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Have heard a lot of negative press re pensions (private, employer/group, etc) so much so that I opted out of my previous employer's scheme because it was generally sh1t.
Friends in the business got rid of theirs years ago too.
Have a new job in the offing where they pay in 1.5x, hence wondering what the consensus is these days?
Ta
Pensions can be one of the most cost effective ways of saving given that you pay into them before tax and if your employer is also contributing you would have to save a significant amount of your net income to match it.
Yes they get a bad press but mine would have to under-perform in such a staggering way (which it is not) to make it anything other than a no brainer.
It can be more complex if your pension is large and there are tax implications when you start to take it and of course people have different circumstances but for me it forms a big part of my retirement plans as well as other investments.
Have a new job in the offing where they pay in 1.5x, hence wondering what the consensus is these days?
Turning down free money is a silly idea?
The main reason pensions have gotten a bad press is due to annuity rates rather than fund growth and as you are currently paying into a fund this is a better thing for you to look at. In terms of investment they aren't really much different to other stocks and shares type investments. The main upside being you get to invest gross amounts rather than net and the main downside being it's money that's locked away that you can't touch until you retire.
The consensus on pensions is, basically, you need to be saving more into one than you currently are.
The rule of thumb is to halve you're age and that gives the percentage of your gross income that you should be saving for your retirement.
The rule of thumb is to halve you're age and that gives the percentage of your gross income that you should be saving for your retirement.
Uh Oh. 😯
Exactly...
The rule of thumb is to halve you're age and that gives the percentage of your gross income that you should be saving for your retirement.
I've heard similar, but surely factors like equity (£75k house in Northumberland vs £450k pad darn sarf) are going to impact this?
and what % of people actually do this?
And also factor in (if you are 'fortunate' enough to be able to expect to be in receipt of inheritances) that you may also receive other money to see you through retirement.
as someone who is using his pension I cant recommend it highly enough, its a whole new life
I've always paid into my own personal pension and not company schemes. Would they pay into a private one or does it have to be a company scheme.
I've heard of far too many small company schemes failing/companies going bust/directors using the funds to risk using them.
FWIW I've always found the NFU good for this sort of thing.
The rule of thumb is to halve you're age and that gives the percentage of your gross income that you should be saving for your retirement.
Surely that's complete nonsense though?
If I want to retire at 50, I only need to put in 25% of my gross income, yet if I want to retire at 65 I have to put in 32.5%?
The sooner you want to retire the more you need to put in to cover both a shorter saving period and a longer income period.
@muffin-man: They're a global player and not likely to disappear IMO. Can't say for sure that the return is guaranteed to be a good one though.
My pension cut in just recently and I'll say this, however much you save, it won't be enough. I retired for a couple of weeks then changed my mind and got back into the harness..
The sum I have now compared to when I set out to save is beyond my then wildest dreams, yet it barely copes with my living demands, council tax, utilities, vehicles costs, and other living stuff and I was lucky enough to secure a 10% guaranteed annuity. Then the big shock, is the amount of tax I have to pay on it, I'm perhaps a tad naive in these matters but for some reason I but paying tax on something you've waited years to draw down was heartbreaking..
Anyway the moral of the tale, however much you think is a lot now, won't be when you get there and when you do, the Government will pinch a big chunk of it back..
They're a global player and not likely to disappear IMO.
...can I mention Robert Maxwell! 😀
Surely that's complete nonsense though?
Based on the old model of work till 65, live 20 years then die, it's not too bad.
IMHO it is horrifying to contrast the fortunes of my pension to that of my ISA, given that the former enjoys gross contributions from income tax relief. The charges on pension funds are criminal.
Add to this the fact that even if your pension does well and assuming you can get a decent annuity rate, the government still sees fit to tax you on draw-down and the whole thing starts to look like a bit of a (neccessary) ramp.
Now, following the whole stakeholder fiasco, the UK govt are about to embark on yet another ill-conceived overhaul of the system. Watch this space...
only in income taxes though surely? Which is why its good as the savings are done gross so theres more accuring interest, then its withdrawn net at a time when your outgoings are lower (no mortgage or kids). So for the most part my pension comes out of my earnings in the 40% bracket, but my retirement income will likely be in the 20% bracket.when you do, the Government will pinch a big chunk of it back..
