Pension savings for n

[Hypercatalectic]

I'm doing some New Year number crunching and did a rough online calculator estimate for how much annual income I could get with my pension savings. I am 51 and have estimated that my total private pension pot at state retirement age will be around £500k. I was pretty pleased with that, until I found out that it will give me an annual income of around £32k.

I have been saving consistently into a private pension since I was 24. I've always taken my employer's pension offer, and put portions of bonuses in. I'm not a top top earner but I earn ok.

I'm actually shocked at how modest the income from a half a million £ pot will yield. So many people people I know won't have have even this, they started later, opted out of employer schemes etc. I guess I thought I had built up a pretty healthy pot, putting money away every month etc., but feeling a bit deflated about it now...

A £1m pension pot will apparently give an income around £45k!

She might mean take the lump sum and a reduced pension that DB schemes generally offer?

A £300k lump sum would mean a pension value of £1.2m which is pretty unusual.

I read it as that combined with her estimated £250k saving by retirement the lump sum would take them to £300k, so a £50k lump sum. But yes, a £300k lump sum implies a large pension and is above the tax free amount anyway. There are however plenty of public sector employees who will have notional pots in excess of £1.2m!

That makes more sense. Not very clear though. Especially using the term "cash in" instead of "take my tax free lump sum".

I know there are people with pots of over £1.2m and public sector notional pots with that sort of value, but it's still pretty unusual. Bearing in mind the average pension savings of people is something like £50k.

Oh yes, not clear at all. I agree the average pension savings number is scarily low, but I think it’s the pensions savings at retirement number that’s probably more relevant.

ONS data shows that that average is about £223k for men which (combined with a full state pension) just about gets you to the national living wage for a full time employee. So not a retirement of luxury! More worrying is that for women the average is about a third less - which probably, with state pension, gets you just above the level for pension credit and all the benefits that follow if you’re entitled to that.

It's truly dire. I'd quite like to see if the numbers have improved since auto enrolment. I get the impression they won't have done. Probably gone down actually.

I wonder if the average is the average of everyone with pension savings, or the average of everyone at that age? If the latter, auto enrolment would hopefully bring it up as there will be more people with at least something who would have had nothing. But if it's the former, then auto enrolment would bring the figures down I think.

Yes most actuaries state is safe to take 4% from your pot annually so £20k . Having said that OP says she's taking it at State retirement age so it's got a while to grow and not as long to last at 67 than if she retired in her 50's . I also think not everyone has an equal spend through retirement. Some people take more in the first 10yrs to enjoy travel / hobbies etc when healthy and as for care homes I listened to a podcast saying only 5% of people actually go into a care home , most have a degree of care at home .

I assumed the £500k was the estimate for the sum at age 67.

She said: I am 51 and have estimated that my total private pension pot at state retirement age will be around £500k.

So, that is after the assumed growth.

Yes that is what I originally said, @Negroany, and that's where that online tool was really helpful, pulling all my pension pots together (I have 4, but no final salary / DB) and working out the growth based on my risk tolerance. I'll hopefully retire a bit before 67, and the tool showed the impact of that as well, before the SP kicks in.

What tool did you use that suggested £32k I wouldn’t mind a look as that’s generally unreasonably generous so I’m interested in their assumptions.

(I actually think they’re including state pension already).

Agree that’s one of the best tools I’ve seen for retirement planning! Really useful.

Well it would be if its figures weren’t overly optimistic. That’s way more than my standard life website projects for about same amount

I think the way that site works is to (a) reduce the amount drawn from the pension pot when the state pension kick in and (b) to run your pension pot down to zero at the life expectancy you put in. I expect the £32k includes therefore the state pension, which would make more sense.

You also need to check the growth assumption you’re happy with you, and have to double check how long it thinks you’re going to live for. You’d also have to check that you tick the ‘indexing’ option to give a realistic income.

I think you are right that people need a decent education around this.

The pot size can feel huge to people until they work out what it will give them

And although commuting costs etc will vanish, I imagine other costs will increase (eg. Heating, socialising, etc).

I’m thinking 32k a year then would be worth about 20k in today’s money.