Retirement

[PJ87]

i have been paying a lot of attention to pensions over past year. Not sure when it will happen but will stay in my job as long as i can - be great to get to 60 (currently 53) although never know when the reaper will strike. On State Pension, this year will be 34 years of full contributions, so will be maxed out in a few months for payouts at 67. I have 2 SIPPs and ISAs with AJ Bell and Interactive Investor, which i think are the best 2 pension platforms on the market - Hargreaves also very good and all three offer the whole market of funds, shares, ETFs etc - but Hargreaves is just more expensive.

I am not allowed to invest in shares or individual instruments (due to my job) like bonds, which has frustrated me a lot but i have really got into Investment Trusts (ITs) over the past year and have a very diverse allocation. Investemnt Trusts are companies and differ from Open Ended funds like unit trusts/ OEICs etc in they are live priced (rather than daily), although both are managed by the same fund managers. A unique feature of Investment Trusts is they they have a live stock-exchange quoted price and also an underlying NAV (net asset value) - unit trusts price is the same as the NAV. So you can look at the discount or premium to NAV - and there are lots of ITs that are trading on substantial discounts to NAV - for instance, you can buy many REITs or real asset funds, especially in the alternative energy (solar, battery soreage etc) that trade on discounts of 30% or more. This is whwere i have been allocating most of my money across around 50 trusts - and these all pay substantial dividends of 5% to 9% - and there is a lot of merger activity atm in the REIT space due to the large NAV discounts and as companies look to bulk up.

My target over the coming years - ie the total asset size i would like to have a reasonably comfortable retirement - is 50% to 70% above what i currently have. Hence, I will be putting as much into my company pension as possible combined and hoping for a 10% area return on current assets. Putting as much as possible into your pension is now a no brainer due to the tax breaks and with the new pension freedoms that you can access from 55. It is an additional benefit if your company contributions can be invested as salary sacrifice - we can do this from the annual bonus, so i will take max advantage of this as it is another 2% saving.

I would never go anywhere near an annuity post retirement and keep the current strategy of high-yielding investment trusts (REITs, Real Assets, Equity Income and Fixed Income funds), along with alocating more to individual high-yielding shares and short-term Gilts if they are paying 4%+.

I have looked a lot at how to access the cash through the SIPPa and there are lot of factors to consider - ie how to access the tax-free element (capped at £268,275 despite the size of the fund). I am not sure of what i will do yet but the tax free element will defitely be deployed into ISAs, to ensure the ISA allowance is used each year post retirement - they are both just 2 pots managed in the same place and containing similar investments. I know inheritance plans are best served by leaving as much in pensions as possible as they are IHT free but i feel the flexibilty of ISA through retirement is worth the trade off. Both SIPPS and ISAs have a dividend yield well north of 5% so i would hope i can take at least this much annually without running down their total sizes.

The tax free capped at that is ridiculous as you can never access the full 25% of your fund tax free. Seems like they uncapped it without actually uncapping it

 

[PNWokingham]

The tax free capped at that is ridiculous as you can never access the full 25% of your fund tax free. Seems like they uncapped it without actually uncapping it

not sure what you mean?

 

[PJ87]

not sure what you mean?

The cap has been removed from the total pot (used to be 1.2 million now it's unlimited) however the 25% tax free still has a maximum limit it seems so you can't take the full tax free amount. Like if you had a 2 million pot you couldn't take 0.5 cash Tax free

 

[PNWokingham]

The cap has been removed from the total pot (used to be 1.2 million now it's unlimited) however the 25% tax free still has a maximum limit it seems so you can't take the full tax free amount. Like if you had a 2 million pot you couldn't take 0.5 cash Tax free

Correct. No cap on max fund size now (unless labour stupidly reinstate it) but they capped the 25% tax free allowance at 25% of what the previous max pension fund Pot was - ie 25% of £1,073,100. And fiscal drag on that will mean it will be a lot less rosy in 10 years time

 

[PJ87]

Correct. No cap on max fund size now (unless labour stupidly reinstate it) but they capped the 25% tax free allowance at 25% of what the previous max pension fund Pot was - ie 25% of £1,073,100. And fiscal drag on that will mean it will be a lot less rosy in 10 years time

100%, I think the cap will return but at a more suitable level (2 million) but that's by the by. I was reaching it but now I won't so that's good I guess.

Why on earth didn't the Tax fee get uncapped or was that just because it costs money?

