Private pension on top of the one with work

[AWholeNewWorls]

Hi all,

I wanted to know whether this is common:
To have a private pension separate to the one you pay into with work?

Growing up, I was led to believe this was standard but thinking about it, it could have been because my dad was self employed. DH is a serious saver but doesn't have a pension separate to the one he pays into via work and doesn't think it's necessary. I have one which was essentially set up for me by my dad once I graduated from university and I haven't really bothered to keep it up in the sense that I pay only £50 a month in it and basically forgot about it.

I have one, although it is only a few years old, but I'm not sure it's that common - esp if you look at the number of people who come onto pensions threads to say it's not worth saving!

Mine is to give me flexibility that I don't have in my work pension to retire early, which is DB and linked to the state retirement age. (Well I have some, but the actuarial reduction would be too much).

If you/your (brilliant) Dad have been putting even a small amount in reguarly since university, the potential for growth and compounding is brilliant. You have lots of choices for a good retirement.

Don't know about common, but definitely not that uncommon.

If you have a defined benefit pension with work and have /anticipate long enough service that it will give you enough to live on in retirement, then probably no need.
If you have a defined contribution pension with work but want to make extra contributions (you can contribute up to £40k a year)/ invest in different funds/ have access to lower costs or just want to keep one going from a former employer maybe for diversification benefit, the. Yes, especially as you get tax relief and it can be incredibly useful if you are close to one of the cliff-edges in terms of tax bands especially the nasty one between £100k and £120k of earnings.

Don't know much about self-employment and pensions but there may be/have been limits to contributions making a second pension fund a good idea

And @SweetLathyrus makes a brilliant point about accessing the funds at a different age, especially if any of the funds is linked to state pension age.

It's a good tax planning tool if you are a higher earner. You can reduce your taxable income by paying into one. Only really beneficial if you don't need the cash now as you are then locking it away for later.

How do you define “common”.

I would say yes as I have had several differnt work pensions but my biggest by far is my DC personal pension.

I think working self-employed is more common than ever before so personal pensions will be more common than ever too.

Have you continued to pay in £50 a month ever since you have graduated ? If so then very well done you, as even though that isnt huge amount over 40 years with compounding will be a great amount on retirement (especially if work pension on top).

I have a work pension, with employer-matched contributions at the max level they'll permit - and also a private pension, which I pay into on the side.

The reason: early in my career I worked with people who had been screwed over by their work pension scheme. The former company owner had looted the pension funds, the Government didn't/couldn't make up all the shortfall and the pensions lost a considerable % of their value.

It's stayed with me. I like to put my pension eggs in more than one basket.

Yes I have two. I resent it sometimes as it is costing a lot of money!

Not particularly common, but not unreasonable.

Many work pensions have some contributions from the employer up to a certain level (e.g. they will match your contributions up to 5% of your salary). Effectively ‘free money’ from your employer so daft not to have the pension.

Many then allow you to contribute more than this amount on top but your employer doesn’t match it. If the choice of funds is good, you can access the money from the earliest legal point (usually 10 years before state retirement age) and the charges are low, then no need to have a separate pension.

If the conditions above aren’t met, then by all means have a second private pension, but educate yourself and shop around as fees can be very high.

I have a workplace and private pension. £50 is great! Definitely better than nothing. Keep it up

I have a workplace defined benefit pension, a SIPP and a lifetime ISA. The more the merrier. I don’t want to be working until I’m 70.

I had two final salary work pensions ( from first job working for British Gas and second job as a teacher) as well as a private pension. My private pension was an amalgamation of two pensions, the lump sum from my ex husband when we divorced and also from buying AVCs from my teachers pension. I was advised to join the two funds together by a financial advisor I first consulted a few years before I retired as neither of them were performing very well.

So based on these three pensions together with some savings, I was able to retire at age 60 without waiting for the state pension at age 66. I worked out that I could cover all regular bills from my two work pensions, accessing my savings for holidays, new car and home improvements. I then left the now very healthy private pension to drawdown as and when needed.

Up till now, this has worked well, done loads to the house and had a good standard of living without needing to drawdown. My savings have obviously diminished but have enough left for a few years but my pension fund has really been hit by the cost of living crisis and has reduced a lot - not sure by how much as I’ve not checked, don’t really want to know!

I also have a plan for what to do if/when I use up all this extra pension. At that point I will sell my large bungalow and downsize to a two bed apartment which will release a decent pot of money to spend! My children are aware that they might not inherit much as I hope to have a good time spending all my hard earned money!

My father was a good example to me regarding pension planning, although he died not long after retiring, he left my mum well provided for. Right at the start of my career, he told me to focus on saving into a pension, not to rely on my husband and was very supportive of my decision to carry on working full time after children - quite unusual in 1983!

I have one.

I've worked since I was 16 and want to retire at 60. I've had a final salary pension, for 10 years, and a work place pension all my life. But if I want to retire at 60, with approx 2.5k a month (after tax) I will have to pay into a personal pension for the last 15 years of my working life.

