Pension help/advice/clarifications for a dummy
Discussion
As titled, really. Simply put, I do not understand the mechanics of pensions, but now I have kids etc I should really learn. I have tried to read online guides but I get confused by all of the jagon - liaibility, tax relief, drawdown, DC, DB etc - I don't hugely understand any of it, and confuse myself.
Are these questions for a fully qualified FA? I am well aware that I'm being a skinflint asking the internet, but I am also aware there are some very helpful and knowledgable people on here.
I have always been paid by an employer, and all my employers have been pretty big international engineering companies, with pensions provided by big-name financial houses. I've paid in, mainly just to get the employer contributions.
I have 2 x pensions pots: 1 SIPP with IM, a small amount that is actually reducing, and I don't/can't really afford to contribute any more to (I transferred in an old employers pension that had been sitting around just costing me fees). And my "main" employer pension (that has been transferred from one employer to another) that I put 8% in to, and employer puts in 10%. This is somewhere in the region of £650/month total input.
I may well have another pensions somewhere but it wont be a lot, and I will have long since lost any paperwork for it (and it will probably be pre-email/online records).
Total pots are just under £50k (£12k IM, £36k with Willis Tower Wason, in a high-risk fund), and I am 43 years old.
1. When I retire, do I take some money out of my pension each month (like a savings account), or is it automatically paid out to me (like a salary)?
2. Can I increase/decrease what I take out/get "paid" each month? Or is it fixed, like an income?
3. When I retire, does the money stay "in" the pension, and keep earning (even if at a very small rate)? Does my pension account become a kind of current account?
4. What happens when the money runs out? What is the monthly "payment" to me based on, WRT life expectation etc? In reality, do pensions run out very often?
5. How underfunded IS my pension, in reality? Assuming I will retire with no mortgage and, worst case, one dependant child still living with me?
6. Can I trust WTW to do what is in my best interests? I am a tiny fish and they are a HUGE ocean. I know my place, but I can't help thinking they make their billions from fees paid for by us, so is any gain likely to be swallowed by their (typical) fees?
To be honest, reducing my contributions would be very helpful at the moment - cost of living is starting to pinch (food, energy bills, cost of getting kids to school, school meals, 6mo child meaning Mrs S can't realistically go back to work yet, mortgage up for renewal next year and scary interest rates etc) but I don't want to shoot myself in the foot and end up needing to work til 80 just to put food on the table.
I realise there's a lot there to unpack but I just do not know where to start. Can anyone give me any pointers, in finger paint and 1 syllable words please?
Are these questions for a fully qualified FA? I am well aware that I'm being a skinflint asking the internet, but I am also aware there are some very helpful and knowledgable people on here.
I have always been paid by an employer, and all my employers have been pretty big international engineering companies, with pensions provided by big-name financial houses. I've paid in, mainly just to get the employer contributions.
I have 2 x pensions pots: 1 SIPP with IM, a small amount that is actually reducing, and I don't/can't really afford to contribute any more to (I transferred in an old employers pension that had been sitting around just costing me fees). And my "main" employer pension (that has been transferred from one employer to another) that I put 8% in to, and employer puts in 10%. This is somewhere in the region of £650/month total input.
I may well have another pensions somewhere but it wont be a lot, and I will have long since lost any paperwork for it (and it will probably be pre-email/online records).
Total pots are just under £50k (£12k IM, £36k with Willis Tower Wason, in a high-risk fund), and I am 43 years old.
1. When I retire, do I take some money out of my pension each month (like a savings account), or is it automatically paid out to me (like a salary)?
2. Can I increase/decrease what I take out/get "paid" each month? Or is it fixed, like an income?
3. When I retire, does the money stay "in" the pension, and keep earning (even if at a very small rate)? Does my pension account become a kind of current account?
4. What happens when the money runs out? What is the monthly "payment" to me based on, WRT life expectation etc? In reality, do pensions run out very often?
5. How underfunded IS my pension, in reality? Assuming I will retire with no mortgage and, worst case, one dependant child still living with me?
6. Can I trust WTW to do what is in my best interests? I am a tiny fish and they are a HUGE ocean. I know my place, but I can't help thinking they make their billions from fees paid for by us, so is any gain likely to be swallowed by their (typical) fees?
To be honest, reducing my contributions would be very helpful at the moment - cost of living is starting to pinch (food, energy bills, cost of getting kids to school, school meals, 6mo child meaning Mrs S can't realistically go back to work yet, mortgage up for renewal next year and scary interest rates etc) but I don't want to shoot myself in the foot and end up needing to work til 80 just to put food on the table.
