Is anyone else not bothering with pension planning?
Discussion
I've said this before, but it is worth saying again.
The word 'pension' has different meanings to different people.
(1) The state pension
(2) An occupational pension scheme
(3) A Personal Pension (now usually a 'Self Invested' Personal Pension - SIPP)
At the end of the day though, any and every Personal Pension (or SIPP) is a tax allowance (or 'wrapper').
You are (generally) allowed to put in up to £40k of Net Relevant Earnings each year without paying any tax on these contributions.
You can invest this money in anything you want provided it is a HMRC permitted investment (so, shares, bonds, funds, ETFs, commercial property, land, physical precious metals, cash).
At retirement (currently aged 55) you can take 25% (one quarter) of your money tax free. The rest is taxed as any other income.
The effect of tax is as follows:
Higher Rate (HR) whilst saving and HR whilst withdrawing = 0% effective tax rate on contributions whilst saving (with the basic 20% going into your pension each year and the extra 20% higher rate going in your pocket each year) and a 30% effective tax rate whilst withdrawing. Only an idiot would not use this allowance!
HR whilst saving and Basic Rate (BR) whilst withdrawing = 0% effective tax rate on contributions (with the basic 20% going into your pension each year and the extra 20% higher rate going in your pocket each year) whilst saving and a 15% effective tax rate whilst withdrawing. Now you would have to be officially certified not use this allowance! I won't even go to the HR to Non-Taxpayer Rate here!
BR to BR = 0% effective tax rate on your contributions (because of the 20% income tax going into your pension straight away) and a 15% effective tax rate on your withdrawals.
BR to Non-Tax Payer Rate = 0% effective tax rate on your contributions (because of the 20% income tax going into your pension straight away) and 0% tax on withdrawals.
Non-Tax Payer to Non-Taxpayer is even better = 25% uplift (free money) going into your pension straight away (up to a total of £3,600 combined each year) and no tax coming out.
Pensions were hijacked by insurance companies many decades ago when they (the insurance companies) provided the Scheme administration for 'free' but your money had to be invested with them. They were not good investments (in general - some were, however) and so regardless of the tax breaks personal pensions got a bad name.
Now we have Self Invested Personal Pensions (SIPPs) whereby the Scheme administration is completely separate from the underlying investments.
I think you mean 'retirement planning'. This will involve one or more of the above, but also others (ISAs and property being the main two, together with the zeroing of debt and relevant insurance.
In short, don't dismiss the best tax break you can get because life insurance companies spent decades monopolising the tax allowance and turning it into a product.
The word 'pension' has different meanings to different people.
(1) The state pension
(2) An occupational pension scheme
(3) A Personal Pension (now usually a 'Self Invested' Personal Pension - SIPP)
At the end of the day though, any and every Personal Pension (or SIPP) is a tax allowance (or 'wrapper').
You are (generally) allowed to put in up to £40k of Net Relevant Earnings each year without paying any tax on these contributions.
You can invest this money in anything you want provided it is a HMRC permitted investment (so, shares, bonds, funds, ETFs, commercial property, land, physical precious metals, cash).
At retirement (currently aged 55) you can take 25% (one quarter) of your money tax free. The rest is taxed as any other income.
The effect of tax is as follows:
Higher Rate (HR) whilst saving and HR whilst withdrawing = 0% effective tax rate on contributions whilst saving (with the basic 20% going into your pension each year and the extra 20% higher rate going in your pocket each year) and a 30% effective tax rate whilst withdrawing. Only an idiot would not use this allowance!
HR whilst saving and Basic Rate (BR) whilst withdrawing = 0% effective tax rate on contributions (with the basic 20% going into your pension each year and the extra 20% higher rate going in your pocket each year) whilst saving and a 15% effective tax rate whilst withdrawing. Now you would have to be officially certified not use this allowance! I won't even go to the HR to Non-Taxpayer Rate here!
BR to BR = 0% effective tax rate on your contributions (because of the 20% income tax going into your pension straight away) and a 15% effective tax rate on your withdrawals.
