Pension question
Discussion
I'm mid 30's and have been fortunate enough to have started pension from 18 I have four final salary schemes and a couple of defined contribution schemes already.
Now question is new employer is offering matching % up to 5%. I can choose to pay in any amount over that level if I choose to a maximum age dependant as stipulated by the HMRC.
On the form the range highlighted shows 3/4/5:6%. Now I'm certainly going to put in 5% the question is should I add in 6% or 7% or more??
Guess the question clearly very crudely assuming sensible investments what does 1% buy?
Note I can change the amount every three months if I choose plus once enrolled I'm entitled to 5x death in service benefits for my dependants which using crude maths worthy out to be c£20 a month in the open market for that level of insurance. Madness not to take it.
Today is form filling day to impact October pay onwards so am keen to resolve my questions today and frankly in not keen on changing it once it's set up.
I do have a mortgage and am gunning as hard as possible to be debt free in a short period of time though 1/2% hardly makes much difference.
Also let's assume no promotion ever but salary rise of 2.5% if I choose to increase my pension payments every year by the salary rise would it be the smartest thing to do or buy a classic car or more buy to lets
Now question is new employer is offering matching % up to 5%. I can choose to pay in any amount over that level if I choose to a maximum age dependant as stipulated by the HMRC.
On the form the range highlighted shows 3/4/5:6%. Now I'm certainly going to put in 5% the question is should I add in 6% or 7% or more??
Guess the question clearly very crudely assuming sensible investments what does 1% buy?
Note I can change the amount every three months if I choose plus once enrolled I'm entitled to 5x death in service benefits for my dependants which using crude maths worthy out to be c£20 a month in the open market for that level of insurance. Madness not to take it.
Today is form filling day to impact October pay onwards so am keen to resolve my questions today and frankly in not keen on changing it once it's set up.
I do have a mortgage and am gunning as hard as possible to be debt free in a short period of time though 1/2% hardly makes much difference.
Also let's assume no promotion ever but salary rise of 2.5% if I choose to increase my pension payments every year by the salary rise would it be the smartest thing to do or buy a classic car or more buy to lets
Been playing round on online calculators basically if I work for 30 years more retire at 65 inflation linked spousal pension too and I + employer pay in 11% and don't take the 25% tax free lump sum then the take home is c33% of my pensionable salar let's say current mortgage payments for quick clearing mortgage is c40% of my net non pensionable. So clearly there is a gap.
Using the same calculator to close the gap I would have to pay in 11.75% of my salary for the next thirty years and the co match with 5%.
Does that seem fair as a calculation? Basically am after same lifestyle as I have currently.
Wondering if investing 6% of my salary elsewhere in addition to this pension would be the smartest move??
Views?
Using the same calculator to close the gap I would have to pay in 11.75% of my salary for the next thirty years and the co match with 5%.
Does that seem fair as a calculation? Basically am after same lifestyle as I have currently.
Wondering if investing 6% of my salary elsewhere in addition to this pension would be the smartest move??
Views?
Welshbeef said:
Been playing round on online calculators basically if I work for 30 years more retire at 65 inflation linked spousal pension too and I + employer pay in 11% and don't take the 25% tax free lump sum then the take home is c33% of my pensionable salar let's say current mortgage payments for quick clearing mortgage is c40% of my net non pensionable. So clearly there is a gap.
Using the same calculator to close the gap I would have to pay in 11.75% of my salary for the next thirty years and the co match with 5%.
Does that seem fair as a calculation? Basically am after same lifestyle as I have currently.
Wondering if investing 6% of my salary elsewhere in addition to this pension would be the smartest move??
Views?
I haven't had a chance to review your numbers in detail, so here are just a few initial thoughts:Using the same calculator to close the gap I would have to pay in 11.75% of my salary for the next thirty years and the co match with 5%.
Does that seem fair as a calculation? Basically am after same lifestyle as I have currently.
Wondering if investing 6% of my salary elsewhere in addition to this pension would be the smartest move??
Views?
You are clearly fortunate in having a decent amount of pension provision already, including 'risk-free' final salary schemes. Assuming you can afford it and are happy with locking up your money until you retire, then investing in a tax efficient scheme in which your employer also makes a significant contribution is a very sensible strategy.