I realise there's a lot there to unpack but I just do not know where to start. Can anyone give me any pointers, in finger paint and 1 syllable words please?
SteveStrange said:
As titled, really. Simply put, I do not understand the mechanics of pensions, but now I have kids etc I should really learn. I have tried to read online guides but I get confused by all of the jagon - liaibility, tax relief, drawdown, DC, DB etc - I don't hugely understand any of it, and confuse myself.
Are these questions for a fully qualified FA? I am well aware that I'm being a skinflint asking the internet, but I am also aware there are some very helpful and knowledgable people on here.
I have always been paid by an employer, and all my employers have been pretty big international engineering companies, with pensions provided by big-name financial houses. I've paid in, mainly just to get the employer contributions.
I have 2 x pensions pots: 1 SIPP with IM, a small amount that is actually reducing, and I don't/can't really afford to contribute any more to (I transferred in an old employers pension that had been sitting around just costing me fees). And my "main" employer pension (that has been transferred from one employer to another) that I put 8% in to, and employer puts in 10%. This is somewhere in the region of £650/month total input.
I may well have another pensions somewhere but it wont be a lot, and I will have long since lost any paperwork for it (and it will probably be pre-email/online records).
Total pots are just under £50k (£12k IM, £36k with Willis Tower Wason, in a high-risk fund), and I am 43 years old.
1. When I retire, do I take some money out of my pension each month (like a savings account), or is it automatically paid out to me (like a salary)?
2. Can I increase/decrease what I take out/get "paid" each month? Or is it fixed, like an income?
3. When I retire, does the money stay "in" the pension, and keep earning (even if at a very small rate)? Does my pension account become a kind of current account?
4. What happens when the money runs out? What is the monthly "payment" to me based on, WRT life expectation etc? In reality, do pensions run out very often?
5. How underfunded IS my pension, in reality? Assuming I will retire with no mortgage and, worst case, one dependant child still living with me?
6. Can I trust WTW to do what is in my best interests? I am a tiny fish and they are a HUGE ocean. I know my place, but I can't help thinking they make their billions from fees paid for by us, so is any gain likely to be swallowed by their (typical) fees?
To be honest, reducing my contributions would be very helpful at the moment - cost of living is starting to pinch (food, energy bills, cost of getting kids to school, school meals, 6mo child meaning Mrs S can't realistically go back to work yet, mortgage up for renewal next year and scary interest rates etc) but I don't want to shoot myself in the foot and end up needing to work til 80 just to put food on the table.
I realise there's a lot there to unpack but I just do not know where to start. Can anyone give me any pointers, in finger paint and 1 syllable words please?
There is a lot to unpack there. Are these questions for a fully qualified FA? I am well aware that I'm being a skinflint asking the internet, but I am also aware there are some very helpful and knowledgable people on here.
I have always been paid by an employer, and all my employers have been pretty big international engineering companies, with pensions provided by big-name financial houses. I've paid in, mainly just to get the employer contributions.
I have 2 x pensions pots: 1 SIPP with IM, a small amount that is actually reducing, and I don't/can't really afford to contribute any more to (I transferred in an old employers pension that had been sitting around just costing me fees). And my "main" employer pension (that has been transferred from one employer to another) that I put 8% in to, and employer puts in 10%. This is somewhere in the region of £650/month total input.
I may well have another pensions somewhere but it wont be a lot, and I will have long since lost any paperwork for it (and it will probably be pre-email/online records).
Total pots are just under £50k (£12k IM, £36k with Willis Tower Wason, in a high-risk fund), and I am 43 years old.
1. When I retire, do I take some money out of my pension each month (like a savings account), or is it automatically paid out to me (like a salary)?
2. Can I increase/decrease what I take out/get "paid" each month? Or is it fixed, like an income?
3. When I retire, does the money stay "in" the pension, and keep earning (even if at a very small rate)? Does my pension account become a kind of current account?
4. What happens when the money runs out? What is the monthly "payment" to me based on, WRT life expectation etc? In reality, do pensions run out very often?
5. How underfunded IS my pension, in reality? Assuming I will retire with no mortgage and, worst case, one dependant child still living with me?
6. Can I trust WTW to do what is in my best interests? I am a tiny fish and they are a HUGE ocean. I know my place, but I can't help thinking they make their billions from fees paid for by us, so is any gain likely to be swallowed by their (typical) fees?
