[Closed] Some wages to be cut by upto 7% over the next three years?

Advice we've received suggests that the employee can choose to opt out within a month of being enrolled.

Assuming you are not paying anything into a pension just now then you are getting a 3% pay rise with the employers contribution, its just being 'saved' for you.

For the increase to 4% for the employees contribution, you will get 20% tax relief, so will effectevely be putting in 3.2%. That will be the reduction you see in take home pay.

So, for a reduction of 3.2% take home, you are putting 7% into savings, or for what costs you £100 take home you get £218 saved in your pension.

You wont get such a good savings deal anywhere else. Its only a bad thing if you dont expect to retire or are genuinely on the bread line.

It was set up exactly for the reason that lots of Brits think that putting aside 4% of thier income each month to pay for the 20 or so years they want in retirement is a waste.

Most of the public sector pensions that everyone thinks are so amazing require a 7% contribution, even my "best in the business" pre-crash RBS staff final salary pension cost me 6%.

Most of the public sector pensions that everyone thinks are so amazing require a 7% contribution

And some are significantly higher. 14.25% for me just now. Although this will drop to 13.something% once the final salary pensions are scrapped.

I pay 14.7% at the min i dream of paying 4% 🙁

Google tax relief on pension contributions......

I too don't know why people think a pension is a bad thing? What do you expect to do on retirement? Do you think that everyone else will fund your retirement?

I think 10% or more needs to be saved each year. My solution to get people to take out a proper pemsion is for the goverment to scrap the retirment age and stop the state pension. That way folk will have no choice but to provide for themselves. A bit right wing i know but the older i get.... also i dont think the state pension will be affordable in 20 years anyway. the workplace pension the way it is setup will provide poverty in retirement.

I have to sort out a pensuon this year given i am the sole employee of my company but i am not looking forward to the cost.

I have 1% pension - apparently it's only on my lower lever taxed income as they don't have to do it on the higher taxed income. I don't really care as I have a SIPP which I put useful amounts of money into.

It was set up exactly for the reason that lots of Brits think that putting aside 4% of thier income each month to pay for the 20 or so years they want in retirement is a waste.

I thought that both employees and employers combined already put aside about 25% of income for this?

Plus I'm not sure what sort of pension 4% of minimum wage is going to get you...

Google tax relief on pension contributions...

Most of the public sector pensions that everyone thinks are so amazing require a 7% contribution, even my "best in the business" pre-crash RBS staff final salary pension cost me 6%.

This of course ignores the rather salient fact that public sector pensions are defined benefit, so the pension you receive won't go down even if the economy tanks. Because the benefit is guaranteed, the real value of public sector pensions is equivalent to 30-45% employer contributions in an equivalent money purchase scheme.

Many people in the private sector would quite happily make much more than a 7% contribution to get the kind of defined benefit others are complaining at having to pay a negligible amount for.

Well my defined benefits scheme has just had its defined benefits completely ruined by the gov due to the economy. It now costs more for longer to get less. In fact its not really even defined as they are not sure how much I'll end up paying apart from it will be more than now. How much longer I'll end up working apart from its 8 years more than it was planned for. Or how much I'll get apart from its gonna be much less. So im not really digging the defined scheme im in at the moment.

I wonder how you define a negligible amount?

I also think you may have misinterpreted people clarifying the level of their contributions as complaining about it.

The increase in my public sector pension contributions through this age of austerity has far exceeded the 1% pay rise I've not had. And it changes again in April.

Pensions do seem to divide people in terms of their outlook. In my early 40's I currently pay out 25% of my income into my pension contributions including AVCs and between us put another £1.5k away per month into long term investments (and live a relatively frugal life as that leaves us reasonably tight for expendable income) whilst I've got friends of similar age who are yet to put a penny into a pension and with very few assets. Sod's law of course means I'll die a horrible premature death and they'll have a long miserable penniless old age.

convert - well done but you do seem to have a higher than average income as many couldn't do that. I don't pay in regular amount but instead drop in lump sums as suits.

[quote=P-Jay ]It was set up exactly for the reason that lots of Brits think that putting aside 4% of thier income each month to pay for the 20 or so years they want in retirement is a waste.
Most of the public sector pensions that everyone thinks are so amazing require a 7% contribution, even my "best in the business" pre-crash RBS staff final salary pension cost me 6%.

I pay 14.7% of my monthly pay for my "free gold plated pension"

Mudshark - Totally agree, we are in a lucky position at the moment with 2 reasonable (not massive but higher than national average) incomes and no kids and I appreciate there are plenty of folk not as fortunate. Whilst there are people simply not in a position to think about the future, there are also those who could with their heads in the sand or just living a jam today mentality. It might well be they have the last laugh and we've wasted life's opportunities for an old age that never happens.

