Pension pots.. how much is too little?

[vkurup]

Yesterday, Prince Charles hit 65 and should get his free bus pass... also the annual enrolment into the company pension fund starts again.

We are all living longer. lets say we will live to 90 i.e. a good 25 years after retiring. The money in the pot has to support yourself and the Mrs into the grave. I am assuming the house would be paid off by then, secondary income will be non existing and the kids would have flown. You still want to go out an play golf and buy the latest TM clubs.

So how much money should be in the pot when you stop working?

 

[chrisd]

More money will be needed than I've got!

 

[MadAdey]

Really depends on how good you want your life to be when you retire. If everything is paid off then yuo could probably get by on £1000 a month in your hand, so that would need about £300,000 in the pot if you live to 90. I know people who live off their armed forces pension at my place along with their state pension. So they have probably got around £18K a year pension coming in and they happily afford to keep playing golf.

 

[Doon frae Troon]

To live decently you need at least £20k a year at today's rates.

I am more than a bit miffed that I am receiving zilch interest on my hard earned savings whilst others are living the life of Riley on 0% mortgage rates. Pensioners were part of the 'hard working families' that our beloved politicians love to sound bite at every opportunity

Sods have clawed back £100 of my winter fuel allowance as well.
Fuel costs go up by 10% and they reduce the fee, that's a vote winner if ever I saw one.

Our household living costs are £6.5k a year with everything paid for. That is heating fuel, electric, rates inc water, insurance, car tax + RAC [two cars] phones, Sky TV, TV licence.

 

[Shaunmg]

Big issue with me at the moment. Pension annuities are at an all time low, and the word out there is not to expect much improvement in the future, may get even worse. Low interest rates along with bigger life expectancy are the reasons.


I have a pension pot of about £150,000 and want to start drawing it in January, I'm 62. The best quote I've had is £8,900 per year , which of course will be taxable. So if you're thinking you need 20k, my guess is you need half a million. So good luck and start saving

 

[vkurup]

I have a pension pot of about £150,000 and want to start drawing it in January, I'm 62. The best quote I've had is £8,900 per year , which of course will be taxable. So if you're thinking you need 20k, my guess is you need half a million. So good luck and start saving

That is tough... You would think that 40 yrs of work now needs to feed about 30 years without it. Half a mil over 40 yrs is about 12500 per year (on a straight line). At 6% matching contributions, you need someone to earn 100K per year from their first year of employment!! (Of course this discounts the fact that earning is more exponential rather than linear)

 

[Marshy77]

Big issue with me at the moment. Pension annuities are at an all time low, and the word out there is not to expect much improvement in the future, may get even worse. Low interest rates along with bigger life expectancy are the reasons.


I have a pension pot of about £150,000 and want to start drawing it in January, I'm 62. The best quote I've had is £8,900 per year , which of course will be taxable. So if you're thinking you need 20k, my guess is you need half a million. So good luck and start saving

Suppose it depends on what other income you have. If you only lived on that pension then you wouldn't be taxed as the free pay rate is £9440.

 

[SwingsitlikeHogan]

This is something that we have only just started to think about - and much more seriously than in the past.

Fortunately my first job (of 16yrs) has a final salary scheme that is still healthy; my current employment has a good employer like-for-like contribution (though what is that worth in the end - who knows); and my wife has worked in the NHS all her life and is now in a senior nursing position. But in truth whilst that sounds and feels OK - we haven't a clue where it actually puts us financially in the context of standard of living when the time arrives and we are both 'retired'.

So about a month ago, and for the first time ever, we have engaged with a independent financial adviser to help us properly understand our pension position and sort out what we can do now - and over the coming 10-15yrs to make it as good as possible. From what I can recall I think he mentioned a figure of £300k pot for £20k/annum pension - but I may be totally wrong in that as the figures were flying. One thing he was talking about was how there is likely to be a move from buying an annuity to drawing down from the pot - in some way.

 

[richart]

This is something that we have only just started to think about - and much more seriously than in the past.

Fortunately my first job (of 16yrs) has a final salary scheme that is still healthy; my current employment has a good employer like-for-like contribution (though what is that worth in the end - who knows); and my wife has worked in the NHS all her life and is now in a senior nursing position. But in truth whilst that sounds and feels OK - we haven't a clue where it actually puts us financially in the context of standard of living when the time arrives and we are both 'retired'.

So about a month ago, and for the first time ever, we have engaged with a independent financial adviser to help us properly understand our pension position and sort out what we can do now - and over the coming 10-15yrs to make it as good as possible. From what I can recall I think he mentioned a figure of £300k pot for £20k/annum pension - but I may be totally wrong in that as the figures were flying. One thing he was talking about was how there is likely to be a move from buying an annuity to drawing down from the pot - in some way.

