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Therefore seems better to retain the tax-free element and use it to reduce the future tax bill – or someone tell me I’m wrong?
That's my view.
Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later. Of course if you are lucky these may be at different rates. If you are very lucky, they may be at the same rate. If the rules change to 30% relief flat rate, as the treasury would like, you’ll be losing if you’re a higher rate pensioner. At that point it’s time to look at different investments.
The two biggest advantages of pension savings for me were always; compound interest and inaccessibility. So I paid in extra from as early as I could because once in, I could not touch it and it would be growing. The tax relief is also nice.
I think it's one of labour governments big targets.
The better paid minority benefits more than the lower paid workers in many ways . Tax breaks on pension contributions being one of those.
If you're canny you can save 40% taxation , and then pay yourself back at 20% taxation in later years.
The lifting of the lifetime allowance helps a really small percentage of the population even more.
Although I do understand the reasons, it's not hard nowadays with compound growth in unit linked investment to get to 7 figures if your funds performance is consistently good.
Every time I have a bad day at work, which seems to be 3 or 4 days a week atm I re-evaluate my retirement plans.
I'm 43, I need another 18 months to 2 years of my high stress, long hours, but well paid pointless corporate job before my pension is at a number I would be happy to leave untouched to grow naturally to 58. Then I could in theory switch and do something (no idea what) and earn maybe 20% of what I do now from 45 - 50, before doing a tactical downsize and move away from london at 50 to free up equity and live off the surplus for 8 years til the pension kicks in at 58.
There would be a lot of beans on toast and not a lot of 5 star hotels in that future but I'm hoping that once I get to that point at 45 when I have a safety net level as a baseline then maybe mentally things get easier.
Am very envious of those of you with contribtory pensions. Through most of my working life (56 now) I haven't had this benefit. I recently located a pension from a previous job that offered this. I only worked there for 5 years 25 years ago. And at 30 pension planning was a long way down my list of priorities. Probably put in the bare minimum. I wound up with 65k in there which I recently transferred. Better than a kick in the balls, but really hit home how life would be looking rather different now had I had a lifetime of employer contributions.
I'm only 31 but pretty conscious now about trying to make the most of a pension. My current employer sadly only contributes the bare minimum they legally have to which is one of the main reasons I'm considering jumping ship.
My current employer sadly only contributes the bare minimum they legally have to which is one of the main reasons I’m considering jumping ship.
Not unusual for the private sector and TBH if you were a shareholder this is probably what you'd want them to do 🙂
But even in well-paid jobs companies aren't paying big-time, unless you're very, very senior. Where I work they'll match to 7.5% of salary at the senior grades, and this folk on circa £100k.
Old adage, "save half your age as a percentage of your earnings" - example; if you're 36, need to be saving 18%.
Old adage, “save half your age as a percentage of your earnings” – example; if you’re 36, need to be saving 18%.
I feel like that old adage is based on wealthy folk from the 1960s and 70s. The middle-aged, full-sus riding IT managers of their day!
I just can't see it being achievable for the average 36 year old on the average wage, with house prices and nursery fees and student loans being what they are these days.
Old adage, “save half your age as a percentage of your earnings” – example; if you’re 36, need to be saving 18%.
Remind me again, is that the adage that banks who want you to give them money for the next 50 years keep pedalling?
It is just not realistic for most folk I know.
is that the adage that banks who want you to give them money for the next 50 years keep pedalling?
Heh. Perhaps it was the banks who pushed it, just like it was DeBeers who said you should spend X months salary on an engagement ring otherwise your other half won't love you, and that somehow got adopted into common parlance....
It makes sense for it to work in reverse to me, you want to contribute as much as you can when you're young so it compounds, then once you get older then interest it makes will be worth more than the actual contributions so you can dial them back down.
Remind me again, is that the adage that banks who want you to give them money for the next 50 years keep pedalling?
I think the fees on my pension fund are 0.05% per annum (50p per £1000 saved). I'd hope growth in any reasonable tracker could achieve that. Seriously, it's not the fees here. That half your age includes employer contribution. Take it out right from the beginning when you start work and you don't miss it and can't access it. That's the advice I've given to Son2 who has just started earning. And drive an older car 😉 If you can manage more at the beginning, the eighth wonder of the world means you will need to contribute less should you need the money for kids.
It is just not realistic for most folk I know.