To be honest, reducing my contributions would be very helpful at the moment - cost of living is starting to pinch (food, energy bills, cost of getting kids to school, school meals, 6mo child meaning Mrs S can't realistically go back to work yet, mortgage up for renewal next year and scary interest rates etc) but I don't want to shoot myself in the foot and end up needing to work til 80 just to put food on the table.
I realise there's a lot there to unpack but I just do not know where to start. Can anyone give me any pointers, in finger paint and 1 syllable words please?
Most important first.
(almost certainly) don't consider reducing your contribution - generally this is one of the best investments that you can make and things would have to be dire to give up the free money that pension contribs com with (even a basic rate payer with a matched contrib is getting >2x return on day 1 compounded for 20 years). Literally free money - even more so for a higher rate tax payer.
Yes I think you are massively underfunded. I'm surprised that you have worked for a big firm for 20 years with 18% going in and you only have 50K in there. This might need looking at as I don't think the numbers stack up here?
The way you take your pension (draw down) is fairly flexible with all sorts of options, tax free lump sums, annuities (don't want) etc. TBH, this is less of a concern for now compared to just making sure you have enough in the pot for when the time comes (you can get advice nearer the time and the rules will almost certainly have changed by then anyway).
Yes you should care what it is invested in and review this every now and again, you should also know what the charges are from the provider. SImple changes can make big differences long term.
I'm not a pensions person / Financial advisor etc, just a techie that has an interest in pensions. But if you want to jump on a quick call - it might be easier to explain f2f - happy if you want to PM me to set up a zoom / call
Im not a FA or a pension advisor but equally have to work this stuff out, so in very plain simple terms
(little of the below applies if you have defined benefits pension)
1. When I retire, do I take some money out of my pension each month (like a savings account), or is it automatically paid out to me (like a salary)?
Yes you car draw down money from the pot or more often individuals buy an annuity
2. Can I increase/decrease what I take out/get "paid" each month? Or is it fixed, like an income?
If you go the draw down route, yes you can vary the amount, annuities are often fixed amounts (index linked)
3. When I retire, does the money stay "in" the pension, and keep earning (even if at a very small rate)? Does my pension account become a kind of current account?
Yes it keeps earning, unless you bought an annuity with it
4. What happens when the money runs out? What is the monthly "payment" to me based on, WRT life expectation etc? In reality, do pensions run out very often?
If you drawing down and the money (pot) runs out, there is no more money to draw down, if you bought an annuity its fixed payment each month until you die (the annuity provider takes the risk)
5. How underfunded IS my pension, in reality? Assuming I will retire with no mortgage and, worst case, one dependant child still living with me?
For annual pension of £20k a year (65 years old and onwards) you would need a total pot of about £1/2M. Remember you have 22 years of growth and contributions to go, assuming you stick with your contributions and they edge up a little each year, and the pot grows by 4% a year (after fees) you could end up with a pot close to £1/2 M at 65 years old
6. Can I trust WTW to do what is in my best interests? I am a tiny fish and they are a HUGE ocean. I know my place, but I can't help thinking they make their billions from fees paid for by us, so is any gain likely to be swallowed by their (typical) fees?
Heavily regulated and fees tend to be competitive.
Edited to add - On point 5 - You should (Might) also get a state pension on top.
(little of the below applies if you have defined benefits pension)
1. When I retire, do I take some money out of my pension each month (like a savings account), or is it automatically paid out to me (like a salary)?
Yes you car draw down money from the pot or more often individuals buy an annuity
2. Can I increase/decrease what I take out/get "paid" each month? Or is it fixed, like an income?
If you go the draw down route, yes you can vary the amount, annuities are often fixed amounts (index linked)
3. When I retire, does the money stay "in" the pension, and keep earning (even if at a very small rate)? Does my pension account become a kind of current account?
Yes it keeps earning, unless you bought an annuity with it
4. What happens when the money runs out? What is the monthly "payment" to me based on, WRT life expectation etc? In reality, do pensions run out very often?
If you drawing down and the money (pot) runs out, there is no more money to draw down, if you bought an annuity its fixed payment each month until you die (the annuity provider takes the risk)
5. How underfunded IS my pension, in reality? Assuming I will retire with no mortgage and, worst case, one dependant child still living with me?
For annual pension of £20k a year (65 years old and onwards) you would need a total pot of about £1/2M. Remember you have 22 years of growth and contributions to go, assuming you stick with your contributions and they edge up a little each year, and the pot grows by 4% a year (after fees) you could end up with a pot close to £1/2 M at 65 years old
6. Can I trust WTW to do what is in my best interests? I am a tiny fish and they are a HUGE ocean. I know my place, but I can't help thinking they make their billions from fees paid for by us, so is any gain likely to be swallowed by their (typical) fees?
