Pensions

[Canfordhacker]

Several people have mentioned annuity rates - don't forget you have a much wider choice of drawdown options nowadays.

 

[SwingsitlikeHogan]

Property has been a fruitful investment for many people but it can take time to sell. Know of people who have struggled to get the cash out of their property because no one was buying. That's why there are those 'We buy any house' companies popping up.

Beginning to think that our obsession with property is seriously detrimental to the development of the countries infrastructure. It seems that everything that we need to build and/or put in place - be it roads, railways, power, renewables, (social) housing etc etc must be viewed through the selfish prism of the impact on house prices (selfish because how many of us want the value of our own house to go done as a result of what someone else does). And when we put so much money into house purchasing there is not the free cash to put into pensions because so many see our property as out pension - and property as pension is strangling the country.

And I'll admit to being a serious beneficiary of our insane housing market - with my house having increased in value by 550% since 1997. That is frankly nuts - though to my (and my children's) good fortune I am doubly fortunate that I have sufficient pension in place that I do not require my house as a pension fund. But that does not make the situation less absurd.

 

[SwingsitlikeHogan]

I am talking to my children about their pensions, my 25yr old son is not interested at the moment...so be it - he looks at me and Mrs as BoMaD - but hey ho - maybe that'll change - and truth is at the moment he has a lot of messy debts to pay off.

Talked to my 22yr old daughter of a 5yr plan maybe putting £100 a month by - to start with. Not a lot - but let's just say do it for three years - that's £3600 capital to be invested. Then increase to £200/month for next 2 years - £4800. Combined that's £8400 - and she'll be 27. At the moment just that amount sitting earning a little interest over the next 40 yrs. At 2% that lump sum alone will be worth ~£18500. Then if she were to continue investing £200 a month - over 40yrs at 2% that gives a pot of £147000. So combined a pot of £165500 at 67. Start soon enough - you'll build up a reasonable amount.

But don't know why I am bothering though as she is a PA to a Financial Advisor (Wealth Management Consultant ) so she doesn't need my words of uniformed wisdom

 

[Hobbit]

The numbers that were quoted to me many years ago is 14% os salary needs to be invested. For someone just starting out, with a big mortgage and a family, finding 14% is a huge ask. 14% of the average salary is upwards of £3.5k.

 

[SwingsitlikeHogan]

The numbers that were quoted to me many years ago is 14% os salary needs to be invested. For someone just starting out, with a big mortgage and a family, finding 14% is a huge ask. 14% of the average salary is upwards of £3.5k.

Does that match to what I read that an adequate pension is 2/3 your current income. Now I am assuming that that must be 2/3rds bottom line income (or I'm knacked...) Of course what is 'adequate' is relative - though relating it to your current bottom line may mean that a 2/3 pension would be adequate for my existing standard of living - I guess...though as my IN and my OUT have been rather too neatly balanced for a long time I'm not sure how I do with 2/3...

OK if I add in my wife's pension and state pension...

 

[Hobbit]

Does that match to what I read that an adequate pension is 2/3 your current income. Now I am assuming that that must be 2/3rds bottom line income (or I'm knacked...) Of course what is 'adequate' is relative - though relating it to your current bottom line may mean that a 2/3 pension would be adequate for my existing standard of living - I guess...though as my IN and my OUT have been rather too neatly balanced for a long time I'm not sure how I do with 2/3...

OK if I add in my wife's pension and state pension...

PM’d, and yes add in state and HID’s.

 

[SwingsitlikeHogan]

PM’d, and yes add in state and HID’s.

- just need to work out how to get from April until I'm 65 with us living on my wife's NHS pension - then at 65 my final sal pension kicks in - then another year and my state pension comes in - then another year wait for hers. Then we'll be OK.

But starting today - well I paid a fair bit into my company pension from the word go in 1984 - but I could afford to as my rental accomodation was cheap (room in a house in Bristol for £80/month) and I was earning a pretty good starting graduate salary (£9k/yr).

 

[Simbo]

What’s a final salary scheme pension???
Iv had a pension since I was 16 but only paid in the bare minimum so that the company would contribute. I’m now looking at either upping my contributions or starting a new one. I’m unsure which way to go.

 

[BrianM]

My company pay 10% of my salary into my pension and I match it as well.
Took a risk 3 years ago and bought a holiday cottage and invested all my savings into it so there was only a small mortgage on it.
Its paid off as it has made a healthy profit the last 2 years and this year is filling up as well.
I only started thinking about pensions etc about 5 years ago, I’m hoping to retire at 55, all going well.

 

[Canfordhacker]

then at 65 my final sal pension kicks in -.

You don't have to wait that long. Many people are moving money out of final salaries into a SIPP to be able to drawdown at 55, protect their inheritance and front load that drawdown when they are healthy enough to enjoy it. Shouldn't be done without significant financial advice (and in fact the legislation demands it), and I am certainly not offering advice.

But worth considering.:thup:

 

[SwingsitlikeHogan]

What’s a final salary scheme pension???
Iv had a pension since I was 16 but only paid in the bare minimum so that the company would contribute. I’m now looking at either upping my contributions or starting a new one. I’m unsure which way to go.