I am an Independent Financial Adviser, and current basic annuity rates for a 65 year old male in good health are about 6%. This is liable for tax at your highest rate. You can take 25% tax free cash from your pot, which would normally be recommended unless you have guaranteed annuity rates written into you pension plan. A lot of old style retirement annuity contracts from the 70's and early 80's did, and these plans are like gold dust. Guaranteed rates can be 12/13%. If you have such a contract under no circumstances transfer your plan, as you will lose the guarantees.

Remember if you include escalation, guaranteed payment periods, widows pension etc, the amount you will receive will drop significantly from the 6% figure I quoted. For a husband and wife both aged 65 with a 100% widows pension you may only receive about 4% per annum from your pot.

Anyone who is thinking of drawing income from their pension pot without purchasing an annuity must get professional advice. Effectively you are taking money out of your pension in the hope that the pot will grow, and or that annuity rates will not fall further. Think of the worst case scenario, your fund falls in value, rates drop further, and your pot could diminish at a very quick rate. Of course the opposite could happen but can you take the risk ?

These are just general points, and as I mentioned always take professional advice, preferably from a pension specialist.

 

[SwingsitlikeHogan]

I am an Independent Financial Adviser, and current basic annuity rates for a 65 year old male in good health are about 6%. This is liable for tax at your highest rate. You can take 25% tax free cash from your pot, which would normally be recommended unless you have guaranteed annuity rates written into you pension plan. A lot of old style retirement annuity contracts from the 70's and early 80's did, and these plans are like gold dust. Guaranteed rates can be 12/13%. If you have such a contract under no circumstances transfer your plan, as you will lose the guarantees.

Remember if you include escalation, guaranteed payment periods, widows pension etc, the amount you will receive will drop significantly from the 6% figure I quoted. For a husband and wife both aged 65 with a 100% widows pension you may only receive about 4% per annum from your pot.

Anyone who is thinking of drawing income from their pension pot without purchasing an annuity must get professional advice. Effectively you are taking money out of your pension in the hope that the pot will grow, and or that annuity rates will not fall further. Think of the worst case scenario, your fund falls in value, rates drop further, and your pot could diminish at a very quick rate. Of course the opposite could happen but can you take the risk ?

These are just general points, and as I mentioned always take professional advice, preferably from a pension specialist.

Good advice - thank you sir! The thoughts on alternatives to annuities were at the point of 'retirement' - whatever that will actually mean and whenever that might happen 15yrs or so from now.

 

[Hacker Khan]

But in truth whilst that sounds and feels OK - we haven't a clue where it actually puts us financially in the context of standard of living when the time arrives and we are both 'retired'.

Probably not as good as you thought it would be, but a lot better than the majority of people. I think it is a bit of a ticking timebomb as a few (but I fully understand its not all by a long stretch of the imagination) of the current pensioners have been lucky enough to get final salary or generous pension pots. But the current 30 or 40 somethings will not get those, so there will be even more skint people around in 20/30 years time.

And I can only see it getting worse as with the cost of houses, who nowadays has the opportunity to save away a nice pension pot once you've paid off your mortgage, fuel bills, student loans, car loans etc etc.

It's all well and good saying you will use your house as income, but that is assuming that your house will be worth enough to do that, and that you are willing to significantly downsize when the time comes, which I suspect quite a few won't after getting used to living in a decent house.

 

[vkurup]

It's all well and good saying you will use your house as income, but that is assuming that your house will be worth enough to do that, and that you are willing to significantly downsize when the time comes, which I suspect quite a few won't after getting used to living in a decent house.

Downsize from this would mean living in a smaller shoebox!!!

 

[richart]

Good advice - thank you sir! The thoughts on alternatives to annuities were at the point of 'retirement' - whatever that will actually mean and whenever that might happen 15yrs or so from now.

You should certainly look into an Open Market Option when you decide to take your benefits. i.e getting annuity quotes from all annuity companies and not just the one you have your plan with. No doubt in 15 years time pension rules will have changed, and you will need to take advice at the time on the options available.

Anyone with a money purchase scheme should look at how their fund is invested and does it suit their risk profile. Also if you are in equity funds you need to be careful as you approach retirement, as a sudden fall in stock markets could lead to a fall in your fund value. Someone that retired in 1987 days after the stock market crash saw their fund values drop by as much as 50%, so their pension annuity dropped accordingly. Anyone that had received advice to switch into a cash fund say 6 months earlier would not have suffered the fall. Pensions are a minefield, and it amazes me how little people know about probably their biggest investment.

If you invested longer term £100,000 you would spread it between different companies, and different funds. Yet a lot of people will have considerably more than that sum invested in one company and one fund. It pays to take an interest in your pension. I am talking about Money purchase Schemes and not final salary ones, and all my comments are general rather than specific to anyone.