Be interesting to see how it all plays out

 

[PNWokingham]

100%, I think the cap will return but at a more suitable level (2 million) but that's by the by. I was reaching it but now I won't so that's good I guess.

Why on earth didn't the Tax fee get uncapped or was that just because it costs money?

Be interesting to see how it all plays out

Yes. All costs. The cap on pot size was always totally wrong as it penalised good investment returns at the very least. There is an annual cap and that is all that is needed. I don't have as much issue with a cap on tax free size, but it needs to be raised over time with inflation.

 

[PJ87]

Yes. All costs. The cap on pot size was always totally wrong as it penalised good investment returns at the very least. There is an annual cap and that is all that is needed. I don't have as much issue with a cap on tax free size, but it needs to be raised over time with inflation.

Agreed. People work/ invest hard for their pensions. We need to encourage people to support themselves in retirement. Shouldn't penalize it.

Annual cap seems fine, keeps it reasonable

 

[PNWokingham]

Agreed. People work/ invest hard for their pensions. We need to encourage people to support themselves in retirement. Shouldn't penalize it.

Annual cap seems fine, keeps it

Agreed. People work/ invest hard for their pensions. We need to encourage people to support themselves in retirement. Shouldn't penalize it.

Annual cap seems fine, keeps it reasonable

Total agreement - that is a first! .

 

[PJ87]

Total agreement - that is a first! .

I find we agree on a few things it's just how we get there that we don't agree on lol

 

[Lord Tyrion]

That was a beautiful moment ❤

 

[PJ87]

That was a beautiful moment ❤

Don't ruin it

 

[IanM]

I wonder what % of the workforce won't be able to take their full 25% tax free?

 

[PNWokingham]

Given that annuity rates are now offering much better income than a year ago due to the 5% increase in interest rates, i thought i would do a pojection to see if my dislike of these products was still just as valid - and it very much is:

• This is a quote for a 60y old, with a 50% widows pension and RPI increases, with no health conditions.
• This quote is from Money Helper and thus the best of their providers used - 2nd best was £34k.
• This shows that it would take 20 years or so just to be paid back your 1m investment (hard to predict with inflation)
• Getting a yield (starting) of only 3.7% when you can get significantly more just from deposit accounts and a selection of risk-free gilts - and then maintain ownership of the £1m
• It also shows how unfair the 20x rule is for Defined Contribution pensions comared to Final Salary holders when we had the lifetime pension pot limit that Kier Starmer wants to reintroduce. And bear in mid, a year ago, this £37k per year would be much lower.

 

[PJ87]

Given that annuity rates are now offering much better income than a year ago due to the 5% increase in interest rates, i thought i would do a pojection to see if my dislike of these products was still just as valid - and it very much is:

• This is a quote for a 60y old, with a 50% widows pension and RPI increases, with no health conditions.
• This quote is from Money Helper and thus the best of their providers used - 2nd best was £34k.
• This shows that it would take 20 years or so just to be paid back your 1m investment (hard to predict with inflation)
• Getting a yield (starting) of only 3.7% when you can get significantly more just from deposit accounts and a selection of risk-free gilts - and then maintain ownership of the £1m
• It also shows how unfair the 20x rule is for Defined Contribution pensions comared to Final Salary holders when we had the lifetime pension pot limit that Kier Starmer wants to reintroduce. And bear in mid, a year ago, this £37k per year would be much lower.

View attachment 51927

"Final" salary pensions are very rare now but also they aren't all the same now. For example I'm final salary but you get only a certain amount compared

I mean this is my statement (I took the 60 quote to compare like for like)



Increase is limited to 5% I believe , I'm not sure I know it's not full rpi it's capped

Health choices I'm unsure what that is so can't compared

That above figure is if I don't touch my lump sum at all

If I take my full lump sum you can see the figure below

For balance that is nowhere near my salary , so not "final" salary that's banded about . I wish lol

 

[PNWokingham]

"Final" salary pensions are very rare now but also they aren't all the same now. For example I'm final salary but you get only a certain amount compared

I mean this is my statement (I took the 60 quote to compare like for like)

View attachment 51930

Increase is limited to 5% I believe , I'm not sure I know it's not full rpi it's capped

Health choices I'm unsure what that is so can't compared

That above figure is if I don't touch my lump sum at all

If I take my full lump sum you can see the figure below

For balance that is nowhere near my salary , so not "final" salary that's banded about . I wish lol

I know there are many varitities and most moving to carrer average, which is what my wife has from the local council, but still much more generous compared to defined benefit schemes, where a 10% contribution from empoyers is generous.