"I've got friends of similar age who are yet to put a penny into a pension and with very few assets" but who have the latest gadgets and new fancy cars yet claim to be too skint to save every month

Without doubt theres a fine line to be tread. I do 6% of basic on a salary sacrafice scheme and employer matches with 10% , which ive been paying since 23 so hopefully get long enough at it to give me some kind of income when im older without haveing to sign over all my money to the men in suits every month to make sure mercer headoffice is shiny

bruneep -

- what % of your salary will you get as a pension
- how many years will you work for it
- how many years will you be retired (*I'd suggest assuming death at about 84ish, based on current trends)

edit
- does it have a your death/50% spouse pension option
- can you clarify the tax free cash position

I pay the standard 5% which is then matched by up to 5%. I'm about to put my contributions up to 10% (both for retirement purposes as well as tax reasons).

[quote=towzer ]bruneep -
- what % of your salary will you get as a pension
- how many years will you work for it
- how many years will you be retired (*I'd suggest assuming death at about 84ish, based on current trends)

Unknown, as the government seem to be making it up as they go along at present. Ask Penny Mordant* if she has any idea what it will be when I retire

30yrs

I've known guys to retire and die within months so that is also unknown.I [i]hope[/i] to live as long as possible.

*I'd hazard a guess she hasn't a clue either.

I can see this turning into a bash the PS pensions very soon, all I want is to get what I signed up to all those years ago. the MP's have manged to keep their benefits yet there is no public backlash on them. My wife NHS is expected to work 12hr nights until 68 yrs old 😯 if she's nae deed by then.

Come on the towzer lets see what you pay/earn mine is out there in the public domain. reason I stuck with my job is the pension I could've let and earned double in the oil n gas. Also enjoy the job not the "shite" that goes with it and this hatred of all that is PS

Towser it will be hard for bruneep to answer unless hes fully protected from the new changes as im on the same scheme and its changing in april and as yet other than me knowing I'll pay more for 8 years extra to get less the gov haven't decided the rest yet its dependent on opt outs (lots) and recruitment (non) so its in the air. Primarily as gov want to privatise use but cant with a big pensions bill seem intent on destroying it

All i know for sure at min is work min 40 years. Pay 14.7% and get whatever they decide. Spouse pension is looking at being scrapped and lump sums rules set to change also

I would leave the new scheme but id then knacker my current 17 years worth of contributions. 🙁

Well I'm no longer in a final salary scheme as in the private sector they were terminated (in my case) 24 years ago.

Since then I've had various jobs - ranging from a 3% employer contribution to a stunningly generous 15% (financial service employer contribution). I'd guesstimate the average as about 6-7% from the employer.

Currently my personal contribution varies at about 20% of my income, this is because I suspect I need a DC (defined contribution pot ) of about £500,000.

Notes on an Annuity - it basically means buying a final salary pension, currently the rates are not good.

Notes on 'tax free cash' - you can take up to 25% of your pot tax free - but this obviously diminishes your annual pension.

For £100,000 you will currently get an annuity pension of *Single life, RPI, 5 year guarantee:
( http://www.ft.com/personal-finance/annuity-table)
Age
60 - £2,689
65 - £3,307
70 - £4,154
75 - £5,608
(so with a 500,000 pot you can multiply the above x 5)
in a nutshell at 60 this method will give me a final salary equivalent pension
of 13445.

I hope those figures go some way to showing people just how much money is required for a pension.

I don't plan to do this. There is something called drawdown - which is where you take money out of your pot (and the pot continues to earn interest at whatever rate it does - but will go down as you will probably be spending more than the interest). The problem with this is that you don't know when you will die and running out of pension pot doesn't strike me as being a good idea.
Also I suspect there will/might come a time in my life where I will become mentally unable to run my own financial affairs.

My mum died at 82, my dad is 83 and alive but became incapable aged about 80. I am single/no kids - so any money left when I die - is a waste.

so my personal plan is thus
- take some tax free cash (not sure yet but this reduces my annual pension)
- use ??50% of the remaining pot to take me to 75 via drawdown and then use the remaining 50% of the pot to buy an annuity(aged 75 or so) (to give me certainty and a much higher annuity rate).

