Does anyone else worry about their future pension?

[NatMoz]

I have 2 pensions. One from my former employer with Legal & General which has a total pot of roughly £21k. Based on predictions this will equate to £363 a year by retirement age . Bearing in mind I contributed for almost 8 years it just seems so low.

My current one is faring a bit better. It's a Civil Service one and over 3 years amounts to £2k (annual statement was from March this year so may be a little more than that now).

Even so, as it stands it all equates to about £200pm pension.

Am I being dumb here? Is there any way I can make my Legal & General pension work harder? You can choose which investment to opt for but they are just names on a page to me.

I feel like pensions are such a minefield. I have no clue what I'm doing. Also don't think there's any point relying on state pension. I'm 32 and have been working since 21.

Does anyone else feel like this? What do you do? I'm considering a stocks and shares ISA such as Vanguard?

Will the Civil Service one pay out 2k a year at retirement or is there 2k in the pot?

If it’s paying that amount yearly, that’s a good start and by the time you retire it will be worth a lot more.

I’m paying into a Vanguard S&S ISA to save extra money for retirement on top of my work pension and it was easy to set up.

Answering, as I have a pensions question too, but prob should start my own thread, so though I think it will only need a quick answer.

I dont know the answer to the above.
I am 60, and a small private pension matured recently. And yes, it was a small amount.
I have a works one from the 80s and again, better than nothing, but a small amount in my opinion.
Should DH and I have done something differetly? No idea. I too struggle with the whole pensions thing.

I am today trying to work out my state pension. Apparently you need 35 years of NI contributions. DH has 42! Do we get a rebate? No idea. Should he continue with his NI contributions? No idea.

Mine on the other hand, I only have 31 years, so my forecast is something like £142 per week instead of £175, so I presume I should catch up some NI contributions?
We would ask our accountant, but will have to wait, as due to covid, and their staff shortages, they are behind on working on our accounts, so dont want to disturb them further at this point.

I am interested as what your replies will be.

fwiw, I got a government free booklet about pensions a while ago, and couldnt understand it past about page 4 of a 32 page booklet.
I also used to work in a high street financial institution.
Pensions, in my opinion, are far too difficult to understand for the average person in the street.

@FrownedUpon

Will the Civil Service one pay out 2k a year at retirement or is there 2k in the pot?

If it’s paying that amount yearly, that’s a good start and by the time you retire it will be worth a lot more.

I’m paying into a Vanguard S&S ISA to save extra money for retirement on top of my work pension and it was easy to set up.

It's £2k per year, it increases year on year based on salary. For example if I earnt £20k, 2.32% or £464 is added per year so the following year would be £2,464 going up each year until I retire.

Someone has also mentioned a lifetime ISA so I'm not sure if this is more worthwhile over a S&S. Again I do not plan to take it out but I think with those the government contribution ends at 50?

@lightand

Answering, as I have a pensions question too, but prob should start my own thread, so though I think it will only need a quick answer.

I dont know the answer to the above.
I am 60, and a small private pension matured recently. And yes, it was a small amount.
I have a works one from the 80s and again, better than nothing, but a small amount in my opinion.
Should DH and I have done something differetly? No idea. I too struggle with the whole pensions thing.

I am today trying to work out my state pension. Apparently you need 35 years of NI contributions. DH has 42! Do we get a rebate? No idea. Should he continue with his NI contributions? No idea.

Mine on the other hand, I only have 31 years, so my forecast is something like £142 per week instead of £175, so I presume I should catch up some NI contributions?
We would ask our accountant, but will have to wait, as due to covid, and their staff shortages, they are behind on working on our accounts, so dont want to disturb them further at this point.

I am interested as what your replies will be.

fwiw, I got a government free booklet about pensions a while ago, and couldnt understand it past about page 4 of a 32 page booklet.
I also used to work in a high street financial institution.
Pensions, in my opinion, are far too difficult to understand for the average person in the street.

I suppose as you're 60 you still have 7 or 8 years left to make NI contributions so by that time you will have met the 35 year threshold.

All I understand about state pensions (as my dad completed his form last week) is that your weekly amount will be dependent on when you decide to retire. My dad retired at 64 I think and is £7 a week short of the full amount. What he is going to do is pay £700 (figure provided by DWP) and this will mean that until he dies basically he will get the full weekly amount. The £700 will break even in 2 years time so as long as he lives for 2 years he will benefit.

No idea about the rebate question as my dad didn't fall into that category and my mum retired at 57 so paid an even larger sum to top up (£2k or something).