However - that is not the point i was trying to make, rather highlighting the inequitable way that the final salary was converted to a "pot" figure for working out what was above the lifetime limit - ie a circa 55k per year inflation linked with a widows pension would have been allowed under a final salary scheme when the liefime cap was in - but that would not have been possible for a DC pension holder, who could achieve under 40k at best if they wanted the guarantee of an annuity

 

[PJ87]

I know there are many varitities and most moving to carrer average, which is what my wife has from the local council, but still much more generous compared to defined benefit schemes, where a 10% contribution from empoyers is generous.

However - that is not the point i was trying to make, rather highlighting the inequitable way that the final salary was converted to a "pot" figure for working out what was above the lifetime limit - ie a circa 55k per year inflation linked with a widows pension would have been allowed under a final salary scheme when the liefime cap was in - but that would not have been possible for a DC pension holder, who could achieve under 40k at best if they wanted the guarantee of an annuity

Ah I see understand

It is wrong changing people's pensions

They were trying to change ours but it's been kicked into the long grass after it was shown that the pension fund is in such profit it's unjustified to change it.

 

[PNWokingham]

Ah I see understand

It is wrong changing people's pensions

They were trying to change ours but it's been kicked into the long grass after it was shown that the pension fund is in such profit it's unjustified to change it.

not sure you get the message - purely saying that the government rules on pension lifetime limits, which has now been scrapped but was wrong in the first place and may be brought bak in under Starme, was unfair in how in deemed the max limits on Defined Benefit (final, Aerage salary etc), compared to defined Contribution schemes (that 99% of the private sector have). The way the limits were worked out between 2 different schemes (20x final salary) was unfair to private sector DC schemes and very beneficial to DB/ mainly public sector schemes. If there is a formula to equalise deemed benefits it should be accurate but i hope we never have to worry about it again. There are too many rules on pensions and tazxation in general - and the only one needed for pension pots is the 60k anual limit - even that is knocked back for higher earners (it is reduced by £1 for every £2 someone earns over £260,000 including pension contributions)

 

[PJ87]

not sure you get the message - purely saying that the government rules on pension lifetime limits, which has now been scrapped but was wrong in the first place and may be brought bak in under Starme, was unfair in how in deemed the max limits on Defined Benefit (final, Aerage salary etc), compared to defined Contribution schemes (that 99% of the private sector have). The way the limits were worked out between 2 different schemes (20x final salary) was unfair to private sector DC schemes and very beneficial to DB/ mainly public sector schemes. If there is a formula to equalise deemed benefits it should be accurate but i hope we never have to worry about it again. There are too many rules on pensions and tazxation in general - and the only one needed for pension pots is the 60k anual limit - even that is knocked back for higher earners (it is reduced by £1 for every £2 someone earns over £260,000 including pension contributions)

My understanding, forgive me you clearly have a much more in-depth understanding of pensions, was that the formal used to favour public sector pensions because the idea was they worked in public service and couldn't change jobs for better pay etc. as opposed to the private who could change for more money now etc.

However the massive flip side to that is private sector has taken some serious pay freezer where as public sector in some sectors have overtaken their private sector counterparts.

That's how it was explained to me anyways.

 

[Hobbit]

My understanding, forgive me you clearly have a much more in-depth understanding of pensions, was that the formal used to favour public sector pensions because the idea was they worked in public service and couldn't change jobs for better pay etc. as opposed to the private who could change for more money now etc.

However the massive flip side to that is private sector has taken some serious pay freezer where as public sector in some sectors have overtaken their private sector counterparts.

That's how it was explained to me anyways.

I worked in the NHS for a number of years. The T&C’s were called Whitley Council rates. If you worked 40 years you got a 2yr lump sum and a pension at half pay, index linked, and the option to retire at 60. Salaries were lower than in the private sector, the premise being the pension made up for it. Sometime around the mid 90’s the pension T&C’s were downgraded. At some point after that the T&C’s were downgraded again. Trusts were also given the option to renegotiate their staff onto Trust contracts - I think it was in ’96 I was offered a promotion and a £2.5k pay cut.

Around the late 00’s an initiative was introduced called Agenda for Change. This saw everyone given the option of a Trust contract or lose their job, and every job was rebanded. At this point most salaries were given a lift up to what was considered to be commercial levels. By then I was working in the private sector, our main customer being the NHS. And it was from the NHS we used to get the majority of our engineers, up till their salaries matched our offers. Our money purchase pension scheme was nowhere near as good as the downgraded NHS scheme.

