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.

By the time you reach SPA, most people have either paid off their mortgage or have one that is a negligible amount.
Bills that still have to be paid however are much more significant and they rarely get smaller as you get older.
Council tax, gas, water, electric, broadband, phone, TV license, buildings & contents insurance. Add food & travel and you have covered your basic essentials, how much left of your SP left after that?

We worked hard, paid into our pensions and are enjoying a lovely (early) retirement having retired in mid-50's with sufficient funds to do what we want, when we want to do it.
Yes of course we could drop dead tomorrow but there is no point worrying about that.

When you are old you are able to do far fewer things for yourself and have to pay someone else to do them. You will be the target of every con artist going. You may not be able to paint or decorate your home, cook your own meals, you'll probably feel the cold more but have to stay in bed if you cant afford to put the heating on. You may not be able to drive so going anywhere becomes more difficult.

You may also need to pay for your own healthcare or wait months to be treated while suffering chronic pain. You may not be able to afford to get to a hospital when you need treatment.

State pension just about buys you an existence when you have the extra costs associated with aging, it doesnt give you a life.

Teachers pension is a defined benefit scheme. That's really important information as it changes the advice people would give you, @no49 . In your case, opting out of the teachers pension would mean turning down huge amounts of free money in terms of the employer's contribution.

Assuming you do live to draw down your pension, it will be bigger than anything you could get from the same investment in a private pension - you could recoup the tax relief there, but not the employer contribution.

However, you were right with your initial comment that the whole lot could die with you, if you have neither dependent children nor a spouse/civil partner/nominated partner. There is no pot to leave to adult children, and no annuity to purchase, so disregard the posts about that, which apply to defined contribution schemes.

If you're uncomfortable with that prospect (which is not unreasonable), then it makes sense to balance your pension planning across a number of different assets, as you've already done with your additional properties. I think you're on the right track - just don't leave the Teachers' Pension Scheme!

Hi @RunLyraRun

I definitely don’t want to opt out of it but equally I suppose I’m not prioritising it, if that makes sense, I’m not making additional payments into it and if I did have spare money from somewhere (ha) then to be honest the pension wouldn’t be where I put it. I’m also not envisioning going back full time ever any time soon so that will also reduce payments.

The teacher's pension scheme will give your SP a reasonable top up even if you don't pay in over and above the default amount, especially if you are not a big spender & have your mortgage paid off. Don't opt out, you are literally turning down quite a substantial amount of free money.

I think it's perfectly possible to live on £230pw. I wouldn't want to do it.

That said, I don't think that necessarily mean you need to work full time your entire career, you just need to make sure you're making adequate provision for whatever income you want.

You also don't necessarily "need" a pension or for all income to be by way of pension. There are other ways of saving for retirement.

My council tax from April will be more than £230 per month so I would find it difficult to live in £1000 pm

A lot of it is down to luck. If you’re healthy and able to do things like drive and have kids living locally then life will be easier and cheaper than if you need taxis to get around and you spend lots of time and money at medical appointments and needing carers.

Seeing as you have additional property you are not dependent solely on the state pension. So your questions are moot. Since you have property to sell off or get income from

So in summary you are planning to have a state pension, plus teachers pension plus cash from 2 properties.

I think that's very different to managing on the state pension only. You could exist on the state pension only but it would be existing and I doubt you could run a car or heat your home adequately.

This is a bit out of date, but research has shown that the “minimum” pension amount for a single person to have a basic lifestyle is currently £14,400 per year.

A “minimum” lifestyle is defined as:

“A minimum standard includes around £95 for a couple's weekly groceries, a week's holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week.”

https://www.bbc.co.uk/news/business-68222807#:~:text=They%20estimated%20that%20a%20single,59%2C000%20at%20a%20comfortable%20level.

Where on earth have you got the idea that your pension disappears when you die? 😳
A DB pension may only pay a 50% spouse / dependent child pension but these days, unless you work in teaching/ police/ nhs/ government then in all likelyhood you would have a DC pension, which is a pot of money/investments.
Until 2027, they are inherited completely income tax ( under 75) and IHT free, from 2027 then IHT looks like it’s coming into play if you are above the threshold.