And neither is a comfortable retirement...
I and my OH have paid into pensions for nearly 40 years, with half of them DB pensions. I estimate (once the State Pension kicks in) we'll be on just over half our working earnings, which as high earners shouldn't be an issue for us, but IME this is a best case scenario and likely to put us into the minority.
This is for me an elephant in the room that's been ignored by the majority, and the Govt - but a key reason of why taxes will continue to rise; growing numbers of pensioners on benefits (think +£1000-1500 PCM on rent etc).
But for me, the key is to live as frugally as is comfortable. To consider all those things you can easily live without, and then living without them. So, expensive TV/media subscriptions, choosing expensive over cheap holidays, cars, loads of new clothes all the time, eating out a lot, etc. Read a book, stay in cheaper hotels, cook and eat at home, buy second hand stuff and don’t own a car (easy in London or other big cities). My shabby old commuter bike saves me thousands a year in travel costs. An €80 a night hotel does the same job as a much more expensive one.
The opposite of the YOLO approach then. To others living frugally just in case you live a long time is wasting the years until you get very old, assuming you do get very old and by that time most people seem to turn into complete tight arses anyway.
It’s all about balance for me. I could do nothing and retire a few years earlier if I wanted. No fun in that though if I’m sat in my house and not going out.
The interesting thing for me is that the government want us not to retire early but instead be productive and add to the economy. For that to happen it's got to be a attractive. I can't see tax breaks for older workers coming so the alternative is punitive changes so we can't afford to stop working...... depressing.
The interesting thing for me is that the government want us not to retire early but instead be productive and add to the economy. For that to happen it’s got to be a attractive.
Could do a few things to help with that - a right to lower hours/flexible hours, a right to WFH etc,. basically make it easier to semi retire so not as much time spent working but still doing some work.
basically make it easier to semi retire so not as much time spent working but still doing some work.
Without going all left wing, ahem, there is some personal responsibility in deciding to do this and finding a way. Mrs_oab's health means she will be stepping down from teaching as the mortgage is paid off, then onto some less physical and stressful employment.
What I find hard is that despite saving into a pension from my late 20's (and likely not saving enough due to all sorts but mainly having kids and working for a charity) I'm still pretty screwed on the amount I've saved. Not helped by -20% between pandemic and Truss-onomics. 🙁
So I do think the early auto enrollment is a brilliant thing.
I was late to start my pension, so am now paying in as much as I can and hoping for the best.
I appreciate the answer will be "it depends" but in general terms, how much do you need in your pension pot for a reasonable standard of living? Ive no idea?! Are there any easy ways to guesstimate?
Although I do understand the reasons, it’s not hard nowadays with compound growth in unit linked investment to get to 7 figures if your funds performance is consistently good.
i wonder what percentage achieve this though, especially private sector workers. I count myself lucky, however will be a long way short of 7 figures if/when i retire in 3 or so years, with a fair wind maybe I'll be 60 - 70% of the way there.
I have worked in the private sector all my life, and started paying into company pension schemes in my mid 20's, I am now late 50's. I have moved around employers a few times, and transferred pensions into a central managed fund, and currently pay in close to 30% of my income (between employer and my contributions). As a high rate tax payer I put in as much as i can, whilst still funding 2 grown up children who are just getting going on their careers.
Thankfully we paid the mortgage off with inheritance a year or 2 back, and will continue to up the pension contributions in these last few years wherever I can.
Industry standard quotations for living in retirement here
https://www.retirementlivingstandards.org.uk/
For annuities, the DC sum for a couple with index linked increases is about 27-30x the annual income required. This ignores the additional state pension added at 67 in my case. If you are single, or don’t want index linking, the ratio goes down to below 20x. Of course you can just take out the cash each year instead.
The minimum for a couple is £22k, so a lump sum of approx £594k, without the state pension. Comfortable would be £43k, so about the same lump sum WITH the state pension included.
IANAFA, but these standard appear in multiple places, including our own company scheme.
i wonder what percentage achieve this though, especially private sector workers. I count myself lucky, however will be a long way short of 7 figures if/when i retire in 3 or so years, with a fair wind maybe I’ll be 3/4 of the way there
£700,000 even with taking 25% tax free seems to be £40,000 a year... Realistically if we've all got no mortgage when we retire, so we really need more than £40,000 a year ? (That's not including any government pension either).