BR to Non-Tax Payer Rate = 0% effective tax rate on your contributions (because of the 20% income tax going into your pension straight away) and 0% tax on withdrawals.
Non-Tax Payer to Non-Taxpayer is even better = 25% uplift (free money) going into your pension straight away (up to a total of £3,600 combined each year) and no tax coming out.
Pensions were hijacked by insurance companies many decades ago when they (the insurance companies) provided the Scheme administration for 'free' but your money had to be invested with them. They were not good investments (in general - some were, however) and so regardless of the tax breaks personal pensions got a bad name.
Now we have Self Invested Personal Pensions (SIPPs) whereby the Scheme administration is completely separate from the underlying investments.
I think you mean 'retirement planning'. This will involve one or more of the above, but also others (ISAs and property being the main two, together with the zeroing of debt and relevant insurance.
In short, don't dismiss the best tax break you can get because life insurance companies spent decades monopolising the tax allowance and turning it into a product.
OP:
Everybody's different, so what works for one doesn't necessarily work for another.
I spent 13 years contributing to pension plans which I came to believe (15 years ago) were a waste of time.
In retrospect I still not only believe that, but with hindsight I wish I hadn't put a penny into them.
To me, pensions are something to try to use to create income in old age for people who have no choice because there's no other way they can get any income. And I don't envy them. Scarily insecure.
But I think the concepts of 'old-age survival' and 'retirement' are changing and evolving and in 25 years (and probably already now) Mr Average will see the pension plan as only one of several potential ways to fund old age.
Another thing. Many people who save for a 'big' retirement picture themselves doing all the things (and more) that they denied themselves when they were young(er). But that doesn't really work. Desires change as does the perception of what comprises 'fun'. And personally as I get older I'm finding it harder and harder to find anything I want to spend on. Talking about 'luxuries' here. Cars. Holidays. Fine dining. Any-bloody-thing.
So as it stands just now, you+wife would have £16kpa from the state's pension. You say you need £1kpm. So if you've got the state's £1.3kpm plus another £1kpm from your downsize plan plus your £3kpa ISA it looks as tho' your plan's already in place to keep you till you're 80.
Everybody's different, so what works for one doesn't necessarily work for another.
I spent 13 years contributing to pension plans which I came to believe (15 years ago) were a waste of time.
In retrospect I still not only believe that, but with hindsight I wish I hadn't put a penny into them.
To me, pensions are something to try to use to create income in old age for people who have no choice because there's no other way they can get any income. And I don't envy them. Scarily insecure.
But I think the concepts of 'old-age survival' and 'retirement' are changing and evolving and in 25 years (and probably already now) Mr Average will see the pension plan as only one of several potential ways to fund old age.
Another thing. Many people who save for a 'big' retirement picture themselves doing all the things (and more) that they denied themselves when they were young(er). But that doesn't really work. Desires change as does the perception of what comprises 'fun'. And personally as I get older I'm finding it harder and harder to find anything I want to spend on. Talking about 'luxuries' here. Cars. Holidays. Fine dining. Any-bloody-thing.
So as it stands just now, you+wife would have £16kpa from the state's pension. You say you need £1kpm. So if you've got the state's £1.3kpm plus another £1kpm from your downsize plan plus your £3kpa ISA it looks as tho' your plan's already in place to keep you till you're 80.
At 41 years of age, I would suggest getting some financial advice, to sum up your current position and discuss your future plans and expectations.
It may well make the overall picture a little clearer.
You will have to take into account the effects of inflation, any possible negative events such as a financial crash, and consider what your property may be worth in years to come.
A 'safety net' may also be required to ride out the bad times ( such as a financial crash), until markets recover.
You are assuming that you will be in employment until you arrive at retirement age - this may change due to health reasons, or change of employment status.
I have saved into SIPPs, my company plan, and have other investments too. I am retired now, and I would suggest you will need more than 1K per month to live on.
Its up to you, but it will be very difficult to catch up, if you realise you have not made sufficient provisions, early enough. Its all about 'time'.
Good luck with your plan.
It may well make the overall picture a little clearer.
You will have to take into account the effects of inflation, any possible negative events such as a financial crash, and consider what your property may be worth in years to come.