From that perspective personally my starting point would be to focus on what was required to obtain the maximum employer contribution - In your case I'd therefore be looking to pay 5% myself and get the 5% matching amount from the employer.
For any contributions beyond that, obviously you still have the advantage of obtaining tax relief and tax efficient growth on your assets but this is partially offset by not being able to access the money until retirement etc.
I think you are better off going by gut feel for what you might otherwise do with the extra 1% or 2% rather than trying to be too scientific about the numbers!
Sidicks
Edited by sidicks on Friday 7th September 12:47
It will certainly be 5% no question I do not want to lose out on any benefit due to me plus where can you double your money and then have the tax on your investment back...
I wonder if for every ten years you work and you pay in 10% then you should all being equal get a return of 10% of your salary
Ie work for 40 years paying in 10% all that time and you should have 40% of your salary banked.
I wonder if for every ten years you work and you pay in 10% then you should all being equal get a return of 10% of your salary
Ie work for 40 years paying in 10% all that time and you should have 40% of your salary banked.
J4C said:
There's no need or requirement to stick in the extra amount over the 5% into the employer scheme. If you want to top up, open up a SIPP and stick the extra in there. Same tax benefits, more choice of investments, can be more active if you choose to be.
Can you really open up a SIPP based on a contribution rate of 1-2% p.a.......Unless Welshbeef is earning £500k p.a. so that 1% would be £5k p.a. that a SIPP seems an implausible solution....
sidicks said:
J4C said:
There's no need or requirement to stick in the extra amount over the 5% into the employer scheme. If you want to top up, open up a SIPP and stick the extra in there. Same tax benefits, more choice of investments, can be more active if you choose to be.
Can you really open up a SIPP based on a contribution rate of 1-2% p.a.......Unless Welshbeef is earning £500k p.a. so that 1% would be £5k p.a. that a SIPP seems an implausible solution....
(Fiver a month for 40 years, sprinkled with a bit of QE, should get you a tank of petrol when you retire. Won't stretch to V-power, obviously.)
J4C said:
No monthly minimum at sippdeal.
Fair enough.J4C said:
(Fiver a month for 40 years, sprinkled with a bit of QE, should get you a tank of petrol when you retire. Won't stretch to V-power, obviously.)
Except with minimum charges of £10 per trade etc, if you don't have a fund of £1k plus, every trade you do costs you more than 1% of the fund!anonymous said:
[redacted]
Sad to say Mr Tonker is on the right lines but, in my opinion, still too optimistic. I think a person in his 30's now will never see any meaningfull DB or DC pension come older age. The system is bankrupt, literally, and when the dust finally settles means testing will be the only way a democratically elected government can distribute the pain. The unlucky, the feckless and the gambler will not be left to starve in the gutter and, if you are not one of those, you will have to share your pie.I recently retired on one of the most solvent DB schemes in the UK and yet I still took the maximum tax free lump out and the leveling option too. My reasons were not to spend the money but to hedge the coming collapse of all these schemes.
My advice, take every penny out you can and consider your options. Advice, and good advice at that, from only 5yrs ago, is useless going forward.
Colin.
I cannot understand why anyone wouldn't take the whole 25% tax free element out?
There will be some pensions which if you don't take it out will incur income tax yet by taking the 25% you pull pension under tax threshold.
Honestly if what you describe was even hinted I would take my final salary out and invest it into a personal pension fund possibly overseas and have it held in cash only lowest risk.
There will be some pensions which if you don't take it out will incur income tax yet by taking the 25% you pull pension under tax threshold.
Honestly if what you describe was even hinted I would take my final salary out and invest it into a personal pension fund possibly overseas and have it held in cash only lowest risk.
Welshbeef said:
I cannot understand why anyone wouldn't take the whole 25% tax free element out?
There will be some pensions which if you don't take it out will incur income tax yet by taking the 25% you pull pension under tax threshold.
Honestly if what you describe was even hinted I would take my final salary out and invest it into a personal pension fund possibly overseas and have it held in cash only lowest risk.