Lets call that £3000 a month without a mortgage, that's not bad is it ?
So I do think the early auto enrollment is a brilliant thing.
I'm an evangelist for 'people need to be saving for their retirement, and start as early as possible', and auto-enrollment is a good thing, but there is an issue with it - for many it gives a false sense of security. They see the auto-enrollment pension contributions in their payslip and think 'retirement saving done', when in actual fact the auto-enrollment minimum contribution (8%, usually 5% employer, 3% employee), which is what most will be on, is far too low to create a liveable-on pension pot in retirement.
It all comes down to financial literacy or the lack thereof. The fact is that we do not teach children about money, so they grow in to adults who do not really understand money. It's nuts.
£700,000 even with taking 25% tax free seems to be £40,000 a year… Realistically if we’ve all got no mortgage when we retire, so we really need more than £40,000 a year ? (That’s not including any government pension either).
Lets call that £3000 a month without a mortgage, that’s not bad is it ?
yes, as i say, I count myself in the lucky group. Wife's pension is minimal, but we'd be comfortable for sure. I can't imagine more than a very few get into the 7 figure pot sizes though, unless on some old established public sector schemes.
I think luck can play a big factor for sure. My pension through company is 6% (me)-12% (them) so ends up stacking up massively and puts me in a far far better postion than i ever thought i'd be in retirement. But like i say, very little of this was choice and most of it was luck and right time right place
Sorry if this is a slight aside but a question;
At 52, I can take from my private pensions at 57 right? So if I was trying to save for the future, but wanted a lump sum in 5 years for something, what if anything is “triggered” by me taking the 25% at 57?
Or, is it better to save for that lump sum outside of the private pension e.g. in ISA’s and leave that private pension intact for as long as possible?
£700,000 even with taking 25% tax free seems to be £40,000 a year
If your pot was £800k and you drew down £40k a year AND your pot continued to grow at 5% you would still have a pot of £800k when you cark it. The good news is when that pot goes to your dependents there is no tax if you die before 75 or if you are over 75 tax is treated as income for the beneficiary.
So if I was trying to save for the future, but wanted a lump sum in 5 years for something, what if anything is “triggered” by me taking the 25% at 57?
Nothing is triggered. Things only get triggered if you also take out non tax free and that only matters if you are still paying into a pension as you are limited to £10K per year rather than the standard £60K
Ok thanks Kerley. With my mortgage ending I intend to now save the former mortgage payment to pump up my retirement funds / get the best shot of retiring at 60, just wondering where the best place to put it is, leaving some flexibility for anything big e.g. the house needs a new roof type of thing.
I’m tempted to make half of that a month at least salary sacrifice with my employer to make it a bit more tax efficient.
I can’t see tax breaks for older workers coming so the alternative is punitive changes so we can’t afford to stop working…… depressing.
"Punitive changes" aren't needed, just pure general cost of living will keep most people working - bottom line, they can't afford not to.
I'm 53, and self employed, being paying into a private pension for over 30 years. I'm planning on winning the Euro Millions, and a big one too!
"£700,000 even with taking 25% tax free seems to be £40,000 a year… Realistically if we’ve all got no mortgage when we retire, so we really need more than £40,000 a year ? (That’s not including any government pension either).
Lets call that £3000 a month without a mortgage, that’s not bad is it ?"
How did you get to those numbers? Assuming you drawdown at 4% a year (some people say that's too high...) and take 25% tax free then you get £21k a year.... Not a lot to live on if you want to retire at 60 or something. I'm aiming to get to 7 figures for the two of us, but I probably wont - would need a lot of very optimistic assumptions to be true! Have been doing the half your age into your pension since mid to late twenties (more than that most years - every bonus etc).
It just seems completely unattainable to get to the standard of living my father has (mid ranking civil servant) - I get paid more than he did, put more into a pension than he did, haven't gone mental with the mortgage - but still it's more than he paid. I've just resigned myself to being poorer (relative to current income as 25k a year or whatever isn't poor to a lot of people) when old.
It just seems completely unattainable to get to the standard of living my father has (mid ranking civil servant) – I get paid more than he did, put more into a pension than he did, haven’t gone mental with the mortgage – but still it’s more than he paid.
There a reason people don't have pensions like your fathers anymore and never will again. They were based on retiring at 65 and not living for another 20-30 years.