A 'safety net' may also be required to ride out the bad times ( such as a financial crash), until markets recover.
You are assuming that you will be in employment until you arrive at retirement age - this may change due to health reasons, or change of employment status.
I have saved into SIPPs, my company plan, and have other investments too. I am retired now, and I would suggest you will need more than 1K per month to live on.
Its up to you, but it will be very difficult to catch up, if you realise you have not made sufficient provisions, early enough. Its all about 'time'.
Good luck with your plan.
Agree with Julian - in the 60s, retirement became cool and entered its second phase. Everyone wanted to walk along a beach or play golf. It became our 'right' to do that. Bear in mind, the first phase was to encourage people to retire and to pass their jobs to the yoof, and to allow them to spend a few quid until they died of TB, aged 57. Its third phase? We're entering it. How you go into it and survive or thrive, depends on the prism through which you view it.
If you're forty or so, and still look on retirement as a pensioners playground, a rite of later life passage from a grateful state that lied to your parents for thirty years in order to buy their votes, you're going to be a bit disappointed. On the other hand, the sooner you realise that your later life is going to be more about self sustainability as the default option, the more settled about it you're going to be, and the sooner you'll start to address it - not ignore it.
There is no one 'wrapper' better or worse than any other. All things in moderation work for most people, stay light on your feet, nail the costs - especially at outset, take advice when you need it and always, *always* review your circumstances, exit strategy and objectives. What may have been right for you at thirty five, probably won't be at forty five.
(spelling)
If you're forty or so, and still look on retirement as a pensioners playground, a rite of later life passage from a grateful state that lied to your parents for thirty years in order to buy their votes, you're going to be a bit disappointed. On the other hand, the sooner you realise that your later life is going to be more about self sustainability as the default option, the more settled about it you're going to be, and the sooner you'll start to address it - not ignore it.
There is no one 'wrapper' better or worse than any other. All things in moderation work for most people, stay light on your feet, nail the costs - especially at outset, take advice when you need it and always, *always* review your circumstances, exit strategy and objectives. What may have been right for you at thirty five, probably won't be at forty five.
(spelling)
Edited by Ginge R on Monday 13th February 07:38
The real problem with any form of future income preparation is that you are going to be raped to pay for the feckless who did nothing for themselves and reach retirement demanding everyone else pays for their extragant lifestyle.
The real question about pension planning is not whether you use a wrapper, your house, BTL or any of those things but how you best protect yourself from having to pay for the army of consumers who will be hitting the employment wall from about 55 onwards and demand that we pay for their greed and fecklessness.
The real question about pension planning is not whether you use a wrapper, your house, BTL or any of those things but how you best protect yourself from having to pay for the army of consumers who will be hitting the employment wall from about 55 onwards and demand that we pay for their greed and fecklessness.
The disjointed and stupid ideas coming from central government, the relentless tinkering and the constant disincentivisation means the default setting is changing.
More and more employers will state that, with workers 'rights' come workers 'responsibilities'. They will say that it is the responsibility of firms to provide a competitive salary and conducive working conditions and that they aren't social/welfare/benefit agencies or the privatised wing of DWP.
I see this morning, that UNITE is spoiling for a fight with BMW over its pension scheme - the fight to keep occupational pension provision is ongoing, but it's very definitely a rearguard action.
More and more employers will state that, with workers 'rights' come workers 'responsibilities'. They will say that it is the responsibility of firms to provide a competitive salary and conducive working conditions and that they aren't social/welfare/benefit agencies or the privatised wing of DWP.
I see this morning, that UNITE is spoiling for a fight with BMW over its pension scheme - the fight to keep occupational pension provision is ongoing, but it's very definitely a rearguard action.
DonkeyApple said:
The real problem with any form of future income preparation is that you are going to be raped to pay for the feckless who did nothing for themselves and reach retirement demanding everyone else pays for their extragant lifestyle.
The real question about pension planning is not whether you use a wrapper, your house, BTL or any of those things but how you best protect yourself from having to pay for the army of consumers who will be hitting the employment wall from about 55 onwards and demand that we pay for their greed and fecklessness.