A scheme by which the company guarantees to pay a pension amount at the NRD initially calculated based upon the contributor's salary when he leaves the company. The guaranteed amount increases year on year in accordance with (I believe) the RPI - so for RPI>0.0 the amount increases year-on-year. It is a guaranteed amount that does NOT depend of performance of stocks, share, gilts - the markets.

To fund this a company pension scheme will work out the total lifetime amount of money it has to allocate to pay that pension over the assumed lifetime of the pensioner. That is how it works out whether there is enough money in a scheme to meet it's final salary commitments - and so why Carillion is declaring a massive £600m hole in it's pension fund -- it has 28,500 receiving or paying into final salary pension schemes.

Traditionally the advice was to never ever cash in a final salary scheme - however in the last year or so company pension schemes have been forced to allocate greater sums to each pension - and so the Cash Equivalent Transfer Value of a final salary pension may make it attractive - in circumstances that are specific to the individual pension holder - to transfer out and reinvest. But you need specialised and highly accredited advice to work this out for you. I am having this done as my circumstances are such that taking the CETV may be the right thing for me.

If you are in a final salary scheme and you are still allowed to make additional voluntary contributions into it then the traditional advice would be to do so - because it is guaranteed. But then the Carillion final salary scheme pensioners would have thought that also - and look where they are. Financial Advice required.

 

[Tashyboy]

My company pay 10% of my salary into my pension and I match it as well.
Took a risk 3 years ago and bought a holiday cottage and invested all my savings into it so there was only a small mortgage on it.
Its paid off as it has made a healthy profit the last 2 years and this year is filling up as well.
I only started thinking about pensions etc about 5 years ago, I’m hoping to retire at 55, all going well.

When it comes to financial matters of which your pension is in the top two. Getting rid of my mortgage in my forties was the best thing I ever did. It is alright having a decent pension. But when drawing your pensions, it is not so much what is coming in, but what is going out and mortgages can play a major part of that.
Watching Martin Lewis last night who I have a lot of time for, and he mentioned about paying extra on your mortgage if you can afford it rather than pay into a savings plan it will reduce your mortgage term by years.
If you do have extra to put to one side. Here's one for the experts. Would you put into AVCs ( added voluntary contributions ) topping up your pension. Or pay extra towards your mortgage.

 

[SwingsitlikeHogan]

When it comes to financial matters of which your pension is in the top two. Getting rid of my mortgage in my forties was the best thing I ever did. It is alright having a decent pension. But when drawing your pensions, it is not so much what is coming in, but what is going out and mortgages can play a major part of that.
Watching Martin Lewis last night who I have a lot of time for, and he mentioned about paying extra on your mortgage if you can afford it rather than pay into a savings plan it will reduce your mortgage term by years.
If you do have extra to put to one side. Here's one for the experts. Would you put into AVCs ( added voluntary contributions ) topping up your pension. Or pay extra towards your mortgage.

The decision making can be complicated. We have capital coming in from my wife's pension lump sum and mum's estate. We can pay off some or all of my mortgage. But how many times do you have a good amount of interest free capital in your hands? With us - a very rare occurrence. If you have equity in your property and can envisage selling up and at that point being able to go 'mortgage free' - why use all your rare capital? Maybe don't pay off your mortgage if you can service it; but invest the capital in a way that makes at least some of it available if you need it. And if the time comes that servicing your mortgage becomes difficult or you want to clear it - pull down from your investments.

As it happens we probably won't pay off all of our mortgage - but reduce it significantly; put what's left on a low fixed rate; and add the monthly payment into our monthly bills at a level that still enables our monthly bills (inc mortgage) to be fully paid out of my wife's monthly pension. At some point in the next few years we will move house and at that point we'll go mortgage free.

Meanwhile we will use the capital remaining (from not paying off the mortgage in full) to fund some nice stuff for ourselves - for the first time in 30yrs together - nice holiday or two; garden studio; replacement - but not new - car etc. We feel we deserve it having got our children to where they are today at quite some sacrifice to ourselves, what we have and what we have been able to do - uni and all that. And with other personal life stuff going on there is no time like the present - it passes us by very quickly - we have decided that should value the present whilst we can.

Someone once said to me - do not use capital unthinkingly - it does not come to you that often in life.

 

[SocketRocket]

- just need to work out how to get from April until I'm 65 with us living on my wife's NHS pension - then at 65 my final sal pension kicks in - then another year and my state pension comes in - then another year wait for hers. Then we'll be OK.

But starting today - well I paid a fair bit into my company pension from the word go in 1984 - but I could afford to as my rental accomodation was cheap (room in a house in Bristol for £80/month) and I was earning a pretty good starting graduate salary (£9k/yr).

I know you were a BAE Employee and in their Pension Scheme like me. I now draw my BAE Pension but there seems to be a bit of a catch regarding years you were in the scheme before 1998. That part of your pension is referred to as GMP (Guaranteed Minimum Pension) and is not indexed by inflation. I am trying to get more information on this but it is associated with paying a lower National Insurance Stamp while contracted out.

 

[jim8flog]

I have noted on here several mention investing in property.