The NHS pay rises from 2010 onwards were virtually non-existent. Yes the private sector saw a serious squeeze around 2009 for a couple of years due to the financial crash but the it was back to normal… and that’s why the doctors want 35%, which gets them back to an equitable level.

 

[PJ87]

I worked in the NHS for a number of years. The T&C’s were called Whitley Council rates. If you worked 40 years you got a 2yr lump sum and a pension at half pay, index linked, and the option to retire at 60. Salaries were lower than in the private sector, the premise being the pension made up for it. Sometime around the mid 90’s the pension T&C’s were downgraded. At some point after that the T&C’s were downgraded again. Trusts were also given the option to renegotiate their staff onto Trust contracts - I think it was in ’96 I was offered a promotion and a £2.5k pay cut.

Around the late 00’s an initiative was introduced called Agenda for Change. This saw everyone given the option of a Trust contract or lose their job, and every job was rebanded. At this point most salaries were given a lift up to what was considered to be commercial levels. By then I was working in the private sector, our main customer being the NHS. And it was from the NHS we used to get the majority of our engineers, up till their salaries matched our offers. Our money purchase pension scheme was nowhere near as good as the downgraded NHS scheme.

The NHS pay rises from 2010 onwards were virtually non-existent. Yes the private sector saw a serious squeeze around 2009 for a couple of years due to the financial crash but the it was back to normal… and that’s why the doctors want 35%, which gets them back to an equitable level.

See now I'm under no illusion I'm in a fortunate position, I left school at 16 and went for an apprenticeship at London underground (not tfl , putting this here as they have had paid freezes for years) so I'm in my 21st year on the company. We have had rpi linked rises rather than just flat rises. So obviously our wages are just where everyone else in the country (imo) should be as it's keeping up with inflation. This year we have accepted 5% plus £1000 (which is 6% for me, but importantly 10% for the lower paid grades). What I like about the company is you get no gender pay gap, no age paid gap. It's all you do that job you are paid the same as anyone else doing that job.

What I don't like is how we go about keeping these rises. I find it immorale and I struggle personally with it. However on the flip side I've seen outside the company how without those methods firms will treat you like trash. Only have to look at the forces and the police to see how their pay has changed in the same time period.

Even this year they tried it on, 5% was more than acceptable but they wanted to freeze pay bands (I'm banded in a grade that A shouldn't be banded and B you can't get to the top of the band, the method is never used) so they wanted to put us up the band and then have newbies paid less. Consider we have massive gaps in the role due to people failing the training (7 gaps in my room alone) lowering the wage whilst boosting the wage below is very short sighted. However that was dealt with and the caps removed (ironically never put the caps in the 5% would have been accepted even with inflation at 13% at the time it's still amazing imo) quick add here how I would like to see us go forward is sod rpi, agree a % of say a drivers wage whatever that is in cash everyone gets. Then the pay scales don't jump up for us at the top as much and those at bottom get more % wise whilst keeping the pay gap the same.

Pensions they tried to change over past 2 years to career average salary with more payments from us. This was kicked into touch to be dealt with in 2026, another silly battle when the pension is self funded and in massive profit why change it? It's affordable.

I always speak to my old school mate who stayed, did uni, he is in a higher paid role now but pension is about the only difference between us in the main. Both don't regret our choices for sure.

Tbh reading all about state pension and how it's unaffordable etc etc makes me lean towards if you have a good private pension the state pension should be given up just because if you can afford to do so someone else can benefit from it who hasn't had the opportunities I had for example. I mean I lucked out I live in zone 6 of greater London so an apprenticeship there was a smart move. But say you are from bath or Manchester it isn't going to be a viable option.

Would love to see more people go for apprenticeships in the main tho and abandon uni routes just because it's "the norm" only certain careers need the qualifications and most jobs you can learn in the role.

For example our room you have 39 people. 7 spaces atm so of that 32 8 are ex forces (very good at their jobs) 8 ex apprentices like myself (good because we learnt the company from the bottom) and then 8 general promotions IE drivers. Station staff etc

We have people with masters In physics, and ex air traffic controllers but we all equal and tbh I think it's great.

I wish more places were like get a degree and then your on your own. The forces lot came from an ex forces recruitment campaign, the degrees are from graduate schemes. Etc