Thanks everyone, your replies have been very helpful. DH doesn't feel it's necessary to have anything external to the work pension because he says you'd be stretching yourself over multiple pots when you could just put everything into one and then (I might be remembering the word wrong) but then 'buy yourself the biggest income' whereas with all the many pots, you would be able to afford less, and so it's better to consolidate. Whereas my dad's approach is to have multiple pots.

I'm 31 and perhaps coming to all this a little late, but we are expecting our first DC and I'm trying to get up to speed on improving how we save (about to spend it all on a deposit). DH is the main earner and saves everything in one account and although he is an excellent saver it makes me nervous that other than his work pension we don't have other savings. I haven't had the best paid jobs and save maybe 10% of what DH puts away and so I am very much trying to improve how much I can save etc.

And yes, I have kept up the £50 since my dad first started it. @Ilovetocrochet that's a lovely and inspiring story! I hope I haven't left it too late to aim for something like that!

@AWholeNewWorls , it's certainly not too late. Have a look at the MSE Pensions Forum, there are some very knowledgable people on there (don't get intimidated by some of the giant pension pots, there are lots who are working with smaller amounts).

Your DH's idea of buying an annuity is one based on a financial market we haven't seen for years. Annuity rates are very low (but who knows, this could change), the other option is 'drawdown' for DC pots. You might be better putting more into your work scheme if the employer matches it, but a separate SIPP could be more flexible.

Your concern about savings is slightly separate - SIPPs and workplace pensions are tax efficient, but they are limited in terms of when you can access them - currently 10 years before State Pension Age - and at your age, that could change several times. So you should have separate savings that are accessable earlier. For example I have a S&S ISA I can access before I reach 57 if I needed to, and which if tax free on the way out if I am still working. Then the SIPP I will put into drawdown at 57 to live on between then and when I decide to take my DB pension. That will be 25% tax free lump sum + my personal tax allawance. You should also aim for easy access cash savings so you don't liquidate more of your investments than you have to in a downturn (like now).

I know that sounds like a lot of money to find in savings, but you have the advantage of starting early, and taking financial education seriously. My savings really didn't begin to build up until I was in my early 40s, (house, child, divorce, 2008 financial crisis,remarriage, larger house etc), and since DD left home.

Hope some of that helps.

Agree, your DHs view is pretty dated. If you choose to, you could at retirement transfer all your pots into one and buy an annuity, so you would end up with the same outcome, albeit with some potential diversification benefit if the pots are invested differently

But, you might do better by keeping separate pots and doing different things with them, eg you don't have to take the 25% tax free lump sum at the same time or even at all if you could take a bigger monthly income if any of your pots are DB. So having more pots within reason gives you flexibility of actions as well as timing (bearing in mind that the first 10 or so years of retirement tend to be bigger spending, especially if you take retirement before state pension age).

I have 4 defined benefit pensions!

You can only contribute £40K if you earn more than £40K. The limit (for tax relief) is 100% of your earnings capped at £40K. To answer the OP, yes many people have them, your Dad was very wise and £50K a month is fine if you started young.

We have reached the age when we would like to retire, (DH has retired) we definitely needed decent private pensions as well as employee pensions, unless you work for the same company for a long time and they have an exceptionally good scheme, you will absolutely need a private pension too.

I can't stress enough how important pension planning is, sounds boringly dull and frugal but we started a pension fund for our DS when he was born 21 years ago and it is now quite good, properly invested etc. We didn't put in huge amounts (the equivalent of CB). I wish pension planning and financial planning was taught in school.

I'm not sure how common it is. Whether it makes sense clearly depends on how generous your work pension scheme is. Mine is quite good (though not as good as it used to be...grrrrr) so I don't have any extra. I've made some extra payments into the work scheme, but not all that much. My husband works part time and is also partly self-employed, and for much of his life the self-employed part has given him a higher income than employment. Therefore relying purely on the work scheme wouldn't really have been enough, so he has invested substantially in a private pension scheme on top of the work one. He's done very well from it. I guess he could have made additional payments into the work one (it's the same as mine, so good but deteriorating) but this gave him more control. There may have been limits too??

@SweetLathyrus An actuarial reduction takes account of your pension being paid over a longer period (based on your life expectancy). The total payout of a smaller pension over extra years should be the same as taking the larger sum for a shorter period.

I’ve got a S&S ISA that I’m going to use as an additional pension pot. I’d like to retire early (don’t we all!)

Though, my workplace pension is the absolute minimum. My workplace won’t pay anymore than the minimum, even if I increase my contributions. So I felt that the S&S ISA was necessary…

I think it used to be recommended to have more than one, that way if a certain investment in one went bad then you’d have another as a back up. But now pension providers invest in diverse funds so there’s less risk. (So my dad tells me!)

I think a lot of people will be sorely disappointed in their wp pension when it's probably too late to do much about it.

I've worked since I was 16 (now 50), and had a wp pension since I was 21. One was also a good final salary pension for a company I was at for 10 years. I've had a financial advisor for the last 8 years and because I want to retire at 60, I've had to take out a private pension as well as my wp ones.

I have a separate private pension in addition to my DB pension, reason being that I plan to retire early at 60 and won't have full service.