I think it means half your current age, I.e at 30 you should save 15% and ramp that up as you get older untill you hit a point where the anuity you can buy equals your outgoings (and hope thats as soon as possible).Surely that's complete nonsense though?If I want to retire at 50, I only need to put in 25% of my gross income, yet if I want to retire at 65 I have to put in 32.5%?
I put in x out of my salary and 3x goes ito my pension fund. I'm about 40 years from retirement so have it all invested in high risk shares, There'll be ups and downs but over that timescale it should generally point upwards..
I am assuming this is a Money-Purchase (AKA: Defined Contribution) scheme, where your contribution go into your own ‘piggy bank’ of investments and your pot on retirement is based on what is paid in plus any increase due to investment performance then Yes, pensions are an extremely tax-efficient way of saving, but yes, your funds are ‘locked’ away until retirement (unless you leave your employer before reaching 2 years of service and then you may be eligible to opt to have a refund of your (employee) contributions (less tax and NI)).
If the employer is also paying in 1.5 times your pensionable salary (usually your basic salary, but may exclude things like performance bonuses / commission-based payments etc), then yes, it’s free money so does seem good.
What you get when you retire (using your pot of cash to buy an annuity) will depend on the annuity rates available at the time. The rules have recently changed though and think you can opt to take the whole lot as a lump-sum cash payment (75% of which will be taxed) now (whereas the old rules were you could only opt for a max of 25% as a tax-free lump sum, leaving the rest for purchasing an annuity)? Not completely sure of this though, so don’t take my word for it.
Different strokes for different folks though. If you can afford to save 7% (or whatever) of your salary each month into a pension and the employer then pays in an additional 1.5% of your salary / 1.5 times your contribution (not clear on your scheme rules), then will probably be the most efficient long-term savings plan you can get.
If you are a high earner and have a significant pension pot, then the performance of the investments on offer in this scheme may be an issue for you. I would suggest some independent financial advice if this is your situation.
Maybe you have other plans for retirement and invest in other ways to finance later-life, in which case, maybe your current plans out-perform the scheme being offered. If this is the case – let us know your secret!
Schemes offered by ‘Global Players’ are very safe from unscrupulous dealings nowadays.
Again, still assuming it is a Money-Purchase scheme, your employer will not be able to get their hands on your individual ‘pot’ as the industry is highly regulated, the Scheme produces its own set of report and accounts for the Schemes independent Trustees and members of the Scheme (and any other interested party) which will be independently audited on an annual basis.
Our employer matches you up to 7%, so if I put in 7%, I get 7% free (from work), plus the tax back on my 7% - so a very good deal!
I'm so very, very screwed.
Give it another quarter century, and I'll be looking for a bridge to jump off.
If you really want to feel bad, check out some on-line calculators to see what you need to be saving if you want more then 50p a month pension!
Here's an example of one:
https://www.moneyadviceservice.org.uk/en/tools/pension-calculator
Just face the facts. If you're under 50 now, you're never ever going to retire. Unless you fancy living in abject poverty.
By the time I hit that age, the whole idea of some cosy retirement, with foreign holidays, playing golf, nice weekends away in the lake district will be nowt but a quaint and distant memory. Something a single gilded generation got to enjoy
If worried about charges look into SIPPs, Interactive Investor are my current guys for that as have fixed charges rather than %ages which I prefer.
Oh, if you didn't contract out of SERPS, recent pension changes mean you've lost out to those that did.
Oh, if you didn't contract out of SERPS, recent pension changes mean you've lost out to those that did.
Any details on this?
I contracted out ages ago, but haven't looked into it in years...
The key thing to think about is, once you're too old/infirm to work, how're you going to pay for food, heating etc? You need an income from somewhere. Given the UK has massive national debt, I wouldn't expect too much from your state pension.
I'm shocked that for quite some time now, a lot of people seem to have seen a pension has an option rather than necessity...
Some people think they can sell their house and live off the proceeds. But if a whole chunk of the population all try and sell their houses at the same time, prices will just drop as supply outstrips demand...