How did you get to those numbers?
From Scottish Widows and looking at my pension with 25% off and not taken....
According to their figures my pension will be worth £900k when i retire at 65 (currently £525,000), which comes in at £59,000 a year according to them.
This means your regular annual income for life in today’s money could be:
£44,100
with
£223,000as a one-off, tax-free lump sum.
I have no idea how they come up with these figures
Does the 44K per year include state pension, and what age are you dying in the calculation?
No idea 🙂
How we work out your estimate
We start with the current value of your pension.
We then add the growth you might expect between now and when you retire. This helps us show you what your pension value may be and how much you might get as an annual income.
It’s worth knowing this estimate assumes you’ll buy a regular income for life. This is also known as an annuity. The figure we show you is based on an annuity that’s guaranteed to give you an income for the rest of your life, or a minimum of five years, whichever is longer.
We can’t guarantee how much you’ll get from your pension when you retire. Things like annuity rates and tax rules could change.
You might also decide to take your pension in another way. This could be as cash or as a flexible income, which you’d take as and when you need it, instead of buying a regular income for life.
Assumptions we make
To work out your estimate, we assume:
You’ll carry on making regular payments. We assume your wage will rise over time, and so will your monthly contributions. We’ve based this assumption on the Average Weekly Earnings (AWE) index.
You’ll leave your pension invested as it is today and pay the same percentage as a charge.
Your investments perform as we expect them to. We show you three levels of performance here. But we’ve used the ‘medium’ rate of return to work out this estimate.
Any adviser charges are already included and will carry on until you retire.
We show you what the value of your pension might be in today's money. This means we account for things like a rise in the cost of living. We think this will increase by 2% each year. Put simply, this means that what £10 buys you in future will be less than what £10 buys you today.
Growth rates for each fund
Your future income will also depend on how your pension investments perform over time. That’s why we show you three possible scenarios here.
Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later.
Hmmm, yes but no but. I know stacks of people who are currently saving 40%, 60% or 45% tax but who have sod all chance of being in that bracket in retirement. In theory what you say is true, but in practice rarely.
< Edit to say that actually a lot of them are actually planning to retire mid fifties. Which explains why their pots aren't likely to give them high tax bracket incomes. If they worked through to 65 then I agree it is likely they will tip into the 40% marginal rate ( but still not 60% eff marginal or 45% marginal rate)>
And also, the people to which your statement does apply are likely to be well in control of their finances, and not the sort of people to which a thread like this is useful.
Of course if you are lucky these may be at different rates. If you are very lucky, they may be at the same rate
Totally agree
Retirement is 12-13 years away for me @48...
I have planned well from 21 so I will be OK
But has anyone experience of drawing down a pension with PIE option...? thoughts?
know stacks of people who are currently saving 40%, 60% or 45% tax but who have sod all chance of being in that bracket in retirement. In theory what you say is true, but in practice rarely.
Thisd be why I posted above - increasing my salary sacrifice is reducing the amount I’ll pay 40% on through my wages, then I’ll pay 25% in retirement so a net saving of 15% tax.
The opposite of the YOLO approach then. To others living frugally just in case you live a long time is wasting the years until you get very old, assuming you do get very old and by that time most people seem to turn into complete tight arses anyway.
Not at all. It's about assessing expenses and cutting out those which aren't really adding any real value to your quality of life. Having several TV subscriptions for example; how much TV are you going to watch? A mate had over £200 a month in such until he decided to scrap them all. People can pay a fortune for Netflix, Sky, Amazon Prime, X-Box and Playstation subs. Then there's things like gym memberships that don't get used. Or owning a car when you live somewhere like London; a neighbour commented that we must be rich to be able to afford to go abroad 3-4 times a year or more. I pointed out that we still spend less on those trips per year than he does in running his car which sits outside his house for 95% of the time. This is the same guy that drives the 1.25 miles to the local leisure centre, a distance I choose to walk as it's more exercise than riding a bike even .
By being more careful and mindful about what you spend, you can actually have a better lifestyle and more fun.
Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later.
There will be lots of people with small pensions that don’t take out more than the personal allowance. Easy to see a situation where you take less than 12k/year for a few years waiting for the state pension to kick in.