 

[mikee247]

You should certainly look into an Open Market Option when you decide to take your benefits. i.e getting annuity quotes from all annuity companies and not just the one you have your plan with. No doubt in 15 years time pension rules will have changed, and you will need to take advice at the time on the options available.

Anyone with a money purchase scheme should look at how their fund is invested and does it suit their risk profile. Also if you are in equity funds you need to be careful as you approach retirement, as a sudden fall in stock markets could lead to a fall in your fund value. Someone that retired in 1987 days after the stock market crash saw their fund values drop by as much as 50%, so their pension annuity dropped accordingly. Anyone that had received advice to switch into a cash fund say 6 months earlier would not have suffered the fall. Pensions are a minefield, and it amazes me how little people know about probably their biggest investment.

If you invested longer term £100,000 you would spread it between different companies, and different funds. Yet a lot of people will have considerably more than that sum invested in one company and one fund. It pays to take an interest in your pension. I am talking about Money purchase Schemes and not final salary ones, and all my comments are general rather than specific to anyone.

I think you are right a lot of people dont really know what they have invested in what and how many funds etc and those that do don't get as much information on this as they should. I was hoping that there would be a big clean up on the woeful pension set up in this country but alas it hasn't seemed to changed a huge amount. I have a few pension schemes in place but I'd never take a large risk and put all my retirement funding or guarantee in them. I'm more inclined to spread the risk and invest it in a number of different projects in completely different markets such as property, land, commodities, shares, wine, business investment etc. Its a myth that you have to have a huge amount of money to do this but if you get good advice and invest carefully, there is another way rather than the traditional pension only process which is awful in my opinion nowadays.

 

[Hobbit]

Whatever you think you need for your plans, make sure you plan for the unexpected. In 2006 my various pots were ticking along very nicely... and then the was the crash! £14k wiped out in a few months AND the rates fell through the floor - a double whammy!!

The plan to retire at 52.5yrs old went out the window. And it is only in the last year that the numbers have showed a glimmer of recovery. However, I'll still be in my 60's, at the current rate before I can consider retiring.

I have 2 decent Scot's Widows pots, a 10yr NHS pot and 16yrs worth of a decent money savers scheme(15% of salary), all of which don't look like they'll produce anything startling. In other words, if you are looking for a decent pension, save as much as you can and then some.

 

[CMAC]

if I had my time again I would invest in property as a pension. Like Hobbit I lost a lot in the crash of 2006.


@Richart, I dont think its about people not knowing about their biggest investment, it's more about understanding as they are very complicated in their make up and easily confuse.

 

[Ian_S]

A question I've often wondered about. I'm 29, so starting relatively early, but still, when I get my pension statements I have absolutely no idea whether the projected income is good or not. I guess all I can do is put as much into my fund as possible and keep an eye on it. Luckily I'm in a good company for now that puts 13% of my salary into the pot while I put 7% in.

Plus I presume the projections are all based on my salary rising with inflation, where hopefully I can make enough of a success of my work that it grows faster than that.

 

[SwingsitlikeHogan]

A question I've often wondered about. I'm 29, so starting relatively early, but still, when I get my pension statements I have absolutely no idea whether the projected income is good or not. I guess all I can do is put as much into my fund as possible and keep an eye on it. Luckily I'm in a good company for now that puts 13% of my salary into the pot while I put 7% in.

Plus I presume the projections are all based on my salary rising with inflation, where hopefully I can make enough of a success of my work that it grows faster than that.

I don't think 29 is relatively early to start saving into a pension to be honest. I started straight after starting work at 25 - and other new graduate employees would have started at 21yrs old - my company at the time BAe strongly recommended that all new graduate starters started pension contributions from the word go - and most of us did.

 

[harpo_72]

Honestly speaking I don't have a pension, the costs and poor performance seem to be a waste of money. I have an ISA, that should be unrestricted regarding tax, you have paid income tax and national insurance .. Why should you be taxed on savings? Secondly when is the financial sector going to be castrated, the saving options are tainted by charges, how can you justify a charge that is greater than the interest?
Also you cannot play stocks and shares,you have to use a broker or your charged for transactions ... The doors are shut.
it was suggested to us to put x amount in a pension, when I counted yep if I put that directly into my mortgage I will complete it in 5 years, there was no answer. The simple financial solutions are, don't live beyond your means I.e. that flash car is just wasted money as is the latest apple thing or the new lap top etc... Oh and get rid of your biggest financial burden fast...

I guess my generation is supporting the final salary generation, I also disagree with multi million pound pensions... They aren't needed, divide them up.

 

[Deleted member 15344]

Have a military pension as well as a work pension ( I pay 5% they pay 10% ) so hopefully with the state one added willbe ok for future living