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?

@NatMoz what are your pensions invested in? You could look into low fee index funds that track various stock markets. Make sure you look at the fees as higher fees substantially eat into your returns over time.

You are quite young, so you could take on a bit more risk. Target-dated funds are good because they change your asset allocation as you get closer to retirement age. You are right to think that you want your money to work harder for you. If you have been contributing for 8 years and only have £21k, I would definitely look at what you are invested in and the fees. If you invest via a SIPP, there is a government contribution there too.

Also, ask your employer if they take your pension via salary sacrifice. This can be very beneficial for you if they do, as you pay less NI, have a higher take home pay and therefore have more income to invest.

To OP: in your pension statement from L&G it should tell you how much you are forecast to have at retirement. The £300 a year is what you’d get if you buy an annuity. You don’t need to buy an annuity as you have a defined benefit pension plus a state pension. You can invest your pension in a global equities tracker and drawdown 4% a year later in life, let’s say you end up with £30,000, that could generate £1200 per year of income (not touching the capital).

If you go onto the L&G website it will show you all the funds available within your pension, and how they’ve done over the last 5 years. You could move your money into something with a higher risk profile as you have a long time to go until retirement, and then look at your options in another 15 years time as you get within 5 years of drawing money out.

[quote lightand]**@OldSu *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*

Thank you for that. Very embarrassed to admit that sadly, I didnt understand it, even after reading it 3 times. Not your fault, but mine!

DH and I are self employed. DH did most of the accounts. I assume he only ever paid in basic amounts. DH and I both now 60. He has paid NI for over 40 years. Mine has 31 years[fully paid until 2008, and then after that either not paid or partly paid, not sure which]. We dont have serps. I dont know what graduated pension benefit is. A small private pension, we cashed out when we could. I have a small work pension[I thought it was defined benefit, it says it is, but further into the blurb it says it is a mixture of defined benefit and defined contribution].

When DH did the gov pension forecast it says £179.60. Mine says something like £142 currently. I need to pay in I think 4 more years worth to get £179.60.

I presume there is no way him and I can get more than £179.60? I dont understand how people can.

If @OldSu is not around on this thread now, I would be happy for someone else to answer instead.[/quote]
Happy to help @lightand.

For those with a NIC record before 6th April 2016, they look at what you could have got under the old scheme and what you would have got if the new scheme had always been in place and you get the higher of the two, its called your starting amount.

So if your starting amount is say £196 which is what you would have got under the old scheme - basic plus additional state pension that's what you get, its called your protected payment, however your pension is then capped and any NICs/credits you accrue after 6th April 2016 will not increase your pension.

If your starting amount is lower say £160 then any NICs/Credits you accrue increases your pension until you either hit the basic amount or reach pension age which ever is sooner.

This explains it better. www.gov.uk/new-state-pension/how-its-calculated

@lightand
Graduated Retirement Benefit (GRB) GRB was an early form of earnings-related pension, intended to top-up basic pension. It is based on graduated contributions paid on earnings between 1961 and 1975 and is paid to those people who paid into the graduated pension scheme. The entitlement is based on each unit of graduated contributions paid.

@bowlingalleyblues

To OP: in your pension statement from L&G it should tell you how much you are forecast to have at retirement. The £300 a year is what you’d get if you buy an annuity. You don’t need to buy an annuity as you have a defined benefit pension plus a state pension. You can invest your pension in a global equities tracker and drawdown 4% a year later in life, let’s say you end up with £30,000, that could generate £1200 per year of income (not touching the capital).

If you go onto the L&G website it will show you all the funds available within your pension, and how they’ve done over the last 5 years. You could move your money into something with a higher risk profile as you have a long time to go until retirement, and then look at your options in another 15 years time as you get within 5 years of drawing money out.

This is really useful information and is very good to know. I like the sound of £1200 over £400!! Yes I have been thinking of changing it to more risky investments and your post has given me insight into how to achieve this. Thank you

[quote Hermione101]@NatMoz what are your pensions invested in? You could look into low fee index funds that track various stock markets. Make sure you look at the fees as higher fees substantially eat into your returns over time.