As mentioned above - the tax relief you get on your pension contributions far outstrips any other kind of investment, or even house price growth, so there's no better place to put it
Any details on this?I contracted out ages ago, but haven't looked into it in years
Hmm, looks like opinion on this has changed since I last looked - all very complicated and seems no clear info on this, e.g.:
Anyone else 40 with no house and no pension? I think I will be using that bridge mentioned earlier...
If I want to retire at 50, I only need to put in 25% of my gross income, yet if I want to retire at 65 I have to put in 32.5%?
I think it means half your current age, I.e at 30 you should save 15% and ramp that up as you get older untill you hit a point where the anuity you can buy equals your outgoings (and hope thats as soon as possible).
Yes, the latter.
Our employer matches you up to 7%, so if I put in 7%, I get 7% free (from work), plus the tax back on my 7% - so a very good deal!
You don't get the tax back on your 7%, your 7% is taken out of your gross salary, i.e. before you've paid the tax. So, in total, you're getting 14% of your gross salary. Referring to my previous point, it's a great deal if you're 28...
The key thing to think about is, once you're too old/infirm to work, how're you going to pay for food, heating etc? You need an income from somewhere. Given the UK has massive national debt, I wouldn't expect too much from your state pension.I'm shocked that for quite some time now, a lot of people seem to have seen a pension has an option rather than necessity...
Some people think they can sell their house and live off the proceeds. But if a whole chunk of the population all try and sell their houses at the same time, prices will just drop as supply outstrips demand...
As mentioned above - the tax relief you get on your pension contributions far outstrips any other kind of investment, or even house price growth, so there's no better place to put it
This
I pay into a 'defined contributions' company scheme.
At the moment, I pay in 5% and the company match it, however if I go up another pay band they put in 7%.
I've only had it 7 years (I'm 41) and have no idea if it is the best thing I could be doing, but the way I see it, is that when I retire, 50% of the fund will have been paid by my employer, and that feels OK.
However, quite a few of my old school mates either have no pension (or very basic provision) and don't own property, o I guess I'm going to be better off than some?
Referring to my previous point, it's a great deal if you're 28...
My point was after 7% there's no benefit in using the company scheme over any other scheme eg SIPP etc.
My point was after 7% there's no benefit in using the company scheme over any other scheme eg SIPP etc
True (apart from possibly cheaper scheme fees)
I pay into a 'defined contributions' company scheme.
At the moment, I pay in 5% and the company match it, however if I go up another pay band they put in 7%.
I've only had it 7 years (I'm 41) and have no idea if it is the best thing I could be doing
So the total contribution is 10%, which is about half what you could really do with putting in at your age.
the way I see it, is that when I retire, 50% of the fund will have been paid by my employer, and that feels OK
That's good in tha it's 'free' money to you, but it'll be 50% of a fund that's probably too small...
However, quite a few of my old school mates either have no pension (or very basic provision) and don't own property, o I guess I'm going to be better off than some?
Relatively speaking, yes, but it'll be realative degrees of skintness...
I know I seem relentlessly cynical, but this area is basically a massive dereliction of personal responsibility by the majority of the working population. [b]You[/b] need to save for [b]your[/b] retirement; the state should provide a safety net, sure, but that's all it will be. And you need to be sure that your'e saving enough, and taking advice and guidance as needs be.
Too many people are burying their heads in the sand, and are going to end up royally f*^%ed.
I'm 43 and had a decent pot for my age. Approach I took was to ignore pension until a high earner and just pay off my mortgage with any spare cash. Once mortgage looking good and a high earner then contribute a lot to pension pot using the 40% tax band for max benefit.
Only have a SIPP now as a contractor but I did have a company pension scheme that was very good for fees.
IHN speaks wisdom, IMO.
Best action seems to be to save, early, and more than you think. All complicated by your tax band, but only in that high earners may need to do it a bit differently to make the most of their money.
Nice 1/35th Final Salary waiting for me in a few years
IHN is a wholly owned subsidiary of the AIG group
Remeber your investments can go down as well as up, full terms and conditions availalbe online
F*ck it, let's get pissed!
[i]F*ck it, let's get pissed!
[/i]
Enjoy it while you can...
In seriousness am just about to stop messing about with this and start chucking some serious (by my standards) money at it. It is a bit of a dilemma though - overpay on mortgage or put money in pension - can do a bit of both but not to the extent I want to.