Annuity rates seem to have got better by a fair bit - used to be 1m bought 30k. If you retire at 68 you get the 44k as you say with 900k from the usual places. Given my family background, I suspect I'll die early enough that it doesn't make much sense to get an annuity (I def don't want to wait to 68!) so i'm planning on doing draw down and then leaving the pot to kids / wife.
Thisd be why I posted above – increasing my salary sacrifice is reducing the amount I’ll pay 40% on through my wages, then I’ll pay 25% in retirement so a net saving of 15% tax.
^^^^^^ 20% is the basic tax rate so even better.
Assuming you take the 25% tax free lump sum in stages you can crystallise and draw down £67k per year and only pay a small amount of tax:
Gross £67,000
minus £16,750 25% tax free leaving £50,250
minus personal allowance of £12,570 leaving £37,680
20% of £37,680 = £7,536 which will be your tax bill for the year, in other words just over 11% tax and of course no NI.
Worth noting that if you're at certain tax trap brackets (notably the 60% one + all the child care stuff that disappears at the same level) you're going to save a lot if you put that money into a pension (i.e. you'd be taxed at 60+% if you took it as income, but even if you're still a higher rate tax payer, you're going to be taxed at 40% when you take it out).
Agreed, that's what I said earlier.
you’re going to be taxed at 40% when you take it out
How so?
"How so?"
So if you're in the 60% tax trap (actually more than that if you have kids due to tax free child care going, and free hours being halved) you're going to be earning between 100-125k, so it's pretty unlikely (impossible?) you'll have put enough away to be drawing a pension that is large enough to hit the 45% tax rate, or even the 100k 60% rate again. So worse case you'll be withdrawing at 40% tax, and probably at the 20% rate.
Ignoring the 25% tax free amount upto c£50k can be paid without getting into 40% tax … £13k personal allowance plus £37k at 20%.., an overall rate of 15%. Anything over £50k can be taken using tax free amount to extent any left. If you are high earner tax relief at 40%- 60% to fund that or 20% for a basic rate taxpayer
Agreed. The above clarifies it.
No one's mentioned recycling. I know, it's not allowed... but it is, upto a small amount. If you recycle less than 30% of tax free cash as additional pension contributions, or take less than £7500 tax free over a 2 year period, it's allowed. (There are some other rules but those are the amounts)
So once you hit 55, ( or 57) and can access the tax free lump of your pension, you can start to draw it and recycle a small amount quite legally it seems. Do that for 3, 4, 5 years and you'll see quite a difference, particularly if you're a high rate tax payer.
.
Is that question for me kryton?
You don't have to do anything no. I'm pointing out the option to take some tax free from 55 and reinvest in a new pension. Whether that is right for you depends on the amount of tax relief you'll get on it, when you'll draw the new pension and what incomes you'll have then - ie will you end up just paying the tax later or even paying more, or will you end up better off by recycling and getting that secund chunk of tax relief. If it would work for you the crystalising isn't an issue, you take out and reinvest.
to the OP, not read any of the replies... sorry.
But retired 3 years ago at 55 and the wife at the same time aged 56.
me on a very meagre pension and the wife on local government pension after 38 years service.
1 bit of advice i can give you. take the amount you think you need to retire on, and half it.
less cash more time.
I 'banged out' of the corporate world in 2018 and 4 years ago downsized to a modern, energy efficient house on the Isle of Mull. I work part time in a shop, plus have another small business that I run from home plus have the proceeds from the house sale to subsidise our income for another 5 years until I'm 65. Despite the huge increases in food prices, we're managing to live relatively frugally and if we avoid another Liz Truss moment, my pensions should be double my present income, to the degree I'll probably want to avoid paying higher rate tax as I'll probably stick with the part-time job to give me something to do.
We get quite a few cruise ships stopping here during the summer - I can't imagine anything more insufferable than being stuck on a ship with such a bunch of people so that's definitely off, as well as driving around in a large motorhome, but I may be tempted by a small yacht to cruise up and down the west coast - I've got a chunk of shares from my old employer that have done well since I left!
Is that question for me kryton?
Nope. I was asking a subtly about crystallisation but realised I’d misunderstood the meaning of it hence removed my post.
Im with Ton. I went at 60 with a small income - and a chunk of capital ( which of course is a great safety net). I'll be better off when I hit 67 and get my state pension but its no problem to live withing my means.