With respect, you are assuming you would be allowed to avoid the tax and that overseas jurisdictions would co-operate. Cash is not the answer either. Negative interest rates are perfectly possible.There will be some pensions which if you don't take it out will incur income tax yet by taking the 25% you pull pension under tax threshold.
Honestly if what you describe was even hinted I would take my final salary out and invest it into a personal pension fund possibly overseas and have it held in cash only lowest risk.
With regard to why anyone would or wouldn't take the 25% out. How much longer will we be allowed to take anything out of a bankrupt system?
Becoming a tax exile or at least someone clearly trying to avoid tax is not a good place to be going forward. Look what high net worth people are doing and take their lead. Don't fight the system, follow the money.
Colin.
But the govt want people to invest for their retirement if they take away that 25% it's another reason NOT to invest in retirement provisions and let the state take care of you.
If has to work somehow and the more the govt can encourage to invest in the future the better.
I wonder how long it will be before there is a separate body for state pension not related to any party ie long term whereby the only way retirement age could go up is on a vote clearly it would be stay the same and pay more income tax or cut in state spend elsewhere.
Frankly all taxation should be LONG term Remember GBrown with the golden rule but then he shockingly changed the goalposts at the end as boom I hit the target I didn't overspend by £100billions
If has to work somehow and the more the govt can encourage to invest in the future the better.
I wonder how long it will be before there is a separate body for state pension not related to any party ie long term whereby the only way retirement age could go up is on a vote clearly it would be stay the same and pay more income tax or cut in state spend elsewhere.
Frankly all taxation should be LONG term Remember GBrown with the golden rule but then he shockingly changed the goalposts at the end as boom I hit the target I didn't overspend by £100billions
Welshbeef said:
But the govt want people to invest for their retirement if they take away that 25% it's another reason NOT to invest in retirement provisions and let the state take care of you.
If has to work somehow and the more the govt can encourage to invest in the future the better.
I wonder how long it will be before there is a separate body for state pension not related to any party ie long term whereby the only way retirement age could go up is on a vote clearly it would be stay the same and pay more income tax or cut in state spend elsewhere.
Frankly all taxation should be LONG term Remember GBrown with the golden rule but then he shockingly changed the goalposts at the end as boom I hit the target I didn't overspend by £100billions
We are moving away from the original question but I cannot see why removing the 25% should be an incentive or otherwise. It is an arbitrary figure that was plucked out by a civil servant. Why not 75% or 5%? Taking money out of pension schemes is a tax fiddle that rapes the assets and leaves actuaries forecasts in tatters, and will at some point be stopped. I asked my own scheme whether it was popular. They said it never happened until about 5yrs ago and now is pretty much every retiree, that says it all.If has to work somehow and the more the govt can encourage to invest in the future the better.
I wonder how long it will be before there is a separate body for state pension not related to any party ie long term whereby the only way retirement age could go up is on a vote clearly it would be stay the same and pay more income tax or cut in state spend elsewhere.
Frankly all taxation should be LONG term Remember GBrown with the golden rule but then he shockingly changed the goalposts at the end as boom I hit the target I didn't overspend by £100billions
Back to your question, for the foreseeable buy hard assets and commodities, that's my advice.
Colin.
longone said:
We are moving away from the original question but I cannot see why removing the 25% should be an incentive or otherwise. It is an arbitrary figure that was plucked out by a civil servant. Why not 75% or 5%?
Well not 75% because that would defeat the object of encouraging saving for retirement as there would be little fund left to generate annual income. Not 5% because that wouldn't be much of an incentive to invest in a pension!longone said:
Taking money out of pension schemes is a tax fiddle that rapes the assets and leaves actuaries forecasts in tatters, and will at some point be stopped.
Eh? Please explain...!!longone said:
I asked my own scheme whether it was popular. They said it never happened until about 5yrs ago and now is pretty much every retiree, that says it all.
Back to your question, for the foreseeable buy hard assets and commodities, that's my advice.
Colin.
Most people take maximum tax free cash regardless of whether it is economically sensible for them to do so. This hasn't changed significantly in the last 30 years (indeed in the past it was more economically neutral to do so).Back to your question, for the foreseeable buy hard assets and commodities, that's my advice.
