Pension advice needed! Only £600 pa final Pension

[L0stinCyberspace]

I'm really desperate for some solid financial advice on my pension. I've never had jobs that had pensions until fairly recently. I'm 50. My pension statement says I'll get a woeful £600 per annum on retirement. What can I do to bolster this? I can save £300 extra a month but is this even going to make ANY difference to my retirement or should I just accept retirement will be very straightened circumstances?

you need to check your statement; does it say if you retire today your pension is 600?
or is that the projected pension at age 65 in 15 years if you keep paying x per paycheck?
next you can speak to your bank and discuss ways to save up a pension pot over the next 15 years upon which you consider only withdrawing the interest and not the balance of the funds.

It's £600 if I continue paying in as I do @fallfallfall

Woeful...

well go to a bank and see what they have to offer...600 per annum is 50 a month? rather strange i guess you can also speak to hr and see if you can top that up to increase the amount? you're being wise to look into other options.

If you too it up you maybe also get more employer contributions so that could make a difference. Also leaving it invested at 55 rather than taking the 25% tax free will help to preserve some of its value. Other than that sadly your only answer is to work more / longer so that you’re drawing on it for less time.

Do you mean that you will only get £600 per annum as a private pension? Because surely your NI payments will give you at least a basic state pension? Sorry if I am being particularly stupid, can we put that down to my various medical conditions, and that at the moment I have Covid please?

Of course saving £300 a month will make a difference

£300 a month X 12 months in a year X 15 years = £54,000. That's before considering employers contributions and interest if you do it via your workplace pension scheme.

Are you talking about a private pension only being worth that or do you mean state pension?

Look at a pensions projections calculator like on Moneyhelper where you can work out the impact of increasing/decreasing pensions contributions.

Remember that anything you put in will have 20% added on, so £300 a month will be £360.

You need to think about your financial position and retirement as a whole, to really know what to do.

Retirement comes down to two things - you want as high an income/pension coming in as possible, and your expenses to be as low as possible (as this means, you need less income).

What is your housing situation? You need to have a plan to have a paid-for house by the time you retire. This may mean working longer than you anticipate.

Other expenses - look them over and aim to reduce. This is smart both for retirement, and now.

Income/pension - work out if you are entitled to any state benefits, and then any other pensions you have, and compare it to your expenses. Do you break even? If not, use a pension calculator and adjust the figures or time frame. What if you worked for an extra 5 years? What if you kept working 2 days/week for another 2 years after that? What if you contributed an extra £300/month now for 20 years? You probably need a combination of all of these.

Adjust the figures until you have a plan that fits, and then you have to put your head down and do it.

Have you got a forecast of your state pension? You should check that you're on track to get the maximum possible. If you have missed any years of NI contributions it might be possible/worth paying extra years.

The estimated annual income of your private pension is a bit misleading nowadays because annuity rates are low and there are alternative ways to take your money, eg drawdown.

You might find this website useful
www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise#

Op what's your housing situation are you a home owner ? If so is your mortgage paid?

Do you work full time? Is your salary likely to increase ?

To boost it, you just save as much as you can afford while continuing to meet your current expenses.

Obviously there's a balancing act between current lifestyle and retirement income so it's worth having a really good review of your current budget and an honest assessment of needs vs wants when deciding how much you can afford to save. Even little things like if you currently buy lunch and a coffee each working day, that could easily be £10 a day, so if you cut that down to once a week, you could free up about £150 pm or close to £2k pa extra in your savings pot. Also look at all the other things you spend money on and think if you can get it cheaper, spend less etc etc.

It really depends, but some people can free up hundreds, if not £1k+ pm just by making quite small changes if they currently have a high discretionary spend.

Any money saved for retirement will be boosted by tax relief, hopefully investment growth, which could be significant and employers contributions if you get those.

Don't forget you'll also have the state pension, which on it's own will cover the basics if you own your house outright. Or if you rent, you'll get help with that if you're on a basic pension.

Those predictions on the pension statement used a pretty pessimistic model. What is the value of your actual pot?

You need to check on the government website whether your NI record will give you full state pension. If not, look at ways to ensure this. You can do this online.
Talk to your work scheme and ask what the maximum percentage is that employers will contribute. If that's 7% but they are only matching the 3% (for example) that you yourself are paying then increase your contributions to the max that they will match. If you're a high rate taxpayer (which I doubt, given that pension amount) look into salary sacrifice contributions instead since this will decrease your tax burden generally.
If there is anything left over of the £300 start putting this into a SIPP such as Vanguard 2040 (or as near to your retirement age as possible).
If you're a property owner then the possibility of downsizing at retirement may release some cash which could be invested. I think current advice is that no more than 4% should be withdrawn each year to top up income, that gives the lump sum time to recover ready for the next year's withdrawal. If downsizing releases £50k then even that gives you an extra couple of grand.

@Catcrisis

Look at a pensions projections calculator like on Moneyhelper where you can work out the impact of increasing/decreasing pensions contributions.

