't know. This is where advisors are useful. You have to work out what you can afford, what risk you're prepared to take, what your priorities are, and all that's going to change as you go through different phases of life. I'm late forties, for example, and I'm in a position where I have enough spare cash to have a few options in front of me so I'm splitting it between pension, savings, investments etc. 20 years ago it was still a stretch to pay the mortgage with very little left over for anything else. Ten years from now I'll probably be converting as much as possible into cash because I'll be that much closer to retirement and won't want as much risk. That's the kind of judgement call you can only make for yourself but with good advice.

Thanks Cogito. It is time I went to see a IFA again, but is that necessary, are there any good books/websites about this sort of thing?

I find the 'This Is Money' site has some useful information. MoneySavingExpert.com ditto. The BBC R4 Money Box programmes often feature pension information... try the 'listen again' function. You could even check out the Alvin Hall website. But if you get a recommendation for a good IFA - and I class 'good' as one that doesn't suggest a financial product more than once but knows when to take no for an answer! - they can really give you specific information related to your circumstances.

I am trying to work out my husbands pension pot but find it all very confusing as linked to shares etc, he is only 9 years away from retirement and has been with the same company for 30 years .I would like to offset this against the house as i want to remain in the marital home. Who can i give this information to ? That way I might have an idea of how much mortgage to raise if any.

lostandlonley I'm not sure I understand your question, but are you talking in the context of a divorce? If so the value of the pension will be added into the valuation of all assets. Depending on what type of pension he has (it sounds like a money purchase plan) the valuation will be taken at a point in time and then that serves as the valuation going forward (I?m not a IFA divorce expert, but I would expect that unless this varied significantly then it would be a win/lose situation depending on the markets or your willingness to challenge this, but I?m happy for someone to correct me here). For the mortgage I would take the a value and not worry overly about any short term movements unless there is another 'crash' of global markets (assuming he is suitably diversified).

I think landL is indeed talking abotu divorce. A pension pot is not cash. It is worth nothing like cash you and he might have in the bank. It is perhaps worth say one fifth of its cash value in looking at who gets what in divorce or you could just split the pension in two and have half each.
Your husband might be able to take his pension at 55 and keep working if the pension is separate from his job and when he does take 25% as cash and give you that cash as another otpion. Also if he hasn't much of a pension - many people don't - it may not be as vajulable as the equity in the hosue you are splitting between you. Also if it is not worth much the very expensive costs of pensions valuation on divorce may not be worth incurring.

On the original question it is certainly wise to try to save throughout your life. If your employer though is not contributing and given the state seems to be saying if you don't save then in retirement we will make your income up to £200 aweek and if you haven't saved we won't it does rather remove the incentive for some people at the lower end of the income scale and they keep changing pension rules too.

Thank you Notmadeofrib & Xenia, yes, trying to calculate our joint assets as we are about to divorce. I thought I read somewhere on MN that I could offset his pension towards the value of the house, I currently work part time and would not be able to raise a large mortgage, and trying to hold on to the marital home.

Yes you can IF but only if he agrees and he may not. Also he cannot take the pension as cash so if the pension pot is say £300,000 then he might be entitled say to £15k a year p ension from that = it is not the same as a £300,000 savings in a bank. So I think pension valuers in doing a cash equivalent woudl take its cash equivalent value as about a fifth of the pension pot so about £60k in that example.

Also he may need cash to buy a house and to house his children when staying with him so keeping his pension which he may never live to draw might not be any use to him. so he has no obligation to agree to a pension for equity thing.

Coudl you not work full time like most of us? I had to take on a mortgaeg of over £1m to buy out my husband on divorce.

So I think pension valuers in doing a cash equivalent woudl take its cash equivalent value as about a fifth of the pension pot so about £60k in that example.

I'm really not sure you are correct with this Xenia. I have (a while ago now) attended a seminar on pension split/earmarking/off-setting, in divorce and not at any stage did this come up. My main experience is with defined benefit schemes and I can assure you that cash equivalent transfer values (CETV'S) are used. Equality of outcome is what the court will focus upon and so this may not mean a 50/50 split, but this is common.

I have also had to provide valuations to solicitors for divorce proceedings and this has never been an issue.

HOWEVER, I am not saying this is not a (vaguely) valid argument (although 1/5 is outlandish IMHO) and not one that a solicitor could focus upon and to great cost.

I've had a quick look for my notes, but to be honest the fact that a money purchase fund represents a value, this is just seen as a value that you could offset (or split and put into another pension for a 'clean break')

How much are we talking here? A valuation statement from within a couple of months will give you a good idea of the value of the asset.

An asset which generates money you may never have when you are old is not the same as the cash value of equity in a house. The court might order this if children need to be housed but if not then the husband need never agree to take this hope of pension income if he lives long in return for his wife having all the real cash.

You are right that a fifth is not always going to be the sum. It will also depend on life expectancy and how far you are from retirement etc.

I just think far too many women think the husband's pension is a huge cash asset they can neatly set off pound for pound against the equity in the house. I thought a rough figure for cash value was about a fifth of the capital value of the pension fund and you could net off on that basis but only if he agrees (he might for example know the men in his family die at 60 so have no interest ni keeping pensions at all or realist Government change the rules or tax them to the hilt or in effect confiscate them so say - hang on - we will jsut do a pension sharing order and share the house equity.

Hi Thanks for replies, has taken a few days to find paperwork, apologies for not posting sooner. Pensionable salary upon retirement june 2020 shows as £61,000. and total of all accounts reads as £203,647. 61 .
Currently work part time and looking for extra hours but this has to fit in with caring of elderly parent. Can raise small mortgage but was looking to offset in reality. Does this information help X & NMR?

That's worth taking advice for!

The law states that 'equality of outcome' is what is to be achieved and anything other than a straight pension sharing order, you might find a tricky thing to negotiate (and in reality pound for pound an investment and a pension are not exactly equal)

This is a very interesting site from the family law society and covers exactly your issue, so take a look:

www.resolution.org.uk/editorial.asp?page_id=476#pageTop

Here are a few other sites: www.divorceaid.co.uk/financial/help/advisers.htm

And specialist IFA (nothing to do with me, but worth a chat I would have thought) www.thedivorceifa.co.uk/

How much do you need to raise?

Thank you, as I understand, this is a money purchase scheme where a pension is purchased/set up upon retirement,(a lump sum of 25% can be taken at this time) thats why I thought i could offset against the home, have I got this correct? The house value is approx £320,00 (no mortgage). I cashed in my pension when I had my child. So this to be taken into account. So I am not sure how much I need to raise.

The links also useful thanks.

Well offsetting IS something that can happen, but it may not be quite as straightforward as "you have the pension, I'll have the house".

I really think you need advice as I can make some suggestions, but I'm not a practising divorce lawyer so really that means I'm guessing.

Have you tried talking to your ex about what you would like?