Colin.
Sidicks
sidicks said:
longone said:
We are moving away from the original question but I cannot see why removing the 25% should be an incentive or otherwise. It is an arbitrary figure that was plucked out by a civil servant. Why not 75% or 5%?
Well not 75% because that would defeat the object of encouraging saving for retirement as there would be little fund left to generate annual income. Not 5% because that wouldn't be much of an incentive to invest in a pension!longone said:
Taking money out of pension schemes is a tax fiddle that rapes the assets and leaves actuaries forecasts in tatters, and will at some point be stopped.
Eh? Please explain...!!longone said:
I asked my own scheme whether it was popular. They said it never happened until about 5yrs ago and now is pretty much every retiree, that says it all.
Back to your question, for the foreseeable buy hard assets and commodities, that's my advice.
Colin.
Most people take maximum tax free cash regardless of whether it is economically sensible for them to do so. This hasn't changed significantly in the last 30 years (indeed in the past it was more economically neutral to do so).Back to your question, for the foreseeable buy hard assets and commodities, that's my advice.
Colin.
Sidicks
My comments about actuarys positions is that without knowing the fund size they cannot calculate contributions accurately. I was a scheme rep in my employed days and the shift in numbers taking the tax free sum was a signficant portion of the rise in employer contributions. A rise its regulator has now signalled it will not longer allow to be passed through.
If you think most people have always taken the maximum tax free sum fair enough, but I know for a fact in my scheme which is one of the biggest in the UK that was not the case until the start of the current finacial difficulties 07/08.
My advice to the OP is very clear. Invest in hard assets and remove all he can from any pension schemes he is in. As a person in his 30s I see no chance of the economy honouring any of his pension promises in some 30+ years time. Pension schemes are prevented from investing where they really should and will have their assests inflated away by regulation.
Colin.
longone said:
Obviously it couldn't be 75% and as these schemes (DB, DC, and personal pots) slip further into insolvency the government will be forced to stop completely what will be seen as asset stripping of the carcass.
I include my own scheme in this forecast, they are all doomed. The arithmatic not longer adds up.
This continues to make no sense.I include my own scheme in this forecast, they are all doomed. The arithmatic not longer adds up.
Whilst I agree that the mathematics for DB schemes struggles to make sense in the current economic and demographic environment, the issues for DC / personal pot are very different. These schemes cannot be 'insolvent' as the value of the liability is simply the value of the underlying assets.
longone said:
My comments about actuarys positions is that without knowing the fund size they cannot calculate contributions accurately. I was a scheme rep in my employed days and the shift in numbers taking the tax free sum was a signficant portion of the rise in employer contributions. A rise its regulator has now signalled it will not longer allow to be passed through.
The actuary knows the fund size when they do their valuation and can calculate the value of liabilities based on a variety of economic and demographic assumptions, which will continue to be re-assessed in the future, as rarely will actual experience equal that assumed in the valuation. Tax free cash will be part of this and is not an issue in the slightest.Further the trustees normally have discretion on the terms on which pension can be commuted for tax free cash, so can change the terms to protect the fund, if required.
longone said:
If you think most people have always taken the maximum tax free sum fair enough, but I know for a fact in my scheme which is one of the biggest in the UK that was not the case until the start of the current finacial difficulties 07/08.
The scheme actuary will take into account the scheme's experience when assessing assumptions for tax-free cash, so this isn't an issue.longone said:
My advice to the OP is very clear. Invest in hard assets and remove all he can from any pension schemes he is in. As a person in his 30s I see no chance of the economy honouring any of his pension promises in some 30+ years time. Pension schemes are prevented from investing where they really should and will have their assests inflated away by regulation.
Colin.
Poor advice. As explained, for DC schemes the value of the assets is the value of the liabilities so, in the absence of fraud, there is no chance that the scheme will not be able to pay out the liabilities as promised.Colin.
Further, while you can argue about what the economy will do over the next 20+ years, that is the same regardless of whether you invest in a pension (which is just a tax-free wrapper) or invest outside that scheme.
Also, the availability of new investment options for pensions continues to increase - what do you think pensions schemes should invest in??
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