AlastairMc I don't think anyone thinks a pension is a bad thing. Like all things in life if we could get one without paying it would be ideal. I think there are a number of reasons why people don't think they are brilliant. Firstly they are confusing for many people. Secondly generations before us have often been reasonably* catered for by the state and employers such that they didn't really need to think too much about it and so advice isn't automatically handed down through the generations (and even if it was the world has changed).

The problem lies with people who have no surplus income each month. expecting those people to invest in a pension is going to directly affect their lifestyle today. I am sure some of them could make more prudent choices on expenditure and find 4% but you won't have to look too far to find people who really would struggle. Now in an economy where cost of living has been rising faster than incomes that really is an issue, because what you can't afford today is worse tomorrow. Now employers also feel the squeeze and are essentially being told they have to provide this backdoor 3% increase whilst employees and government are encouraging actual salary increases too.

* views on reasonableness will differ, but the reality is that our parents and grandparents mostly have been able to retire when they expected and continue a similar quality of life.

A pension of 500k would get you an annual income from annuity of around £30k. Where do you get £13k from?

An annuity today of £100k would buy you £6k

I published my figures - http://www.ft.com/personal-finance/annuity-table, please publish yours.

If you take a non rpi linked pension then if we get massive inflation it will diminish very quickly. Is that a risk you would take ?

edit - I might live at pension age for anywhere between 0 - 40ish ?? years (and so might anybody else)

surfer - annuity rates are in the 3-4% range, not 6%.

http://www.sharingpensions.co.uk/annuity_rates.htm

[quote=towzer said]I published my figures - http://www.ft.com/personal-finance/annuity-table, please publish yours.
If you take a non rpi linked pension then if we get massive inflation it will diminish very quickly. Is that a risk you would take ?

The rates shown below are based on a fund value of £100,000 after taking tax free cash with payments made monthly in advance

How much lump sum is taken ? 25% ?

up to you you can currently take up to 25% tax free, however that leaves a lot less in the fund.

you can't do good maths, as you need to know when you're going to die.

edit for clarity - if someone with a 500,000 pot takes 25% tax free they will have £125,000 cash in the hand(to do what they like with) and £375,000 left in the pension pot to do drawdown/buy an annuity with

[quote=towzer said]up to you you can currently take up to 25% tax free, however that leaves a lot less in the fund.

I was taking about the FT table, they say a lump sum has been taken but don't specify the amount. Or do they mean the fund value is 100,000 *after* a lump sum has been taken ?

mmmm - I see your point

- see https://www.hl.co.uk/pensions/annuities/annuity-best-buy-rates

I **think** the FT wording is misleading however would be delighted to be wrong

[i]The problem lies with people who have no surplus income each month. expecting those people to invest in a pension is going to directly affect their lifestyle today. I am sure some of them could make more prudent choices on expenditure and find 4% but you won't have to look too far to find people who really would struggle. Now in an economy where cost of living has been rising faster than incomes that really is an issue, because what you can't afford today is worse tomorrow. Now employers also feel the squeeze and are essentially being told they have to provide this backdoor 3% increase whilst employees and government are encouraging actual salary increases too.[/i]

This is exactly the point I was making.

I for one will have pensions that I'll give me a decent amount - through a combination of luck (old enough to have had defined benefit schemes) and sensible planning (always paid in as much as I could).

The reason I posted was to warn the many folk on here who either haven't got anything or only pay in a small amount. And, the public sector don't count, as they pay higher levels of personal contributions - BUT, if 8% is the minimum how long before Govt will rein you all back into DC schemes?

Also, on one Govt website I saw a comment "if the employer doesn't pay their full minimum, the employee will have to make up the difference"... 😯 But obviously that bit isn't 'advertised' much.

Found it.

[i]Your employer must pay some of the minimum total contribution. If the employer doesn't pay all of the minimum total contribution, you will need to make up some of the difference.[/i]

http://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/automatic-enrolment/how-much-do-i-and-my-employer-have-to-pay

Pensions with the new flexi access rules and with the tax relief are excellent investments for the future.

Tax relief ........... don't vote for labour then!!!

[i]The reason I posted was to warn the many folk on here who either haven't got anything or pay a little[/i]

And judging by this graph, it's a lot of you...

http://www.poverty.org.uk/65/index.shtml

9.3% Contribution for my pension but as I've paid it in since started it's money I've never had, just a shame they desperate for me not to get the pension I signed up to. Still a good pension though but looking more and more likely I'm going to have to work longer. I've now planned for that by becoming non-operational in 4 weeks time to help increase my chances of enjoying a retirement.

It was set up exactly for the reason that lots of Brits think that putting aside 4% of thier income each month to pay for the 20 or so years they want in retirement is a waste.