You are quite young, so you could take on a bit more risk. Target-dated funds are good because they change your asset allocation as you get closer to retirement age. You are right to think that you want your money to work harder for you. If you have been contributing for 8 years and only have £21k, I would definitely look at what you are invested in and the fees. If you invest via a SIPP, there is a government contribution there too.

Also, ask your employer if they take your pension via salary sacrifice. This can be very beneficial for you if they do, as you pay less NI, have a higher take home pay and therefore have more income to invest.[/quote]
I definitely need to check with the L&G one. Thank you for your input.

I think a LISA may be on the cards. I don't know an awful lot about SIPP.

I just realised I've drip fed a bit (sorry) as I also have a flat I rent out. It has however got Grenfell tower cladding on it so I actually pay £100pm out of my own pocket once rental income is considered and mortgage/inflated service charge to cover cladding and insurance is taken away. The cladding is being removed as we speak so I'm hoping I don't have to pay for cladding costs for too many years. Mortgage is £40k.

The flat I plan to use for retirement as additional income too. I'm pretty sure if I sell it I'll have to pay nightmareish capital gains tax as it's gone up in value by £130k (even with cladding chaos).

I currently have a pot of £42k at 35. The current estimate on my works pension planner is that this would be income of circa £4k a year at average return. I've never contributed at all and have worked there 16 years. I've only recently started thinking of pensions and I really regret now not contributing extra but no point in crying over spilt milk.

My future pension plans involve moving to the Civil Service, probably looking at jobs in the £30-£40k bracket. At the moment my job is extremely flexible and my youngest dc is 4 so it works really well. However I aim to try and move over by 40 ish, giving me a solid 20 years in the CS.

For those much more knowledgable than me...am I right in thinking that a CS pension on a £30k salary would accrue at £700ish a year? Meaning that after 20 years I'd be looking at an annual pension of around £14k?

I'm really hoping this is the case and I've not massively misunderstood!

@PhillMcCann

I currently have a pot of £42k at 35. The current estimate on my works pension planner is that this would be income of circa £4k a year at average return. I've never contributed at all and have worked there 16 years. I've only recently started thinking of pensions and I really regret now not contributing extra but no point in crying over spilt milk.

My future pension plans involve moving to the Civil Service, probably looking at jobs in the £30-£40k bracket. At the moment my job is extremely flexible and my youngest dc is 4 so it works really well. However I aim to try and move over by 40 ish, giving me a solid 20 years in the CS.

For those much more knowledgable than me...am I right in thinking that a CS pension on a £30k salary would accrue at £700ish a year? Meaning that after 20 years I'd be looking at an annual pension of around £14k?

I'm really hoping this is the case and I've not massively misunderstood!

Roughly yes. 2.32% of £30k is £696 x 20 = £13,920. That's assuming no payrises in all that time. Not relevant to this thread but the maternity leave is blooming good too. I'm going off in December with 9 months full pay practically (this includes 3 months annual leave carried forward, banked leave, accrued leave and privilege days!).

I may not earn as much as my private sector counterparts but the benefits and work flexibility is fantastic.

Thanks @NatMoz that's really good to know. Although I'll never need to take advantage of the mat leave, I have 3 dc so have done my bit for the population already and I don't intend doing any more 😂

A job in the public sector is looking appealing based on the pension alone!
Does anyone know what sort of pension arrangements apply to those working in schools in admin type roles eg school business manager? Is it any good?

They usually fall into the LGPS.

@WombatChocolate

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 quote your whole post back at you!

But, I too am a bit clueless re pensions.

I'm NHS, 58, but PT, and only 15 years of PT contributions; however I've been told it's worth my while paying in additional cash (which we can afford) to boost my final NHS pension. We are hoping to pack in work in just 2 years' time.

Should I still do that?

Thanks.

@Fordian Yes, put in as much are you are permitted. You are buying extra years!