Thanks for answering my question. Sorry I couldnt help with yours more fully.

@lightand Any years in which you have been paid Child Benefit also count as years that you have contributed (to protect the pensions of a parent taking time from work to care for children). So, if you have a child/children, you will have the maximum needed contribution.

You definitely don’t get a rebate for NI contributions beyond the 35 years & you still have to pay NI if you’re working. NI goes towards things other than a pension.

Civil service pensions are pretty good. If you keep working there & contributing to the pension, you should have a decent amount. You may also be able to contribute extra to your work pension. Mine is a local government pension and I can buy APC’s or AVC’s to put extra in the pot. May be worth doing as it comes out before tax.

you still have to pay NI if you’re working

Over your state pension age, NI is no longer payable.

The state pension can be deferred beyond state pension age, the deferred amount can either be taken as a lump sum or as an uplift in the weekly rate

The taxation situation is a tad complicated so worth getting straight to avoid avoidable taxes.

Set up a gov.uk account and check your NI record.
I’m 55, not working and am a few years short of full state pension, I successfully claimed for 4 years when I was with DH in Germany and he got the child benefit not me.
I’m also going to claim NI credits from my DD as I take care of my Grandson while she works so can claim every year until he’s 12 .
You can set up a SIPP and pay say £100 monthly, that gets £25 of tax relief added and will really mount up over the next 35 years, almost £200k.
You would have close to £1 million after 35 years of saving £500 monthly so if an employer contributes half it would cost you £200 ( + tax relief of £50).

Are you planning to stay in the Civil Service until retirement? There’s a pension calculator you can do to play around with how much your pension will be worth per year if you stay in the civil service, and 30 odd years of working there should give you around 20k of a yearly pension plus a decent lump sum.

Depending on your age you could consider putting the L&g pension into a riskier fund (so potential for higher growth) if it’s not but you should need to think about derisking as you approach retirement.

Can you make any additional contributions to your work pension? Depending on your tax situation pension contributions are usually more tax efficient than ISAs as you’re not paying tax on the money you put into pension while ISA is paid out of post tax income.

I started a pension 2 years after I started working.
Every year since, I have increased my pension contribution by the same % as my pay rise.
Meant I have always received 100% of my annual increase and the taxman doesn't!
Result means that I have a healthy pot without really missing the money (never had it so don't miss it)

I worry enormously about my pension. I’m 35 and have just started one 😳

It’s down 3.66% currently, so I’m worse off than if I’d left it in the bank. I know it will improve, and any pension is better than nothing. That’s what I tell myself anyway…!

Assuming I retire at 70, I’ve got 35 years to catch up. Would be nice if I’d been financially savvy when I started working at 14 and had put some away, or at any point between then and now, but hey ho, I didn’t. Pointless worrying about what went before, just got to hope I can bank enough going forwards to not be broke or working until the day I die.

Hopefully my tale of being an idiot woe has cheered everyone else up, as yours doesn’t look as dire as mine!

@Redkatagain

I started a pension 2 years after I started working. Every year since, I have increased my pension contribution by the same % as my pay rise. Meant I have always received 100% of my annual increase and the taxman doesn't! Result means that I have a healthy pot without really missing the money (never had it so don't miss it)

My current pension is defined benefit and is based on 2.32% of my salary each year so that isn't an option. A set amount (5.45% I think) leaves my salary each month. If I work overtime, the additional amount also DOES NOT go towards the pension.

I cannot increase my contributions into my defined benefit pot, the 5.45% is constant and cannot be altered. Instead the other option is to set up an entirely new pension fund to run alongside it which for my workplace is Legal & General. Again I already have a separate pension with L&G so don't want a further one!!! The only benefit I can see is the tax relief but I would also get that with a lifetime ISA if I went down that route.

I'm trying to figure out how to make my pension work hardest based on the restrictions to my existing pension and the old L&G one I have from a previous employer. At that point I will consider increasing contributions to the new investment scheme as my salary increases but I need guidance before I reach that stage as I can't just pop it in an ISA at 0.1%!!!!

@MuchTooTired

I worry enormously about my pension. I’m 35 and have just started one 😳

It’s down 3.66% currently, so I’m worse off than if I’d left it in the bank. I know it will improve, and any pension is better than nothing. That’s what I tell myself anyway…!

Assuming I retire at 70, I’ve got 35 years to catch up. Would be nice if I’d been financially savvy when I started working at 14 and had put some away, or at any point between then and now, but hey ho, I didn’t. Pointless worrying about what went before, just got to hope I can bank enough going forwards to not be broke or working until the day I die.