Nail on head.binners - Member
...By the time I hit that age, the whole idea of some cosy retirement, with foreign holidays, playing golf, nice weekends away in the lake district will be nowt but a quaint and distant memory. [b]Something a single gilded generation got to enjoy[/b]
We are looking at a very limited snapshot in time, in a very small number of priviledged western economies.
overpay on mortgage or put money in pension
Depends on mortgage rate and tax band as to what's best. It's nice to pay debts off though.
We are looking at a very limited snapshot in time, in a very small number of priviledged western economies.
Annoyingly many of those now in retirement don't realise just how lucky they are and still moan about the young. They benefited greatly from the house price boom too.
We are looking at a very limited snapshot in time, in a very small number of priviledged western economies.
I dunno, I've always been quite pragmatic about this kind of thing (same with university fees). Some people will always have gotten a better deal than me, others will have been screwed. On the one hand I'll have paid uni fees and likely retire later, on the other I won't die from a whole list of diseases which weren't cureable 50 years ago.
I still intend to retire 'on time', just accepting I'm going to have to pay a bit more for it (just checked, currenlty 15% from me, 9% from work at 28, got a deposit but no house yet).
as I mentioned earlier I made the leap to retirement. I also down sized my house etc to minimize my out goings on council tax, heating etc etc
It makes your pension go a lot further. Seems like obvious advice but includes some tough decisions about down sizing or in my view sensible changes as you embark on your new life
I did buy a new mountain bike though 🙂
Well, I pay in 5% and the company pays in 10%, which I thought was pretty decent until I recently looked at the numbers. I won't be very well off in my retirement!
I should really up my monthly contributions, but even increaseing it to 8% doesn't seem to make a huge amount of difference to the outcome.
And....(stamps foot and sticks bottom lip out) it just seems a bit rubbish to have to take out quite a wedge of money from your salary into a fund that you won't see for years and years. And the goalposts will keep moving and, and and......
it just seems a bit rubbish to have to take out quite a wedge of money from your salary into a fund that you won't see for years and years
or, in other words, 'saving for the future'. PTFU 🙂
I also down sized my house
I see it like this.
I am in a fortunate position to have a large family home that (at current value) is worth around £450k (due to an inheritance) that will be fully paid off around my retirement age. We then intend (unless we have had any further inheritance by then) to sell it and move to a smaller place that would be worth around half. Part of the proceeds would be to provide funds for our twins higher education should they wish to go down that route, the rest will be invested in the best way to see us into our retirement years. At some point there will be a further inheritance that will see us to our death. The smaller house we bought will then be split 50/50 with our girls to provide them with their inheritance and help them on the housing ladder.
Alternatively, just smoke, drink excessively, take drugs, and live on pies and kebabs.
Bingo: early death from heart disease. You'll have enjoyed life to the full. You're not a burden on the state. And you won't be living in subsistence level poverty, grubbing around for extra hours on your zero hours contract, in the Garden Centre section of B&Q when you're 82
Its a win/win 😀
I am in a fortunate position to have a large family home that (at current value) is worth around £450k (due to an inheritance) that will be fully paid off around my retirement age. We then intend (unless we have had any further inheritance by then) to sell it and move to a smaller place that would be worth around half. Part of the proceeds would be to provide funds for our twins higher education should they wish to go down that route, the rest will be invested in the best way to see us into our retirement years.
😯
And if house prices crash between now and then?
Look at what happened between 1990 and 1995 to house prices and assume the same happens over the next five years (noting the similarity in the pattern now and then)
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I'm going to leave it all in my will to the nieces and nephews, they'll spend many a happy hour looking after my every need as I get older and more insistantly demanding. Secretly though the will gives it all to a cats home.
i'm not relying on being able to fully retire at any point or rely on any state aid.
pay the mortgage off, reduce outgoings, live somewhere modest and efficient and hope i've still got a brain to earn money with...
My current plan (all being well) is to take a trip to Switzerland between age 80 and 85 (unless UK law changes in the next 45-50 years).
Retire, live a good life and then say goodbye without being a burden on family or paying extortionate amounts to be ill treated by care home staff.
And if house prices crash between now and then?
If house prices crash then the house I buy will still cost approx half of the one I sell. Granted I won't have as much proceeds but that's a risk I have to take.
