Pensions - how prepared are you for retirement? Do you know how much you're likely to have to live on?

[littleredsquirrel]

Just curious really. I am currently trying to plough my way through all the paperwork to work out what my likely income levels will be when I retire.

I have a pension which I paid into for ten years but nothing being paid in at the moment. Trying to work out whether its worth putting more in or look at other forms of investment.

Currently my pension fund is projecting I'll have 24k pa (or £14k in real terms taking inflation into account.). I have 20 years to go if I want to retire at 60. Looks like we'd definitely be selling the house!

What arrangements have you made for retirement?

I think I read somewhere to get a pension of half your salary when you retire then you have to contribute half the age that you start at. For example if you start a pension at 30 you should put in 15% of your Salary etc.

You can't apply to protect your lifetime allowance unless:

1. FP14 rules - you make no further contributions

Individuals can apply for “FP14” to retain a lifetime allowance of £1.5 million.

• No new pension savings after 5th April 2014 allowed
• Cease money purchase pension payments
• Opt out of any final salary pension schemes.

2. IP14 rules - your fund exceeds £1.25M on the 5th April 2014

Individuals can apply for “IP14” to retain a personalised lifetime allowance based on the value of their pension savings at 5 April 2014.

• Can continue pension savings after 5 April 2014.
• Only 5 April 2014 pension value is protected.
• Pension value at 5 April 2014 must be greater than £1.25 million and only up to £1.5 million can be protected.

Any excess subject to the Lifetime Allowance charge.

Need to apply within three years from 6 April 2014.

Can have both FP14 and IP14, if eligible.

FP14 takes precedence.

You can't just apply and protect the lifetime allowance on the basis you may need it.

Sorry but not quite so simple as that

Thats really helpful notmadeofrib.

why are pensions so complicated

Well they are complicated in some respects, but in other ways they are very simple.
What often puts me off writing on here is the amount of caveats that I feel I need to write in order to be accurate and informative.

However the most simple thing I tell people is that if you don't save it, you can't spend it.

HOW you choose to save is another matter. Pensions are a wrapper, as are ISA's. In both you can put ETF's, UT's, OEICs etc and those are themselves a wrapper for basic stocks and shares.

Pensions make more sense if you get an employer contribution/match or are a 40% (or more) tax payer. If you are self employed or a business owner they can also be a good idea (due to certain protections). Pensions come with certain restrictions (although they are being reduced) and the tax uplift 'pays' you for that.
If you are a basic rate tax payer the pension V's ISA debate is inconclusive and is very much about personal behaviour and circumstance.

Talk of pension charges etc are a bit of a red herring. YES they are high in the UK, but you can minimise them to a certain extent (and you should, tracker funds such as Vanguard are excellent low cost funds). However, using cash ISA's to reduce costs and reduce observable risk is a costly exercise in the damage that inflation can do over 20 years and is a false economy. ISA charges (I'm talking stocks and shares here) and pension charges are often the same and ISA's can even be higher.

... there you go I'm starting to write an essay. But honestly see my earlier statement: if you don't save it....

You've done the right thing IMO and sort professional advice!

Aagh, I am lapping up the financial information but everything I read makes me feel less in control.

Why are cash ISAs a waste of money charley barley? Is it because of inflation? Surely they are still better than any other type of pure cash savings though?

charleybarley
what is better than a cash ISA for those who can only afford to save £2000 a year (ie the bulk of the country)

Fixed protection needs to be applied for by April, Individual Protection is based on the value as of April 2014 and you can apply afterwards. For IP the value must be over £1.25M at that time.

And my 2p on the Cash ISA issue...

Once you have an emergency fund (3 - 6 months money) and if you really can save 2k a year, then once you have a few grand and it's for your retirement then I would say a FTSE tracker income fund would be a better bet over a saving period of > 10 years.
Problem with this is that without ongoing advice and a bit of understanding then first business cycle, people panic and pull out their money. Hey presto, a loss.
This is why investments are all well and good, but if you can't afford the advice (or want to read around the subject) then actually they can be a costly learning curve.

If cash savings are being compared, yes put it in a tax shelter, called a Cash ISA.

N.B I would actually recommend a mixed asset allocation so a bit of rebalancing can be achieved which is about the only 'free lunch' you'll get in investing, but here I go again making it complicated.

I am determined to get to grips with all this over the course of the next few weeks.

Spoke to DSis this evening. She is 35 and has no pension provision at all. Plus her exH has a stake in her house and so do my parents and so she doesn't even have much there either. Scary.

Really useful info Notmadeofrib - thank you.

Yes thank you all who are contributing.

I have two defined contribution schemes to spread the risk. I plan to retire in 10 years' time so I am taking pensions seriously.