Hopefully my tale of being an idiot woe has cheered everyone else up, as yours doesn’t look as dire as mine!

I wouldn't worry about the short term drop, it happens but is all about the long term investment not the quick wins.

I definitely don't feel cheery! I appreciate sometimes a pension amount is the difference between food on the table or heating in the winter for some people so acknowledge there are priorities NOW rather than 30 years time or whatever.

I know some employers put a contribution alongside yours and even if not it's free tax relief so it's still better putting away something now than spending it on Ben & Jerry's down the corner shop!!!

It is worth being clear how good a public sector defined benefit pension is compared to a defined contribution private sector pension.

That civil service pension is accruing a guaranteed income for life at a rate of 1/43 of salary per year. So if you earn £43k you are adding £1k to your yearly pension each year. If you do 20 years that gives you a pension of £20k each year for life and it will be uprated for inflation too. It’s not linked to the StockMarket and it will never run out because you don’t have a pension pot to draw down which can run out. That £20k pension would need a private pension pot of over £500k to enable you to draw down £20k a year for life or to buy an annuity which would give you £20k. People don’t realise just how expensive buying pension income is in terms of a pension pot ….which is what private pensions are building up.

Given experts suggest £24k can give a really comfortable income and state pension can add £9k then just 20 years in the public sector on a decent salary can give that level….and if you earn less, a few more years can give it too.

The downside of these pensions is the flexibility over payments. However it is the fairly hefty contributions of employees but particularly the excess of over 20% of salary paid in by employers that people forget they are benefitting from. Rarely if ever will the private sector make that level of contribution to a pension.

Have a private pensions running alongside if you want, but don’t exit the public sector pension. And to those worried about retirement as they get to 40s and 50s, consider if you can change job and manage 10-15 years in the public sector…it could make a massive difference to your overall pension, unless you’re paying into a pension pot and adding about £30k per year.

Sorry to come in again, but am I right in thinking that a defined benefit[which I have found out today, my work pension[which has matured] is, means that that sum cannot alter after someone hits 60? So if stock market falls or crashes, that has no difference to the set figure. Ever?

{Whereas presumably, a defined contribution one, is not the same at all, and if stock market falls, so does the ultimate value of it?]

Your Civil Service pension is amazing, as indeed are all defined benefit pensions. Stay there as long as you can!

Only problem being with a defined benefit, is the stock market crashes, and the employer cant pay up?

@NatMoz

I have 2 pensions. One from my former employer with Legal & General which has a total pot of roughly £21k. Based on predictions this will equate to £363 a year by retirement age . Bearing in mind I contributed for almost 8 years it just seems so low.

My current one is faring a bit better. It's a Civil Service one and over 3 years amounts to £2k (annual statement was from March this year so may be a little more than that now).

Even so, as it stands it all equates to about £200pm pension.

Am I being dumb here? Is there any way I can make my Legal & General pension work harder? You can choose which investment to opt for but they are just names on a page to me.

I feel like pensions are such a minefield. I have no clue what I'm doing. Also don't think there's any point relying on state pension. I'm 32 and have been working since 21.

Does anyone else feel like this? What do you do? I'm considering a stocks and shares ISA such as Vanguard?

You are 32 and in a really good CS pension scheme.

As you say on £20 K per year your pension grows by nearly £500 per year. So in 28 years (60) you would have a pension of c£14 k + £2k already earned =c£16k plus each yours updating by CPI. When you add on the state pension (age 68) currently c£9.5 k (=c £25.5k) your combined pension would therefore be more than your £20k salary.

Have you asked if you can transfer your L&G pension into the CS scheme.

With regard to building additional pension, you could take out a stocks and shares LISA and invest in vanguard or similar shares. Have a look at FIRE (Financial Independence Retire Early) threads on MSE forum for more ideas.

Defined benefit is exactly that…defined.

The money you pay in doesn’t get invested in stock market. Gov takes it into general tax revenue and effectively it funds current pensions. Your pension will be funded through the tax revenue of government when you are retired.

Private sector pensions which build up pots can increase or decline in value with the StockMarket. Some people reach retirement and then buy an annuity..lethargy is, giving up the pot to pay for a yearly income for life. This might or might not be index linked for inflation. It can cost £30k to get a £1k annuity, less people do this these days but use ‘drawn down’ which means the fund stays invested on the StockMarket in the hope if growth and people draw down a sum per year. This is cheaper as nothing is guaranteed into the future. The risk is people draw down too much and it runs out, or stock markets crash and the value available declines. But usually people hold their pot in much less risky assets at that stage. Typically people seem to think you can draw down about 4% of your pot at retirement age. However people recommend different figures.