I don’t think I’d ever suggest to anyone to exist solely on the SP. What I’m trying to understand is why pension is pushed on here - my perception seems to be that it seems to be preferred to struggle in your 30s / 40s than your 60s / 70s. I guess I was thinking that if I was reliant purely on my state pension then I’d have a similar amount to now but without some of the other outgoings. So given the choice I’d rather prioritise now. I don’t exactly mean being completely cavalier about it but rather taking an approach that balances long and short term needs. I can’t describe how many times on here I’ve been told I’m foolish for being part time, for instance.

@BorgQueen i am not an expert, hence the thread, but I am a teacher so yes, my pension will disappear when I die. It’s good to know this isn’t a general thing though as DHs pension is not a teachers one.

Pensions are 'pushed' (I would say encouraged) on here / everywhere because most people don't have an index linked DB pension (as you do) where your employer contributes a lot as a default.

An awful lot of people get tiny pension contributions from their employers and will spend retirement in poverty if they don't contribute substantially themselves.

Thanks @Chewbecca , that isn’t something I was aware of.

DH would get a widows pension if you die before him. There'll be no pot for him/dc to inherit.

If he has a defined benefit pension, it will be the same for his. If he has defined contributions then the pot would pass to you/dc

And you say you live on around £1000 pm, I assume you are sharing costs with your DH?

Most people, even in retirement, have to budget very tightly to live on £1k pm, especially single people.

It is definitely more expensive living alone but my income after childcare costs is about £1000. So similar to state pension amount.

If I was to make additional payments into my pension now as is often advised I’d be struggling a lot in my 40s to make my 60s easier, if that makes sense.

My grandma lived to 101 years of age. She retired at 60, so had 41 years living off the State pension, plus a small private pension, so had around £2000 per month in today’s money to live on. Her private pension paid out far more than she paid in - the assumption was that she would have broken even when she was about 85. If she had only got a fixed amount of savings she would have run out far sooner.

I’d prefer to have a comfortable retirement. To travel. Go to the theatre. Go out for dinner. I don’t want to live on the poverty line of just the state pension and benefits.

so I’ve been paying into pensions since I was 20. I’m now 50 and currently pay 16% of my salary into pensions. DH does the same.

See while I am definitely not rich I am equally absolutely not on the poverty line at the moment!

I think a couple (so splitting bills) on just under £2000 a month would be ok … not a life of luxury but not poverty either.

It’s always harder on your own of course.

My council tax is nigh on £250 a month , so if I were pensionable age that's more than 1 week of pension gone , then gas & electricity another £120 - £150 , then house insurance , say that added together is getting to be another weeks pension gone .
So once all that just to put a roof over your head leaves 2 and a bit weeks for the month , let's round that up to £550 .
So £550 ish a month to run a car ( fuel , tax , insurance , garage costs for fixing ) if want to be independent , something to put away for holidays , presents for family for Christmas or birthdays , day trips out , cafe / restaurants if out , clothes , house repairs , Toiletries , shoes , and let's not forget food .
Not sure that is not enough to live the above lifestyle which is not living extravagantly in my book .

£2k a month for a couple is liveable for a basic living, no car, home improvements etc (for the rest of your life?) but don't forget most people become single at some point in retirement.

The SP is set at a just about liveable level - if it wasn't, pensioners would be starving. I think just about liveable is the right level to set it at, any more than that has to be worked & saved for by the individual. That is why everyone is advised to put into their pensions (unless they are fortunate enough to have a LGPS as you are, then they don't need to worry, unless they want a higher standard or living or early finish to working days).

DM passed away 18 months ago. As her pension didn't form part of her estate and she had named no beneficiaries (she had only restarted working the previous couple of years) the money in her pension was paid to me (40), I then shared it with my two siblings (36 & 31).

I have multiple pensions from moving workplace and each one gives me the option of naming beneficiaries who will receive the amount in there if I die.

I could take the amount I pay into my pension and put it in another investment, but my employers contribution wouldn't cover that.