1. I pay £6k a year into this fund. The fund currently stands at £225k and is likely to provide retirement income of £12k per annum.

1. I pay £25k a year into the second fund which is mostly my contribution but there are some employer contributions in there as well. The fund currently stands at £250k and is likely to provide retirement income of £25k per annum.

DH has a public sector pension which should provide a pension of half his salary. We also have a small investment property that provides rental income of £9k per annum.

We have some savings (not a lot) and none of those are in cash ISAs, they are in stocks and shares ISAs. Saving money in bank accounts makes no sense - you are losing money in real terms because inflation is higher than any savings rate going. We save for the kids as we are hoping to pay their university fees and deposits for houses etc.

2 defined benefit schemes doesn't in itself spread the risk!

You could be missing out on savings from such a large fund if you were to consolidate.

Not made, that's interesting. I had heard that the fees from consolidation would outweigh any savings. Would you agree with that?

Wow earningsthread, you're sorted, particularly if you have another ten years to go!

What do you mean by missing out on savings? What savings arise on consolidation? There are hardly any charges at all in both schemes as they are employer run (the first scheme being from a previous employer who allows ex-employees to retain the status of employees).

I got my pension when I was 50 six years ago, it was a deal that was set up when I took severance package with my company. I work for that company for 21 years 12 years full time 9 part time. At 50 I received £24k and monthly pension of £365 month.
I thought I would have my state pension at 60 but the bloody government keeps moving the goalposts!! So 67 10 years to go.

My OH get his next Oct when he's 60 government pension lump sum of either £52k and 10k year or 36k 12k a year pension depending if he wants more lump sum and less per year. His state pension think is 67 so 7 years to wait for that.

Most public sector pensions are now tied to the state retirement age. You can draw your pension amassed from the date before this policy came into affect. But any pension after that date amassed, you have to wait until you are entitled to your state pension. This affects a lot of people.

but for those of us without any sort of employers pension - public or private sector
and those without 3-6 months savings (the vast majority of the population)
is it really safer to trust the small family next egg (assume under £15k here) to the stock market where the capital could be depleted?

for a basic rate taxpayer who is extremely risk averse and may need to empty savings at short notice (illness, job loss etc) I really cannot see a better option that Cash ISAs

those of you who are investment advisers rarely see clients who are not higher rate taxpayers
so 68% of the adult population stays permanently off your radar

they are the ones facing real poverty in old age, who need advice about planning with what little they have.

Did you hear the chap from Hargreaves Lansdowne on the Today programme this morning talking about Annuities ?

Talkin, I think as of next year all employers have to offer the employees a pension. Employees will actively have to opt out, so hopefully that may help to include a lot of people currently falling under all the radars.

As I see it at the moment, most Cash ISAs are barely beating inflation, so you are not really making any money at all. Depending on the interest rate, you might actually be losing money - although probably not much. So whilst, they are not particularly risky, at the moment they are not a very efficient way of trying to save money.

Well depends how you're pension is currently managed. If you take 'walk in off the street' advice and don't negotiate, then it MAY not warrant it.
But considerations are:

Investment strategy
Age of contract (old style fees make me want to cry! Never leave a pre 2006 pension without a review).
Type of pension - DC, but OccMP or PP (that's a big difference as OccMP cost more to move, but generally have fewer reasons)
What service levels you currently have (you might be paying trail and getting no advice)
How much the fund is worth
Are there existing guarantees
Existing relationship
Time until retirement - a big factor
Changes since Jan 2013 mean there are savings to be had.

My point was more that 2 pensions doesn't in itself reduce risk, investment strategy and asset allocation do that. Staying put for that reason could be a false economy.

Again there are so many variables. In RL a quick look would tell me if it was worth a full review. Sometimes it's a no brainer, sometimes less clear, sometimes not worth the cost.

youcallmequeenbee
there are six million self employed people in the UK : no requirement or entitlement to any pension scheme
and many, many more like me who earn very little through our employments so will not opt in
and many more who work for small employers so will not be auto-enrolled for several more years

and if cash ISAs are not beating inflation, where SHOULD people put their rainy day fund?

Talkin, when I as self-employed I paid into a personal pension. Not sure if that was the right or best thing to do, but its what I did at the time.

I'd seriously consider opting in, specially if your employer will be contributing as well. Doesn't matter if it's not much, it is still better than nothing at all.

I move my rainy day pots around. So Santander has got a good deal at the moment, with 3% on their current account for up to 20k, so if I had 20K, I'd be using that right now. Then when the next better interest rate appeared I'd use that. I have a small tracker fund and each year I use my ISA allowance, but only because it is tax free. The interest earned is so piddling as to make it barely worthwhile.