Pensions - is it worth it? Questions

[no49]

So this is very much a genuine thread. I have found it you try to ask about this on MN there are lots of sarcastic responses and I’m not here to goad but I genuinely think there’s some things I’m missing or not fully understanding.

So from Googling I can see that the basic state pension is now £230 a week. I am 44, so I can claim this from 2048, when I am 68. I realise I may wish to stop working before this and I do have a pension I’ve paid into since I started work although this will have reduced as I’m part time now.

But, £230 seems reasonable to live on, especially working on the assumption that things like the mortgage is paid off. (I do understand that doesn’t apply to everyone.)

What I’m asking about is the advice on here about not forgetting your pension, to avoid part time work or make it as close to full time as you can for as short a time as you can because of your pension, pay extra into your pension.

To me that does seem risky because if you die before you can get it, or only a couple of years into retirement, it’s gone. Whereas if you invest your savings into ISAs or things of value like property or similar, it can go to your spouse or children if you do die.

I know that sounds very morbid but it isn’t just that; I suppose I don’t see the point of exhausting myself at 44 to be wealthy at 64, especially as for all I know I might never reach 64. But the advice here is the opposite of that so if anyone could say if I’m missing something to at would be good. Otherwise it might just be differences in opinions which is obviously fine too.

It's a difference in opinion.

I do not think £230 a week is a comfortable amount to live on, and I don't think that dying before I retire is a risk in terms of not getting to use my pension. I want a comfortable retirement, with treats and enjoyment, so I am saving as hard as I can for that.

You do know that your pension pot doesn't disappear if you die before you use it, don't you?!

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-problems/pensions-after-death

It’s fine to just live on, but how will you afford
meals out
holidays
dentists and opticians and other health care eg private physio appointments, hearing aids, incontinence pads,
other aids as you get older eg stair lift, bigger shower, decent mobility scooter
new roof
new boiler
new fridge, washing machine, dishwasher
new car
anything over basic food and bills
new clothes
help at home, a cleaner or a gardener

i have plenty of money in savings for the replacements and a decent pension which will give me a nice standard of living, and enough to keep me comfortable if I need help and aids to mobility

No guarantee there will be a state pension in 20 years.

I didn’t @LordEmsworth - having looked at that link though it seems to only be the case if your children are financially dependent on you.

So let’s say I die when I am 65; my eldest child will be 25, my younger 23. Then the pension would disappear.

I think nearly £1000 a month is reasonable given that outgoings are likely to be minimal but as you say we are all different.

My mum has friends who rely solely (or mostly) on their state pension. They don’t have a great lifestyle on that and have to consider carefully what they do, whether they can afford to go out, etc

@redfishcat at the moment I earn just under £2000, but childcare fees alone are nearly £1000. So I take home slightly less than state pension age. I’m by no means rolling in it but I can afford most of the things on that list. Some are very much luxuries.

Bur in any case I’m not suggesting ‘make no plans for retirement’ - my question is more ‘is a pension the best place to invest? If so, why is that?’ For example, I have a property that is let out and has a small mortgage on it which will be paid off when I’m retirement age (before that really.) Isn’t it better to say buy another than to put money in my pension? Or if not better at least worth considering.

Well, the tax relief on pension contributions usually means it’s a good investment - you are getting 20 percent income tax relief, and if you don’t have a huge private pension, you may pay less tax when you take the pension.

the issue for me, at 45, you can boost earnings if you need money for an op where there is a long wait list, a family disaster etc. when you’re a senior citizen with low funds, you don’t really have the option to boost earnings.

having looked at that link though it seems to only be the case if your children are financially dependent on you.

Where are you reading that, I can't see anything suggesting that?

Honestly, a pension pot belongs to you. If you use it to buy an annuity then the annuity dies with you; but if you have the money in a pension wrapper, it is part of your estate so will be inherited by your beneficiaries. There will be tax implications but the money doesn't just dissolve away.

https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/pensions-and-inheritance

No the private pension fund does not disappear if you die before reaching retirement age. The accumulated fund value is still there and will be passed on to your heirs just like any other asset. This is assuming it is a defined contribution pension, the most common kind. Defined benefit pensions are more complicated.

Even if you have retired and bought an annuity with your fund, there are options available to provide a widow(er)s pension on death of the main pension holder.

@LordEmsworth none of that is the case with defined benefit/public sector pensions - there is no pot to pass on, your pension does (more or less) die with you if you're unpartnered.

Thanks @miamimmmy . I didn’t know that re tax so that’s interesting. I guess this is where it does come back to savings and investments though and these don’t necessarily have to be in the form of a pension.

I personally would have

(state pension - yes no guarantees but we can only work with what we have.)
Work pension - probably isn’t amazing due to being part time.
Property - currently have two properties as well as the one we live in.

