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.

I often think about this, having paid into NHS pension for 25 years and still going and now nearly age 50. I am just struggling at the moment so have taken a second job and keep thinking I could do with the pension contribution I make.

I rent my house so slightly different position as that will never stop but I imagine my NHS pension plus state pension will take me over the threshold for help towards rent etc.

I feel the state pension unfortunately could change in years to come so I would then be grateful for my NHS one so I must keep contributing.

The difference between NHS/teachers pensions and defined contributions are staggering.

We both have paid into our pensions our whole working lives. DH is NHS and assuming he stays with them will get £20k a year when he retires (some variables depending on if he takes cash lump sum). I will have a pot of £300k if stock markets rise in line with previous decades. If I choose to buy an annuity I will get around £10-12k.

So that might be why people advise topping up your pension. If you get a windfall earlier in life then compounding means it's worth more and more. But you have to factor that against needing it now for roof repairs or new boilers etc.

Personally I have an ISA to use as a bridge. I may want to retire before I can access my pension, and I do worry about not making it pension age. Both my parents died before retirement. So we try to cover all bases.

I also think people on here might encourage women to pay into pensions as it's still statistically men who have bigger pensions, women took time off for kids, our salaries are still lower. And if you haven't planned it, and your DH dies first, or leaves, you may find yourself poorer than you expected. Lots of people don't think about it, when actually a bit of effort to understand in your 30s or 40s will be well worth it in your 60s and 70s.

I was thinking of your DH not your kids

and what happens to your DH pension if he dies depends on what he does with it. If he buys an annuity (like buying a db pension ish but not as valuable) then yes it would go, but not if he doesn’t do this

you two need to be talking

I'm assuming you're planning on staying married, @no49?? If so, your DH would get some spousal pension for the rest of his life. Not the full whack, but something. (I think I said at the outset that it only disappears entirely if you're unpartnered).

Anyone with an iota of sense would take out life cover to fill the gap of a spouse dying if they only get half the pension.
We are covered up to age 75 for that very reason, I would lose DH’s state pension and half his military pension, he would ‘only’ lose my state pension.

Your state pension alone takes you over the threshold for help. The only ones getting help either don't have a full state pension or have only the 'old' SP which was lower.

That's a really unusual option for people later in life. Life insurance, obviously, is super expensive to cover to that age.

I also find it difficult to see the great appeal of piling money into pensions when every passing government seems to take great glee in tinkering and changing the rules. It’s shifting sands and makes me nervous (I’m only 36!).
Thinking about the last few funerals I’ve attended, the people were 67, 62, 59 and 35 years old. It’s certainly not a given that I’ll live to see whatever retirement age, if any, a future government sets.
I’ve got 12% (including employer contributions) going into my pension and the focus now is ISAs and getting rid of the mortgage. If I’m 60 and knackered I’m stopping work- regardless of what the government is trying to engineer - because the money to fund it will be in my hands and not subject to their games.

Thinking about the last few funerals I’ve attended, the people were 67, 62, 59 and 35 years old

That's because of your age. Life expectancy stats are clear, most people your age will live well into their 80s.

A mix of ISA and pensions is a good option for pretty much everyone.

The people being encouraged are is particularly those whose DC pensions don't get much in the way of contributions.

We pay £30 a month for joint life / first death cover of £150k, took it out at 50 for 25 years, we are almost 60 now and yes, it would be a lot more I’m sure if we were quoted now.

If you live long enough to access it (and you would have to be very unlcky not to) a pension is the most financially advantageous place to save. You get tax relief on your contributions which means you can pay them effectviely out of pre-taxed income. It really makes a difference when you look into it.

BTW - given your apprent lack of tax knowledge - how do you wortk out the tax due on the rent from your buy-to-let?

Well I earn £400 per month and have no other income so that amount to live on sounds like luxury to me

Accountants do tax, I guess OP hires an accountant. A good accountant saves you more than they cost!

Indeed they do!

I think you have to look at state pension 24 years ago being £72.50 a week which wouldn’t be much use now and imagine a similar projection in 24 years time.

We have been retired fir a few years. Mortgage paid up. Our combined state pension is enough to live on, and do some activities, but our savings, including our private pensions, pay for the extras, such as holidays, eating out, theatre trips. Hopefully, we will have enough towards our care costs if needed. We saved a mix of pensions and ISAs on an ad hoc basis, we were self employed so would put lump sums in when we had a good year, and sometimes nothing when we had a poor year. I was surprised at how our pensions grew over the 30 years wexwere paying in, so glad we did. I encourage our kids to save what they can, but not at the expense of living today.

How?

Statistically living until well into my eighties, actually living well into my eighties and being in decent health to work into my late sixties or early seventies where the state pension age could potentially be for my cohort are vastly different concepts.
I do think the focus for my generation will have to shift to financing the gap between the end of our useful working lives and the beginning of both private and state pension provisions.

@Chewbeccamortgage is paid off. Don’t go on holiday or have takeaways etc. biggest household bill is council tax at £126pm. It’s tight but I manage.

Well done, you must be a master at budgeting. You could probably give lessons / tips and earn from that skill!

@Chewbeccahaha not by choice, I can assure you. Just praying they don’t move the goal post before I collect my state pension next year!!!

I do think the focus for my generation will have to shift to financing the gap between the end of our useful working lives and the beginning of both private and state pension provisions.

But that’s where a private pension comes in - you can take that from age 55, whereas the state pension doesn’t start til late 60s. By the time my son retires the state pension age will be in the 80s. Private income is absolutely vital.

OP - The disadvantage of relying on rental properties is that you have to manage them and the income might be inconsistent e.g. between tenants. Do you want to be managing a property portfolio in your 70s/80s or having to stress about selling a property in a hurry if you need to pay for care? Absolutely fine if you’re happy with all that, but it makes sense to me why a private pension is an obvious stress free solution for the majority.

Also don’t forget many people will have employer contributions to take advantage of - I pay £180 into my workplace pension a month, my employer pays £390 a month - I’d be bloomin stupid to opt out of that and invest just the £180.

It's about risk analysis. My family live to their late 80s/early 90s so I shall not take much of a lump sum to max the DB pension, hopefully for as long as possible. If I die before DH he will get about half.

Turned on It's head, how would you feel in your mid 60s when reality crystallises and you have only the state pension?

I'm 64, reducing hours in the autumn and will retire probably at 66. I wouldn’t like just to have the state pension.

DH has a private pot, investments and a couple of BTLs, because he has been largely self employed. His pot needs to roll down to the children in a tax effective way.

I feel this is incorrect...I have just done an entitled too calculation.

I put that I was age 73 and getting £221 a week state pension with no other income.
It calculated I would be entitled to
Pension credit 15.87 a week
Council tax - 23.72 a week
Housing benefit - 108.91 a week towards my weekly rent of 110.00

Maybe it depends on area you live ?

If you are 44 now, and relatively healthy, your life expectancy is actually through to about 95. So that’s many years to plan for.

A further thought. It sounds like maybe your work is exhausting you? But you really feel like it’s working you to death, to an early grave if you sustain your current rate? If there’s one thing I remember from some studies I did on aging, stopping work was not very good for people at all. The lack of purpose and activity sends people into an early grave unless they have very well defined interests and are very active.