Some of that age who can't afford to save meaningfully for retirement would be better served (at least) considering paying off expensive debt first anyway. Especially so if the state pension ever becomes means tested. The real question about pension planning is not whether you use a wrapper, your house, BTL or any of those things but how you best protect yourself from having to pay for the army of consumers who will be hitting the employment wall from about 55 onwards and demand that we pay for their greed and fecklessness.
All consumer debt is for the majority is a tool that got a huge fee allows you to spend future income today. Very many people are not just spending next year's income today but using the money they need to be saving to replicate income when the workplace decides they are not wanted in order to pay the fees. So it's a double whammy. It's basically a voluntary spit roast at the gay disco where the only ultimate fiscal solution is to marry a sugar daddy or die young. Huge chunks of people who view themselves as middle class but are instead living breadline lifestyles of excess consumption and zero savings are a walking dead. The problem is whether the number can be made small enough so that they can be left in their future gutter or whether everyone else will have to pay for them as per a decade ago.
Ginge R said:
Some of that age who can't afford to save meaningfully for retirement would be better served (at least) considering paying off expensive debt first anyway. Especially so if the state pension ever becomes means tested.
If it does, wont assets like your home be taken into your account anyway? They are for state elderly care aren't they?wibblebrain said:
My council tax is around £250 per month
My electric bill is around £120 per month - this would reduce when retired and not having kids at home
My Gas bill is around £200 per month - but I accept that this is exceptional due to being on LPG
My house insurance is over £100 per month (this would change moving to a smaller house without a subsidence history)
The north/south divide really is scary.My electric bill is around £120 per month - this would reduce when retired and not having kids at home
My Gas bill is around £200 per month - but I accept that this is exceptional due to being on LPG
My house insurance is over £100 per month (this would change moving to a smaller house without a subsidence history)
My current house (4 bed detached in a nice enough area...and not what I consider that far 'up North') costs us £1k a month to run....including £450ish for the mortgage and food for 3 people.
Council tax...£150 a month
Gas AND Electricity £67 a month
House insurance Not much more than £100 a YEAR
Back to the original issue....I have very little in the way of pension planning, a few old company schemes that will have peanuts in them and no other plans.
Part of it is pure head in the sand....worry about it when it arrives...hopefully about 20 years time, part of it is in the live for now approach.
But with a little luck and having very little debt old age doesn't have to cost a fortune, the only slightly hairbrain 'plan' we have is to move somewhere even cheaper to live at retirement age, along the lines of the Marigold Hotel idea
OzzyR1 said:
Have heard so many complaints in recent years from guys retiring, perhaps after unwise investments but for the most part following the advice of a pension planner. Some of them now have only the equivalent of half to two-thirds of what they have paid in.
Some pensions are crap, but you can't tar all pensions with the same brush. That's a bit like saying, my friend had a car which broke down, so all cars must be rubbish. fat80b said:
OzzyR1 said:
In the event I last longer, I'm putting away £250/month - about £3K/year in a low-risk, FTSE-tracker account. If I keep that going from now till 65 that should hopefully generate another £75K which at a grand a month will get me to my 80's.
....
Obviously I understand the benefits of long-term compound interest....
If you are putting this money aside for retirement - why not put it in a SIPP and get the additional tax relief on your contributions. i.e. 20 or 40% uplift on the way in?....
Obviously I understand the benefits of long-term compound interest....
You can invest in exactly the same fund but without paying income tax on the 3K pa contribution? and this way you'll end up with a lot more than 75K.
Bob
DonkeyApple said:
All consumer debt is for the majority is a tool that got a huge fee allows you to spend future income today. Very many people are not just spending next year's income today but using the money they need to be saving to replicate income when the workplace decides they are not wanted in order to pay the fees. So it's a double whammy. It's basically a voluntary spit roast at the gay disco where the only ultimate fiscal solution is to marry a sugar daddy or die young. Huge chunks of people who view themselves as middle class but are instead living breadline lifestyles of excess consumption and zero savings are a walking dead. The problem is whether the number can be made small enough so that they can be left in their future gutter or whether everyone else will have to pay for them as per a decade ago.