Best thing seems to me is to build up capital in a variety of places - e.g. property, ISAs and pensions. Private pensions look a bit better now that you can take money out at 55 - though only 25% tax free IIRC. Who knows what the Gov't in future years will do to raise money so keeping options open seems sensible.
Pension is the one area I'm vaguely sorted in.
-aged 39.
-Mortgage set to pay off at 63.
-10k per year RAF pension from 65, 20k lump sum also.
- new work pension company pays 12%, me 6%. After 8 years
Fund is £110k.
-State pension from 67(maybe!)
Your new work pension fund is £110k and you have the RAF one on top?
Is there any where that states what a sensible pot for your age is? I know it depends on circumstances, but a rough range would be useful.
I've been trying to compare a 2.32% index linked defined benefit of a good salary vs a 18% withprofits of a better salary. and my head hurts.
I'm with DooSuk. Shortest short stories "Two tickets to Switzerland, one single, one return". Life seems to go downhill incredibly fast after about 80 from what I can see. Live life to the full until then and bail out before it all gets grim.
dantsw13 - just worked out what you're earning - any jobs going at your place?
TheStabiliser - yes if your qualified! If not, you'll need my pension pot first to pay training costs! I'm lucky the RAF trained me.
I was reading an article today suggesting that after the next election whoever wins will abolish HR tax relief 🙁
Mud shark - wish I hadn't put any figures down now, but yes. 12 years officer service in the RAF pays 10k per year from 65.
Private pensions look a bit better now that you can take money out at 55 - though only 25% tax free IIRC.
Plus any threshold tax allowance you have left yearly after that via income drawdown.
Distress purchases. Welcome to the system, your leaders need you to keep them fat and happy.
I'm going to befriend a vet. They have the best options.
Mud shark - wish I hadn't put any figures down now, but yes.
I'm guessing thestabiliser has over estimated your income as won't know what annual growth you've got.
The only thing I'd add is that for people whose employers are not matching their contribution they may want to consider putting their [b]dough in a ISA[/b]
With the recent increase in cash ISA limits combined with the fact there will be no pension fund 'management fees' and the flexibility - the cash is your cash, you don't [i]have[/i] to buy an annuity and you're not limited by the amount you can take as a lump sum on retirement.
I would say consult an IFA for sound financial advice, but there all on the take so don't bother.
ISAs no longer exist, they're all New ISAs now (NISA). Personally I'd go for a stocks and shares NISA with a spread of managed funds, as over the long term you'll get a better return than with cash.
ISAs no longer exist, they're all New ISAs now (NISA).
Thanks footflaps, I'm not sure people would have realised what I was on about....
Well if you going to go for a stocks and shares NISA there's no reaason to not have a SIPP really - unless you could need the money in the shorter-term.
Cash ISAs are almost pointless for the longer-term - good to have some cash though.
With the recent increase in cash ISA limits combined with the fact there will be no pension fund 'management fees'
With a stocks and shares isa there are still fees.
the cash is your cash, you don't have to buy an annuity
You don't have to buy an annuity with your pension fund now either.
and you're not limited by the amount you can take as a lump sum on retirement.
Same a pension fund now although there are tax implications for pension funds. These don't exist for isas as the initial investment in net of tax rather than gross. Oh and the limit for an isa is £15k, a pension is £40.
Well if you going to go for a stocks and shares NISA there's no reaason to not have a SIPP really - unless you could need the money in the shorter-term.
I thought a NISA had more flexibility as you can sell all the stocks and take the lot tax free as cash (if you want), whereas with a SIPP you'll be taxed on taking a large cash lump sum?
Anyone with an eye for pension planning...does this seem bananas for a 30 year plan?
Max out pension contributions at 10% with 10% matched from employer + associated higher rate tax relief benefits.
Every 3 years, use cash savings to purchase buy-to-let on interest only basis - rent out.
Upon retirement take as much of pension pot in cash as is needed to pay off BTL mortgages.
Sell off/rent out properties as required.
The reason I ask is that if you bought 4 x £150k flats, with a total outstanding mortgage of say £500k...when those mortgages hit the end of their term, you're obviously still on the hook for £500k. Paying that with cash will cost you...£500k.