Adventures do not have to be expensive
tjagainFull Member
Im with Ton. I went at 60 with a small income – and a chunk of capital ( which of course is a great safety net). I’ll be better off when I hit 67 and get my state pension but its no problem to live withing my means.Adventures do not have to be expensive
100% mate.
also on FB today, you popped up on my memories page......... when i met you on your tour. some good pictures mate
Two old farts enjoying retirement
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The Waldorf & Statler of STW 😉 😀
That theory while great, breaks down if you've had kids late in life. I'd be going a few years earlier if I hadn't.
Those of you that have retired. Is there anything you’d do differently? Or any advice to those of us still working?
No one ever thought on their deathbed that they wished they had spent more time at work
You can live quite happily on less than you think. You hav e two basic choices. Decide how much money you need and work until then or decide when you want to retire and as much money as you have - thats what you are going to live on.
go back 30 years and get a DB pension and cheap property
To TJ’s point, from the advice I linked to
A minimum’ lifestyle covers all your needs, with some left over for fun and social occasions. You could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week.
The minimum is £14k for single and £22k for a couple. The state pension is £11502.92. Hence a single person can live with an additional pension of £3k (approx £60k pension lump sum without taking any tax free), and a couple who have both contributed 35 years, can live on the state pension. Early retirement would not be possible.
To retire early, you’d need the pension from, say 55 where annuity rates are lower (as you’ll be paid for longer). If you want no growth in income, but 10 year guarantee (to last until state pension), and to retire on minimum income, you’ll need approx 14k x (100,000/6081) = £230k in your pension fund. At 67 you’ll see an extra 11k of income to look forward to!
And how much to save? If you work for 35 years and savings grow at, say 3%, then 1000 paid in on your first year will grow to 2813 = 1000*(1.03)^35, The next year’s contribution will grow to the power of 34 and so on. You may recall from maths GCSE, that the sum of a geometric progression is a*(r^n-1)/(r-1), where r is 1.03 and n is 35, a is your annual contribution rate. For 3% growth the accumulation is 60.4x, so ignoring the salary increases, you’d need to save about 230k/60 = £3800 per year adjusting for salary growth makes a big difference, as does changing 3% growth to 5%!
Easier to sum these up in a spreadsheet and make some assumptions about salary growth (2%) along the columns, the add some tax relief and that annual contribution will likely halve at the beginning. You can even test why half your age is a good rule of thumb.
There is NO scenario, where early pension saving is bad. And now you know why you were taught the sum of a geometric progression at school. Too bad they don’t explain it that way 🙁
IANAFA, but I am a mathematician.
For those still working....do start saving as soon as you can (compounding and all that), don't have a fixed retirement date in mind (if you get to (say) your target of 55th birthday and can't do it it will depress you) but equally retirement is more affordable than you think. For those retiring ...... have a few plans and projects to provide some structure to life, and enjoy it!
No one ever thought on their deathbed that they wished they had spent more time at work
This is often said but it’s true. I was surprised by how quickly I lost any interest whatsoever in the topics that had seemed of such vital importance while I was working. I sometimes think about colleagues and I kept in touch with a few, but actual work - I never think about it.
Those of you that have retired. Is there anything you’d do differently?
I dithered far too long between realising I was in a position to retire and actually doing it. I hung on at work to do a proper handover to my successor and to support a critical project that wanted my expertise - basically being the nice guy and not burning bridges. With hindsight I could've gone at least 18 months earlier and nothing would really have changed.
Average uk salary for 18-21 year olds is currently 23k. Save half your age as a % of salary for 35 years and assume 2% salary growth and investment growth, and you’ll have a pot of £440k. If investments grow at 5%, you will have £655k. That will be when you are 55 years old. You’ll be able to retire, even allowing for inflation (which your salary is keeping track of). Hence the advice is reasonable.
When they closed our final salary scheme in 2022, the two things I noticed most when talking to colleagues were 1) that people had no idea how lucrative these schemes were, and 2) most people did not understand pensions at all! And these colleagues were all graduates, many with PhD’s. Having a good rule of thumb is an excellent guide it wasn’t around when I started working.
1) that people had no idea how lucrative these schemes were, and 2) most people did not understand pensions at all!
SBGSK? These people had one of the most comprehensive annual statements I’ve seen and they were a huge undertaking every year. Maybe information overload so they just didn’t read it?