Remember that anything you put in will have 20% added on, so £300 a month will be £360.

Good advice to consider the tax relief, but it’s 20% of the gross sum, not the net sum - so the equivalence of adding 25%. So £300 contribution gives you even more: £375.

Of course it’s worth saving £300 a month! (£375)

If you did that for 15 years and the investment only kept pace with inflation, would you look at your extra £375 a month from age 65 to 80 and think, “nah, I don’t need that?”!

Something doesn’t seem to add up. Are you sure you have a final salary (most are career average now - but still) pension? How long have you been a member? Plus another 15 years only gives you £600? Your current annual salary would have to be less than £2k.
You don’t go to a bank for pension advice.

@ForensicAccountant OP hasn’t said it’s FS. It sounds like a DC scheme where the statement includes a projection of what an annuity could provide based on the expected contributions.

What type of pension scheme have you got? Who is the pension provider? This will help answer any queries you may have about paying additional contributions.

@Cocomarine @Polkadotties yes it's a DC scheme. My salary is around £23 k. £600 PA is the projected amount should I continue adding to it, which is crap, I know. Only 6 years' contributions and then the state pension on top of that. I've read suggested that down the line, the state pension could be reduced if pressure happens to the economy, which has me really concerned.

Be careful that any additional money put in now, doesn’t reduce any housing benefits you might get if you rent in retirement. It’s such a short time to save now that it might not be worthwhile. Obviously it is if you’ve got years and years to build up your pension,

Presumably that’s a contribution rate of 5% from you, 3% from employer, and earnings over £6240? Monthly contribution £112 ish.

The projection on annual statement is generally seen as quite cautious, based on current annuity rates. Annuities have their place, but are often now not seen as the best return for all.

6 years already + 15 years future = 21 years.
21 years x 12 months x £112 = £28224

A commonly used ballpark figure for drawdown is 4%. Meaning, if you take 4% out of that pot every year, but also it grows by 4% through investment, you don’t actually use up you capital. Your £600 is more like 2%.

So yes, we do need to be cautious and not over optimistic, but you need to understand that you are being cautious.

That’s also assuming no career pay progression (above inflation pay rises) - is that likely?

I presume the £600 is based on you converting the fund into an annuity. There are alternatives such as draw down, where you can simply draw off the fund until it runs out, which may be better as most people need more money at the start of retirement when they're still active and wanting to do things and less as they grow older and start with health issues etc and don't need so much money so can survive off state pension.

[quote L0stinCyberspace]**@Cocomarine* @Polkadotties* yes it's a DC scheme. My salary is around £23 k. £600 PA is the projected amount should I continue adding to it, which is crap, I know. Only 6 years' contributions and then the state pension on top of that. I've read suggested that down the line, the state pension could be reduced if pressure happens to the economy, which has me really concerned.[/quote]
You will always read that the state pension may be reduced.
Genuinely, analysts and think tanks have to consider all options.

But journalists also want traffic.

I can’t tell you that it won’t happen - but I can tell you that reporting of it makes it sound far more likely than it is.

In 2018, 18% of the GB population were over 65 (ONS).

That’s a massive part of the electorate - especially as they tend to be more active voters.

Over 65s (or 68s as current pension is for some now) are not a minority group. They also have public opinion more on their side more than say, the unemployed or disabled.

We already have a system where there are benefits for those without enough state pension (pension credit). I’m not saying it’s enough, and some pensioners are in a very difficult position.

There will always be a floor to which the state pension will go before benefits are needed - which means cutting pension does nothing to help, financially.

I truly believe that’s means testing pensions would come in long before slashing state pension for all, and losing your state pension based on your private pension would be like the UC / wages rules - not £ for £.

These changes do not happen overnight. At 50, you’re only 7 years from accessing your private pension. If all the government adviser chat is that your private pension will impact your state pension, withdraw 25% tax free at 57 and put a lump against your mortgage or pre-pay rent. You will not be caught with zero indication that a change is coming.

Just to be clear: I’m not an IFA and I’m not saying to can just take 25%. You need to be very careful of the annual allowance being triggered… the reason I mention it, is I’m trying to show that retirement planning is about frequently researching and evaluating the right option for you, and that you can change those optima depending on the latest proposed legislation. There is generally some notice.

For example, if rules changed and at 67 my state pension would be reduced £ for £ vs private pension, I might decide to instead stop working at 65 and (1) blow through all my private pension and (2) buy a newer car, get house repairs in tip too condition (3) take a great holiday (4) stash some cash in a biscuit tin 😉

I don’t think it’s helpful to decide not to save now, vs a complete unknown of what might happen in the future.

Can you increase your contribution to work? Will they match any of it?

You might get some background or general advice from www.moneyhelper.org.uk/en/pensions-and-retirement

Yes, it's worth adding more money. Be careful not to put too much in, as you cant access it again if you run short - so make sure you have some shorter term savings before putting all your disposable cash into a pension.