So I would say that’s a reasonable standard and we may well buy another property. But advice seems very focused on investing in pensions, and as I said in my OP, I guess I’m not sure that I want to exhaust myself in my 40s so I can enjoy my 60s.

My dads definitely did.

My mum died when I was still school age so I did get a small amount throughout my school and university years. I think it was paid to my dad at first then to me when I turned 18; £150 a month IIRC. This was some years ago though. Obviously better than nothing but not really a life changing amount.

@no49 Standard advice for paying into pensions is geared towards people who don't have a couple of extra properties to top up their state pension!! I'm sure you'll be fine, in your circumstances.

You haven't said whether your workplace pension is defined benefit or defined contribution, which makes a huge difference to the inheritance implications.

£230 is going to be worth a lot less in 24 years and thats even assuming state pensions still exist. Governments generally try to index things as little as possible and the real value of state benefits and pensions can be eroded over time.

No one can give real financial advice without knowing your peraonal circumstances but pensions do have some specific benefits other investments don't. Payments into pensions attract preferential tax treatment and can also be used to reduce the income considered to make you eligible for things like child benefit. Another benefit of pensions can be that the moneys locked up and it forces you to save which otherwise might not happen. All investment outcome including private pensions can vary widely depending on things like risk profile. Property is not always a good investment, though tends to be over the long term. The closer you are to retirement the less risk it's favourable to take because you won't have time to make potental losses back. If you want to become more financially literate money saving expert is a good place to start. https://www.moneysavingexpert.com/savings/discount-pensions/

Eta: slowly writing while watching a show so didn't have later updates. The houses you own though only matter in terms of how much equity they have now or will have in the future. Some people own many properties but are mortgaged to the hilt which can quickly become a financial black hole if the market falls.

You may need specialist advice given you have multiple properties - should be easy enough to check what your private pension pot is and model what that gets you currently?

for me it was a no brainer as I’ve got a small pension pot so the tax relief potential is huge and that’s what I’d think about if I were you, is your plan tax efficient.

@runlyrarun but the OP doesn't have a DB pension - she hasn't said that but given her OP, it's pretty clear she's not talking about a DB pension. So that's not relevant to her point.

@LordEmsworth I didn't say it to make an irrelevant point, I said it because from my reading of the OP, I thought she was implying that she did have a DB pension, by the very fact that she said "To me that does seem risky because if you die before you can get it, or only a couple of years into retirement, it’s gone." Which can only happen with DB. So I disagree that it was "pretty clear". Perhaps the OP will let us know...

Workplace pensions are a good vehicle for most people because

• tax efficient
• your employer pays at least 3%
• management fees usually relatively low for investment management, and your employer will have experienced people making sure the default fund is ok

if those don’t apply to you, you might be better off with another vehicle like a stocks and shares ISA

I think a balanced approach is probably best. I have 20 years in a DB scheme. 10 of those years are part time, which has significantly affected the pot. However, my state pension plus my DB is about 1.5 x what I earn currently. My employer is closing our DB scheme. Knowing my DB plus state is already what I earn currently, I’ve decided to go with my employers DC offering so I can draw this down early (I still have nearly 20 years). Also, as PP have said, your DB does more or less die with you, whereas a DC wouldn’t. Im happy with my mix. I will also hopefully not have a mortgage and have cash in ISAs and some in a LISA & a little in stocks and shares. I won’t, however, be going back to full time work just to further pad my pension pot as I’d like to enjoy my life now as well as later, even if I end up with less.

I have both DB and DC pensions and they behave v differently on death.

My DB - my DH will get 50% when I die, if he pre deceases me, it will die with me
What is remaining of my DC pot will pass to my children.

£230pw is not sufficient to pay my bills & live the life I want so topping up via a private pension is essential for me.

I am massively grateful to everyone for answering me and sharing perspectives.

I have to admit I don’t know what type my pension is - it’s a teacher one which I know is generally considered to be one of the best.

You’ll be fine with a teachers pension.

Live your life and save too. Children are much more expensive as they get older IME!

Many people have already covered a lot of the points - but let me add another one: you are focussing a lot on "what happens if I die in my early 60s?" In reality whilst of course some people day in their early 60s the vast majority now live on into their 70s, 80s and 90s. It is very hard to know what state pensions will be in 20 or 30 years' time, or how expensive things will be to buy. Do you really want all your eggs in the state pension basket if you live to 90?

So whilst it's great you want to leave some money to your children don't forget that the main reason for retirement saving is - paying for stuff in your retirement when you are too old to work. So unless you have knowledge of your own health that suggests you for some reason are much more likely to die young than average, I think you should plan as if you're going to live into your 80s and think "what money might I need?"

It really isn't enough for most people to live on even without a mortgage. By the time you pay council tax, insurance, gas electricity bills, mobile phones, food never mind running a car or holidays or house maintenance.