I am of an age when I have see two times when property prices have crashed the first time shortly after dual mortgage relief was stopped (late 80s mid early 90s) and in 2008. Where I live prices have totally stagnated since 2008 my own house is still worth less than it's 2007 value.

At the same time my stock and shares investments have increased by nearly 100%.

 

[Tashyboy]

SILH, the trouble is with investing money, unless it is in ISA's etc, you stand a chance of losing it or a lot of it like I did. It leaves a nasty taste in your mouth, especially when your financial advisor is sacked for " being a bit of a maverick".
If you are paying £1k a month mortgage. And it's paid off, that's £1k a month going into savings. Lifestyle improves and stress over money issues disappear overnight. You can even buy branded biscuits.😁 I did it and remember going to bed when we had the mortgage free letter come and grinning from ear to ear for a week.

Jim, when I mentioned about my investments losing brass it was in 2008, am sure one or two others did as well. Can understand what you are saying re houses and prices. But I have always looked at my house as a home and not an investment. If you had an house to rent in 2006, it may well be worth the same now as then but 12 years rental income would of been serious income.

 

[PNWokingham]

I would strongly recommend anyone that has a previous final salary scheme from older employments to request a transfer value and a current annual salary (i.e. when you left indexed at the rate in the scheme rules) to compare the two. The CETV transfer values are seriously compelling and having the pot of money gives you massive flexibility. The older and nearer retirement the better the transfer values. The multiple of the current (2018) final salary offered can be well over 20x - often 30 or even up to 40. This money can also be passed on in your estate planning. It takes them weeks or more to get you the CETV and you have 3 months to transfer - and you will have to pay a financial adviser unfortunately if over 30k. There is no obligation to initiate a transfer but at least you get the facts and can make an informed decision. The window to do this is likely closing over this year as the high values are a direct correlation of low interest rates - and rates have already risen and could accelerate over the next couple of years, meaning the discount factor (20y gilt rates) will be higher and thus transfer values will suffer.

 

[PhilTheFragger]

I would strongly recommend anyone that has a previous final salary scheme from older employments to request a transfer value and a current annual salary (i.e. when you left indexed at the rate in the scheme rules) to compare the two. The CETV transfer values are seriously compelling and having the pot of money gives you massive flexibility. The older and nearer retirement the better the transfer values. The multiple of the current (2018) final salary offered can be well over 20x - often 30 or even up to 40. This money can also be passed on in your estate planning. It takes them weeks or more to get you the CETV and you have 3 months to transfer - and you will have to pay a financial adviser unfortunately if over 30k. There is no obligation to initiate a transfer but at least you get the facts and can make an informed decision. The window to do this is likely closing over this year as the high values are a direct correlation of low interest rates - and rates have already risen and could accelerate over the next couple of years, meaning the discount factor (20y gilt rates) will be higher and thus transfer values will suffer.

I did exactly this with my old Barclays pension, i was in for 17 years till 1996 and my pension at 65 (im 56 now) was projected to be about £5500 pa, reducing by 50% on my death.with a lump sum of £30K.
had a transfer value in excess of £300K and moved it lock stock and barrel to the Pru where the projections are for a lumpsum in excess of £100k with an annual pension of £20K without reducing the capital amount which now forms part of my estate and can be passed on.

cost me £7000 in fees, but easily the best financial move I have ever done apart from buying our previous house .

 

[SwingsitlikeHogan]

I know you were a BAE Employee and in their Pension Scheme like me. I now draw my BAE Pension but there seems to be a bit of a catch regarding years you were in the scheme before 1998. That part of your pension is referred to as GMP (Guaranteed Minimum Pension) and is not indexed by inflation. I am trying to get more information on this but it is associated with paying a lower National Insurance Stamp while contracted out.

Cheers for that - my IFA is going to the Pension Scheme to find out. I left BAe in 2000 - after 16 years...

 

[SwingsitlikeHogan]

SILH, the trouble is with investing money, unless it is in ISA's etc, you stand a chance of losing it or a lot of it like I did. It leaves a nasty taste in your mouth, especially when your financial advisor is sacked for " being a bit of a maverick".
If you are paying £1k a month mortgage. And it's paid off, that's £1k a month going into savings. Lifestyle improves and stress over money issues disappear overnight. You can even buy branded biscuits.😁 I did it and remember going to bed when we had the mortgage free letter come and grinning from ear to ear for a week.

Jim, when I mentioned about my investments losing brass it was in 2008, am sure one or two others did as well. Can understand what you are saying re houses and prices. But I have always looked at my house as a home and not an investment. If you had an house to rent in 2006, it may well be worth the same now as then but 12 years rental income would of been serious income.

Thanks for this @TB

What we can take into account is that my wife's pension is sufficient to cover all of our fixed monthly outgoings - including the monthly payment for any residual pension we decide to not clear at the present. This means that the worry about being able to afford live in our house (no matter what happens to any investments) is not one we should have.

We then have to look at capital available to do and buy stuff - and given my wife's health worries - that for the first time in our lives becomes important. And this is why looking at the CETV of my own final salary pension from a previous job comes onto the radar when previously I had never considered it.