Post of the day right there.You can SIPP whatever the hell you want, but some future Labour chancellor who is probably a county councilperson right now is already eyeing how they can get it off you to give to the feckless and the gimmegrants.
Hainey said:
You can SIPP whatever the hell you want, but some future Labour chancellor who is probably a county councilperson right now is already eyeing how they can get it off you to give to the feckless and the gimmegrants.
But what else can you do? Anything can be taken away, short of cash under the mattress.raceboy said:
The north/south divide really is scary.
My current house (4 bed detached in a nice enough area...and not what I consider that far 'up North') costs us £1k a month to run....including £450ish for the mortgage and food for 3 people.
Council tax...£150 a month
Gas AND Electricity £67 a month
House insurance Not much more than £100 a YEAR
Back to the original issue....I have very little in the way of pension planning, a few old company schemes that will have peanuts in them and no other plans.
Part of it is pure head in the sand....worry about it when it arrives...hopefully about 20 years time, part of it is in the live for now approach.
But with a little luck and having very little debt old age doesn't have to cost a fortune, the only slightly hairbrain 'plan' we have is to move somewhere even cheaper to live at retirement age, along the lines of the Marigold Hotel idea
I live in the South East, desirable commuter town and although my mortgage is higher than yours, all the rest are about the same.My current house (4 bed detached in a nice enough area...and not what I consider that far 'up North') costs us £1k a month to run....including £450ish for the mortgage and food for 3 people.
Council tax...£150 a month
Gas AND Electricity £67 a month
House insurance Not much more than £100 a YEAR
Back to the original issue....I have very little in the way of pension planning, a few old company schemes that will have peanuts in them and no other plans.
Part of it is pure head in the sand....worry about it when it arrives...hopefully about 20 years time, part of it is in the live for now approach.
But with a little luck and having very little debt old age doesn't have to cost a fortune, the only slightly hairbrain 'plan' we have is to move somewhere even cheaper to live at retirement age, along the lines of the Marigold Hotel idea
Mortgage - £850 a month
Council Tax - £135 a month
House insurance - £100 a year
Food - £350 a month
Gas and electricity £100 a month
TV License - £12 a month
Broadband - £14 a month
So really, once mortgage is paid off we shouldnt need much more than £750 a month as a minimum, and then allowance on top for treats or if we are still running a car.
Car insurance will probably have gone up by then...
Some interesting posts here, I have a bit of pension provision but need to start taking more of an interest in it - it's only recently (36) that I've started earning enough to make any sort of saving a realistic prospect.
I realise it's not ancient history, but I obviously wasn't paying attention at the time - what was it that Gordon Brown did to pensions, exactly?
I realise it's not ancient history, but I obviously wasn't paying attention at the time - what was it that Gordon Brown did to pensions, exactly?
Ginge R said:
On the other hand, the sooner you realise that your later life is going to be more about self sustainability as the default option, the more settled about it you're going to be, and the sooner you'll start to address it - not ignore it.
I think that literally having a house with minimal heating bills and being able to grow your own vegtables will become very important for many people.OzzyR1 said:
My wife and I spent 2 weeks in Vietnam in early 2016, travelling overland from Hanoi down to Hoi An via Halong Bay, Da Nang etc. Also later in the year had a fortnight in Borneo volunteering at an Orang sanctuary which was great.
I think spending our "spare" cash on travelling now while still relatively young is worthwhile - want to go trekking in Peru next year and while I hope I can still do it in my 70''s I'm not chancing it!! If I reach that age, I'll probably just want sit in my favourite chair so that £1K/month should be OK.
That's the crucial statement for me. I think spending our "spare" cash on travelling now while still relatively young is worthwhile - want to go trekking in Peru next year and while I hope I can still do it in my 70''s I'm not chancing it!! If I reach that age, I'll probably just want sit in my favourite chair so that £1K/month should be OK.
If you're not enjoying that money now, you might as well save it sensibly but if you are doing amazing things like the above with it, I doubt you would ever regret it.
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