When they closed our final salary scheme in 2022, the two things I noticed most when talking to colleagues were 1) that people had no idea how lucrative these schemes were, and 2) most people did not understand pensions at all! And these colleagues were all graduates, many with PhD’s.
They closed a DB/final salary scheme here and moved people to a DC one - it was an old scheme and hadn't been open to new joiners for a while, so didn't apply to me. As part of the closure, and in recognition of the 'loss' from moving from a DB to a DC scheme, they were all given a fairly generous compensatory payment. All the people I know spent that payment on holidays/cars/patios, and didn't stick it in the new scheme - madness. And this is at a financial services firm...
The minimum is £14k for single and £22k for a couple. The state pension is £11502.92. Hence a single person can live with an additional pension of £3k (approx £60k pension lump sum without taking any tax free), and a couple who have both contributed 35 years, can live on the state pension.
The key word here is "minimum"...
Also in much of the UK rent could easily take the entire State Pension, so folk will be claiming other benefits too - so in reality their income is far more than this
Yes, GW/GSK. When GSK was formed the final salary scheme was closed to new members. I joined just before. And was able to join the final salary scheme at 33. I think people just don’t read/understand the calculations provided. I know I did not take them too seriously whilst bringing up children.
As a rough guide, the DB scheme I was in was effectively costing the company 3x the DC scheme. It would not have been possible for me to have made the levels of contribution to a DC scheme to afford the same final pension (1/60th final salary at 20x annuity multiplier is1/3 of annual salary saved - real rates are more like 33x). And I also contributed 10% to a DC scheme in parallel! We were given a small starter contribution to the new DC pot. Not available for holidays and cars!!!!
Any scheme based on final, or more likely now, average salary will be generous compared with DC schemes. Companies have moved to DC and funded at 5-10% of salary, because they are cheaper, not better for the employees.
The guidance on minimum needed from pensions info
"The minimum is £14k for single and £22k for a couple"
Is that before, or after, tax ?
(Something that ice not seen clearly stated ! Same on the 'higher' standards.of living figures too. As obviously that.makes a big difference !
I'm following this thread with interest - I'm sort of half way there, and have some knowledge but haven't yet really retired.
I'm near 56.
A couple of years ago I did what I call a 'fake' retirement - I'd got so ****ed off after a reverse takeover of my employer that I left. But, I declared 'retirement' not just a FO2U (I had a protected pension age of 50 so could do). And took the pension then (the penalties for early take / rules of the scheme were a bit perverse, meant for me I was better off taking the money immediately (final salary scheme) than deferring (if I deferred by a day, then penalties were harsher and = a far lower pension - and not return to the same 'day zero' level until 7-8 years later.
My thinking is that I need the money in my 50s and 60s, more than 70s or 80s. Pay.off mortgage, support daughter at uni + early years of her career etc.
I saw that 1st hand with parents- barely 2 pennies when we were growingupp (non smokers, disnt drink much) .. but more money than they knew how to spend by the time they were 70.
At my new employer I'm bundling in 40% of my wage to a new pension, so as to not pay as much @40% tax (+2% NI). When I do take that as a 'draw down' it'll effectively be at 15% tax... a quarter is tax-free, and the remainder at 20% (I'll not hit the £50k limit to pay 40%). Net 42-15 = 27% tax saving. (+ my employer will give me half their employer NI saving into the pension too- good folks! - so I get an extra 6.9% of my 40% into the pension)
but actual work – I never think about it.
The same. I was a technical director and had many years working on IT tech projects, networks, infrastructure and comms then later managing teams/depts. I stopped working but could not think of myself as retired for a while and applied for a job after several months. They asked he how I kept up to date with the things I had done since I stopped working (about 6 months earlier) I had no clue and wasn't interested! If I had got the job I would have quickly got up to speed but the thought that I would continue to be engaged with all of the changes seemed odd to me..
It includes tax, which won’t be much on 14k per year. It also assumes that there will be limited housing costs as any mortgage will have been repaid.
“The minimum is £14k for single and £22k for a couple”
Is that before, or after, tax ?
(Something that ice not seen clearly stated ! Same on the ‘higher’ standards.of living figures too. As obviously that.makes a big difference !
It doesn't make much difference at the lower level. The tax on 14K is only £286 (less in Scotland) and on £22K no tax is payable assuming two tax allowances.