However, taking £500k from your pension fund will most likely have cost you considerably less than £500k due to tax relief on contributions, employer contributions and any increase in value of the fund.
If property prices are exactly the same in 2044 as they are in 2014 (seems quite unlikely!). You lose nothing when it comes time to pay off the mortgages, that element of your pension pot is still worth £500k.
However, if house prices have (for example) doubled over that 30 year period, your £600k flats are now worth £1.2m. By using some of your pension pot to pay off the outstanding £500k, you've probably only actually contributed say £200k to it...so you've picked up a £1.2m investment for £200k out of your own pocket (plus original £100k in deposits for the flats).
Other than the obvious...stopping contributions to pension fund for whatever reason, pension fund losing money or housing market being on its arse...what else am I missing?
I was reading an article today suggesting that after the next election whoever wins will abolish HR tax relief
That's been talked about in the past and encouraged me to put some lump sums in. An easy way to get some more money from the better off but they do seem to be the ones who keep having to pay more!
I thought a NISA had more flexibility as you can sell all the stocks and take the lot tax free as cash (if you want), whereas with a SIPP you'll be taxed on taking a large cash lump sum?
Yes but you do get the income tax back up front which is worth a lot of higher rate tax payers.
does this seem bananas?
Hmm well all OK if you can fund the mortgages. Thing is it's a pretty risky strategy as if the rent you're getting doesn't cover mortgage and associated costs then you could be forced to sell and if that coincides with a slump in the market, as it likely would, then you could quickly get wiped out as so heavily geared.
munkyboy - Member
Anyone else 40 with no house and no pension? I think I will be using that bridge mentioned earlier...
yup
and it's not like I'm spending anything either
not a pot to piss in
Thing is it's a pretty risky strategy as if the rent you're getting doesn't cover mortgage and associated costs then you could be forced to sell and if that coincides with a slump in the market, as it likely would, then you could quickly get wiped out as so heavily geared.
You wouldn't be able to get a BTL in the first place without the rental value being 125%+ of the interest payment. So do you mean where rental values drop below the finance and other costs? Rental prices have been pretty stable in my area for the last 15 years or so (I know that's no indication that they will remain like that), but you'd have to be pretty unlucky to have 4 unoccupied rental properties for 6 months+ surely, if you've bought sensibly in the first place?
I should point out, this isn't meant as sole pension strategy. matched pension contributions are only up to 10%, so looking for additional options to stick money in other areas, rather than the current strategy of finding a wall and pissing all over it 🙂
We had a rental flat at around the £150k mark and it was a bit of a nightmare. It's at the low end of the market, so has low paid tenants who seem to have the least stable jobs ie get made redundant a lot, which means missed rent, evictions etc etc. After many years of turning a modest profit, since the downturn in 2008, it's been a money pit and lost £1000s (eviction costs are high).
We also let a house and that is much more stable as we get Doctors etc as tenants rather than beauticians etc..
Most unpleasant job I've ever done was enacting an eviction and changing the locks etc turfing out a couple with a baby onto the street (literally that was where all their possessions were piled up as their 'mate', who was supposed to help them move stuff has failed to turn up).
Remember your best laid plans will have to fit in with changes in your life, marriage, divorce, children, redundancy, ill health. But not having a plan is a plan to fail. Any plan will work as long as you stick with it.
You wouldn't be able to get a BTL in the first place without the rental value being 125%+ of the interest payment. So do you mean where rental values drop below the finance and other costs?
Yep rental values drop but also if unable to rent for a long period of time or tenants don't pay for whatever reason. Not saying don't do it but there is a risk.
In the last downturn quite a few BTLers were made bankrupt. The main thing is to buy the property at the right time so those that managed to buy in the mid 90s say did fantastically.
I think a lot of small BTL landlords ran pretty close to the edge and underestimate the real costs. While the market rises strongly they do OK but easy to come unstuck when it turns.
Do the sums - 125% cover on interest means income of £1250 a month on mortgage of £1000. Pay an agent to let and manage at 10% (always plus VAT) and that's 150 a month of that cover gone so there's only £100 in the bank which is only £60 after tax. Hard to have less than a two weeks between tenancies which reduces would means £600 'lost' income if the first tenants leave after a year.
A small drop in rental values or property value and remortgaging becomes impossible = bankrupt.