I thought that both employees and employers combined already put aside about 25% of income for this?

Plus I'm not sure what sort of pension 4% of minimum wage is going to get you...

Are you referring to Income Tax? That pays for Schools, Hospitals, Roads, Dodgy Foreign Wars, Nuclear Submarines and such.

National Insurance - rates vary from 0% up to 9% and then down to 1% I think, it's an odd one because unlike Income Tax it drops down the more the earn. Anyway, that supposedly pays for State Pension and Benefits - but in all but all cases it's really doesn't it just allows the Government to further muddy the waters when it comes to PAYE deductions.

Either way, State Pension can pay the bills if you like - but it's only about £600 a month, even if by then you've hopefully paid off your mortgage - it's hardly the stuff of dreams, and the age it starts is getting older and older - it'll never die completely - it's a vote killer, but expecting to life of it alone in old age is no fun.

Anyway, that supposedly pays for State Pension and Benefits

All taxation just goes into one big pot from which we pay for everything.....

in a nutshell at 60 this method will give me a final salary equivalent pension
of 13445.

So you've saved £500,000 over your working life to get a pension of £13445 per year. You'd have to live to 97 to break even.

That figure is odd - is it assuming 25% taken tax free and income received on the rest? We don't have to take annuities now so more likely to do well by investing the capital and living off the income plus a proportion of the capital - so estimate when you're going to die! If you outlive that date then sell you're house if you have it still, need to live in a home then anyway I imagine.

I'm in Alpha (the new Civil Service defined benefit scheme).

Not sure what my monthly contribution is percentage-wise (edit: 5.5% I think - it varies, going up to 9% if you're on north of £60k), but you can make additional voluntary contributions on top of that to buy extra pension.

I was fiddling with the calculator the other day - the max extra I can appear to put in is £43k, which would buy me £6k per year on retirement at 68. Sounds like a pretty sweet deal to me 8) . Although obviously that's compensating for 38 years of below private sector wages in the meantime.

[i]Although obviously that's compensating for 38 years of below private sector wages in the meantime.[/i]

http://www.bbc.co.uk/news/business-26512643

Anyway, the post wasn't about willy-waving of those with pensions (especially ones 'backed' by the taxpayer), but to draw all those folk with nothing to grime reality of probable negative pay rises (and staff cuts) over the next 3 years.

the post wasn't about willy-waving of those with pensions (especially ones 'backed' by the taxpayer),

I was responding to several posts that appear to be moaning about changes to the CS scheme - no longer final salary, no longer 1% contribution or whatever it was back in the day, etc. It's still a good deal for new entrants.

even if you paid 50% youd be better off in retirement.. my next door neighbour retired at 56 after 31 years now 89 hes been retired on an index linked final salary pension for 33 years.. plus his state pension he gets nearly 650 a week.. one of my customers draws an nhs pension of 5k a week.. cant wait till i m 68 for my state pension.. when i was 21 i had pe#is envy today its pension envy..

5k a week? £250,000 a year pension?

The pension rules mean we couldn't do that now but if they did I'd rather enjoy it now than in old age.

in a nutshell at 60 this method will give me a final salary equivalent pension
of 13445.

So you've saved £500,000 over your working life to get a pension of £13445 per year. You'd have to live to 97 to break even.

You've missed the fact that the pension increases each year in line with the RPI.

[i]You've missed the fact that the pension increases each year in line with the RPI. [/i]

Except they haven't included RPI/interest on the invested amount.

Yes. But the annuity is guaranteed to match inflation, the returns on the invested capital might or might not.

IMHO there are two reasons for getting an annuity, however I will be doing it later in my retirement, guessing about 75ish, as I think drawdown is better and annuity rates go up with age.

This is because:
- drawdown for me is a guaranteed loose (unless I top myself), if I don't die on the day the money runs out I will either leave money in the pot or have no pot - neither appeals but to be fair having money left sounds better, but irritating.
- I'm suspecting for me (*and most people) the older I get the less phsyically and mentally capable I'll be, so the idea of having an RPI linked pension (and again that might be a bad call - but again I don't know what inflation will do or how long I will live) will at least enable me to know that I have a guaranteed income till death. Again an annuity is irritating (as you give away your money) but I really don't see any other viable option.

Based on the only folk who posted already understand and have pensions - there's going to be a load of poor folk in the future; when the minimums kick in and again when they retire...

Based on the only folk who posted already understand and have pensions - there's going to be a load of poor folk in the future; when the minimums kick in and again when they retire...

There's going to be a load of poor folk now and in the future with or without this scheme!