Stick with your defined benefit pension. Over time, they might become less generous going forward, but what has already been accrued will be protected. Even if people only have a few years in the public sector at some point over their careers and accrue a few thousand, they will usually find it takes 3-5 years to build-up a pot that will provide the equivalent pension for every year they had in the public sector.

Younger people like the flexibility involved in private pensions and being able to reduce their payments when they feel they need to. Some find what has to be paid into the public sector pension too much if too inflexible…but this is usually a short sighted view and within very few years, they are glad they did and regret it if the6 pull out if the public sector pension and say they didn’t realise how good it was.

@lightand

Answering, as I have a pensions question too, but prob should start my own thread, so though I think it will only need a quick answer.

I dont know the answer to the above.
I am 60, and a small private pension matured recently. And yes, it was a small amount.
I have a works one from the 80s and again, better than nothing, but a small amount in my opinion.
Should DH and I have done something differetly? No idea. I too struggle with the whole pensions thing.

I am today trying to work out my state pension. Apparently you need 35 years of NI contributions. DH has 42! Do we get a rebate? No idea. Should he continue with his NI contributions? No idea.

Mine on the other hand, I only have 31 years, so my forecast is something like £142 per week instead of £175, so I presume I should catch up some NI contributions?
We would ask our accountant, but will have to wait, as due to covid, and their staff shortages, they are behind on working on our accounts, so dont want to disturb them further at this point.

I am interested as what your replies will be.

fwiw, I got a government free booklet about pensions a while ago, and couldnt understand it past about page 4 of a 32 page booklet.
I also used to work in a high street financial institution.
Pensions, in my opinion, are far too difficult to understand for the average person in the street.

The new state pension is actually very simple, if you have a NIC record before 6th April 2016 they calculate your pension using 2 amounts, the amount you would have got under the old scheme basic plus any additional state pensions you would have accrued - graduated pension benefit, serps, second pension, with the amount you would have got if the new flat rate pension had been in place all your working life and you get the higher of the 2 its called your starting amount

if your starting amount is higher than the new basic any NICs/Credits you accrue after 6th April 2016 do not increase your pension, if its lower then your pension increases through NICs/Credits until you hit the basic or reach pension age which ever comes first.

Anyone without a NIC/Credit history before 6th April 2016 will only ever get the basic no matter how many years they work

I get a lot higher than the basic £179.60 plus I get a private pension for the years I opted out however I got nothing for the 5 years (4 full tax years) I worked between 2016 and this year when I reached pension age.

If you retire now, having never saved and pissed your money up the wall, handouts like pension credit will ensure you will be comparatively better off than someone who worked and saved in a modest occupational pension. You will get your rent and council tax paid and a passport to all kinds of other subs and handouts. People with modest occupational pensions are stuffed

@simitra

If you retire now, having never saved and pissed your money up the wall, handouts like pension credit will ensure you will be comparatively better off than someone who worked and saved in a modest occupational pension. You will get your rent and council tax paid and a passport to all kinds of other subs and handouts. People with modest occupational pensions are stuffed

But when you take out a pension its made clear that it would affect any income based benefits, when I sorted out my private pension in March this year I dealt with 3 companies, the original company who held my pension pot, the company who gave me quotes based on my pot and other factors and the pension provider I ended up going with, all of them had the same information on their paperwork that my pension would affect any income based benefits I applied for. I don't understand why people are so surprised/angry that this is the case or feel that they have somehow lost out.

I am very lucky that I have a good state pension (more than the basic) I am lucky that I have a private pension, but part of that good luck is that I have been fortunate in being able to work (still do) and pay into both, I am certainly not resentful of the fact that it means I cant get income based state handouts, why would i want them or feel I should be entitled to them?, BUT it is the case that many people retired now or coming up to retirement age have a small income, and its NOT always because they have pissed it up against the wall or haven't saved, go on some of the 50s women/waspi/pension sites on FB, there are cases of genuine hardship, women who have medical issues meaning they cant work, people who spent their years in a caring rule not able to work, these people get/will get a very low pension and yes they do need pension credit to survive, so what if they get other things I have to pay for, that's why I worked for the best part of 51 years before I got my pension, that's why I still work and that's why I paid into a private pension so I could pay for these things myself.

Stuffed? seriously?