Heavily regulated and fees tend to be competitive.
Edited to add - On point 5 - You should (Might) also get a state pension on top.
Edited by Wilmslowboy on Friday 16th September 13:54
Fat80b - thank you. I agree the figures seem light, I will check them out and I may well take you up on your kind offer.
Wilmslowboy - again, thank you. I will absorb what you say but it sounds like my ship hasn't fully sailed yet!
Maybe now isn't yet the time to be running around panicking like a headless chicken.
Wilmslowboy - again, thank you. I will absorb what you say but it sounds like my ship hasn't fully sailed yet!
Maybe now isn't yet the time to be running around panicking like a headless chicken.
First potential question is 'Why pay into a pension?'
You are firstly getting 10% free money from your employer, which IME is quite generous. I get the minimum which is 5%. But the real kicker is you also get tax relief. So, for example, if you put £100 into your pension, this is before tax, or tax free. If you took this £100 as pay, you would likely only get about £60 in your pocket and £40 would go to the government in income tax. These are very rough figures, but it gives you the gist.
Your pension pot size (£48k) does seem a little small based on the figures you have quoted, but how long have you been paying in? The longer the time the more growth you will get. Try this calculator to see the impact of compound growth.......
https://www.thecalculatorsite.com/finance/calculat...
So, essentially you build up a pot of money until you decide what to do with it..... This decision point can happen from age 55 currently, but the age will increase by the time you get there.
At 55 years you can take 25% of your pension pot out tax free as a lump sum. Any further removals (drawdown), will be taxed like regular income from an employer. You can stagger the tax free removal however you wish.
An annuity is something you can buy with your pension pot. It will pay you a fixed amount each month until you pass away. However the annuity rates are poor at the moment (and have been for some time, so it is often not an attractive proposition.
Instead you can leave the pot invested in whatever you like and take an income (drawdown) to suit your needs. It is likely you will need less later in life, but who knows. You can use the calculator above to profile what drawdown might look like each year too.
Remember, you will likely get a state pension at 67(?), which if there are two of you adds quite a lot more to your income.
It is good to get an understanding now, as you do still have 20+ years to recover.
Rough calcs are that..... If you keep going at your current position with 25 years investments, 5% growth per annum, your pension pot will be £638k at age 68 (assuming wage increase of 2% per annum too).
That is how I understand it all. Things will change over time, so prepare for a rollercoaster as your pension pot goes up and down, but remember the benefits of long term investment, tax relief, company contributions and compound interest. ....and then the government will change the rules.....
You are firstly getting 10% free money from your employer, which IME is quite generous. I get the minimum which is 5%. But the real kicker is you also get tax relief. So, for example, if you put £100 into your pension, this is before tax, or tax free. If you took this £100 as pay, you would likely only get about £60 in your pocket and £40 would go to the government in income tax. These are very rough figures, but it gives you the gist.
Your pension pot size (£48k) does seem a little small based on the figures you have quoted, but how long have you been paying in? The longer the time the more growth you will get. Try this calculator to see the impact of compound growth.......
https://www.thecalculatorsite.com/finance/calculat...
So, essentially you build up a pot of money until you decide what to do with it..... This decision point can happen from age 55 currently, but the age will increase by the time you get there.
At 55 years you can take 25% of your pension pot out tax free as a lump sum. Any further removals (drawdown), will be taxed like regular income from an employer. You can stagger the tax free removal however you wish.
An annuity is something you can buy with your pension pot. It will pay you a fixed amount each month until you pass away. However the annuity rates are poor at the moment (and have been for some time, so it is often not an attractive proposition.
Instead you can leave the pot invested in whatever you like and take an income (drawdown) to suit your needs. It is likely you will need less later in life, but who knows. You can use the calculator above to profile what drawdown might look like each year too.
Remember, you will likely get a state pension at 67(?), which if there are two of you adds quite a lot more to your income.
It is good to get an understanding now, as you do still have 20+ years to recover.
Rough calcs are that..... If you keep going at your current position with 25 years investments, 5% growth per annum, your pension pot will be £638k at age 68 (assuming wage increase of 2% per annum too).
That is how I understand it all. Things will change over time, so prepare for a rollercoaster as your pension pot goes up and down, but remember the benefits of long term investment, tax relief, company contributions and compound interest. ....and then the government will change the rules.....
You could also try the Pension Tracing Service to see if there is a record of who to contact
https://www.gov.uk/find-pension-contact-details
https://www.gov.uk/find-pension-contact-details
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