Yes but only because there are some people at my work who are still entitled to final salary pensions so they’re all hanging around for that (nothing like working for people who no longer care about their jobs). As a newer member of staff I don’t get the final salary pension but despite having paid into it for 10 years I worry how much I will actually get when I retire or I will be forced to continue working long after retirement age to survive.

@Bumtum126

They usually fall into the LGPS.

Thanks - does anyone know broadly how LGPS works (for new entrants)?

This will give you some idea lgpsmember.org/.

It's a good scheme , with it you might have a fighting chance of retiring before SPA .

I'm civil service (senior manager) so no I'm not worried at all, it's plenty to live on and very generous compared to other pensions. I have other pensions from my 20s, nothing huge as that was the time I was mostly part time and a lower earner but it all adds up.

As it stands I'm planning on staying in the civil service and likely to work for another 30 years, I don't have any plans to retire early (at this point in my life at least) and DH and I own a house worth a decent amount. He also has a very good pension so the plan is to downsize. Even if that doesn't work I'm comfortable my pension will sustain me and half our house would buy me a property.

So, what I should have added, I wouldn't panic too much if you're early 30s and planning on staying in the public sector. If you can I'd think about property to complement that and start thinking about living arrangements for when you're retired.

@NatMoz

Sorry guys to confuse. I used £20k as an example for easy maths but earn £31k at the moment. Saying that I am pregnant and when I return to work I plan to work compressed part time for a couple of years 0.75 hours rather than 1.0 so there will be a reduction from around £715 per year into final pension to £535 but I can't do much about that.

There is something called 'added pension' which the civil service offers but I honestly cannot understand it one bit. Have read threads on money saving expert but just feel more confused than ever so probably need to speak to a specialist at a pension know about.

When I went on a Career break then went PT after children I paid added pension to try and make up for it - only £50 per month but it all helps. There are added pension calulators on the CS Pensions website to help you work it out. You can either pay monthly direct from salary but you can only start that from 1 April each year so you need to plan it or pay a lump sum at any point. Civil Service Pensions did some mid life MOT Pension Awareness Week webinars last month that were really useful - the recordings should be on their website somewhere.

@lightand - as you are self employed you can pay (the much cheaper) Class 2 National Insurance to add the missing years to your NI record to reach the required 35 years to qualify for the full new state pension of £179.60 per week.

Go here: www.gov.uk/check-state-pension to check your state pension so far. It will also tell you the number of missing years.

The fact that you are (and have been) self employed means the amount you need to pay via Class 2 contributions to reach the full state pension is a LOT less than if you were employed.

Definitely check how many years are missing, and bear in mind how many years you can still contribute as a self employed person (before buying any missing years) as you might well reach the full qualifying number of years by your state pension age just by continuing to pay Class 2 NI as a self employed person until then.

Class 2 NI is around £150 per year (to buy pension years) compared to Class 3 which costs employed people around £700+ per year to buy missing years.

Hope that all makes sense.

thisgarden excellent and v clear.
I’m assuming if you have missing years of paying NI (whether employed or self -emp) your state pension will simply be lower on some kind of proportional basis ? But lower each and every month you are in receipt of it.

Remember you can only buy missing previous 6 years of NI and then the window closes. But lots of people have gaps and can still achieve 35 years.
Def look at your record and then you can work out how long to go and if you might want to buy some missing years.

I find pensions all very confusing

I'm 41

I worked in the public sector for 18 years (same employer) and I think the pension contributions were something like 21%

before that I spent 2 years in Asda, and 18 months in the CS. I can vaguely recall pensions being mentioned whilst there but being young, I didn't pay much attention to whether I had one or not.

Now I'm in the third sector (covid meant I left last job) and pension contributions are 11% I think so less.

How do I find out my total pension from all these jobs? I did try to look at some pension websites and it seems I wasn't at Asda or CS long enough to get a pension from them?

Do I get contacted at a certain age to be told 'do you want your pension' or do I need to contact them myself? What if I can't remember how to access my pension?