Other people's facepalm financial management

[Jockman]

walm said:

Jockman said:

The trouble being that the few remaining ones have a collective shortfall of £300 billion. Not a problem s long as companies make profits and govts run surpluses.....hmmmm

The govt doesn't need to run a surplus - pension costs are a big chunk of the overall public spending each year.
They don't have a "pot" as such that might fall into deficit - they just pay out of the ongoing P&L of the government.
According to this it is 20% of government spending.
(Not saying it isn't going to become a problem but they don't need a surplus to service it - at the moment.)
http://www.ukpublicspending.co.uk/

Agreed, surplus, although always desirable, was an incorrect word to use. Indeed, it has the power to raise general taxation if it's getting squeezed (not popular for most).

The private companies pay into the PPF but as they dwindle in numbers so could the size of the PPF pot.

[RichS]

Pheo said:

Then work out where you want to be and what you want to be able to do, and when. IE when do you want to retire, what standard of living do you want, do you want to keep the house / move abroad / downsize

Isn't the slightly irksome thing about this that in reality, most people will not say "ooh, I'm ahead of the target, I must reduce my risk", but rather "Cor, that's quite good, I reckon it's double g&ts all round instead of singles when I'm retired"? Does anyone really downsize their retirement expectations if they're ahead of projections?

[CarlosFandango11]

Vroom101 said:

walm said:

Vroom101 said:

Well, yes, but who knows how much everything will cost when I reach retirement age (whatever that may be!)? When I do retire, I will have more service than my workmate who went on £30k a year. I do get a pension statement each year which outlines it all, but don't have it to hand. The unknown entity is the cost of living at my retirement age, but then nobody has a crystal ball.

Well I was restraining myself before but you are essentially highlighting a fairly epic financial facepalm right in front of us - so at least you have the right thread!!

Everything you just described is something called "retirement planning".
It's where you PLAN for your RETIREMENT.
The name of the process itself nearly gives it away.

People who completely ignore retirement planning are demonstrating some truly brilliant facepalm financial management.

Or perhaps I am wrong and the fact that you might have to make some assumptions about inflation and the future cost of living means that burying your head in the sand and hoping for the best is clearly the best strategy.

Alternatively pay for some advice from a professional OR at the very least make a half-arsed effort to educate yourself...

Thank you for the education (honestly - no sarcasm implied or intended ). Every day is a school day, as the saying goes.

Going by those links, it looks like I'll have sufficient income. I'm under no illusion that I'm lucky to be in the pension scheme I am. I wouldn't like to be one of those people who intend to live out their retirement on just a state pension.

My company offers advice for those approaching retirement, so of course I'll take that too. However I expect I'll be working for at least another twenty years before I do retire, so plenty of time to look into it further and do some more. My dad is still working at the age of 67, but that is through choice rather than necessity. I do know his pension fund took a hit when he and my mum divorced after 27 years of marriage, though. He stuffed as much as he could back into the fund after she took her cut.

When I occasionally come on this part of the forum and read about people making investments, whether it is stocks, shares, property or otherwise, that is where I feel most naive.

I'm certainly up for more education

You're a lot younger than your workmate who retired on 30k a year - your pension scheme may have changed significantly since he retired, and you may receive a lot less... best to check and see.

[Ozzie Osmond]

RichS said:

Does anyone really downsize their retirement expectations if they're ahead of projections?

I've wondered about that - but if you're "ahead" why cut back on a strategy that appears to work? After all, if you've got more than you planned was enough you have a "buffer" with which to accommodate a higher risk profile.

But I recognise your logic. If a target is in the bag then why leave it exposed to risk if that risk can be removed?

But don't forget, one of the reasons company pension schemes are in huge deficit is because the do-gooders de-risked them - thereby virtually guaranteeing poor returns.

[Vroom101]

Pheo said:

I am not a financial advisor. However I would say the best thing to do is...lots of sound advice...could significantly pivot your entire financial future. Or you might be good - don't know until you work it out

Thanks for that Joseph. I'll take it on board

walm said:

That is awesome news. Thanks for not attacking me for being rude!!

No worries I generally believe offence is taken rather than given.

CarlosFandango11 said:

You're a lot younger than your workmate who retired on 30k a year - your pension scheme may have changed significantly since he retired, and you may receive a lot less... best to check and see.

My workmate retired at Christmas, so not that long ago. As far as I can remember, I haven't received a pension statement since then, but going by previous statements (I don't have them to hand), I think they say I will receive more than that upon retirement.

One thing my workmate did, which I thought was a good idea, was to live his last working year as if he was already on that reduced income. That way it wasn't a shock when he did receive less.

[Sheepshanks]

I think the best safety net if you work in the private sector is to make sure you marry someone who has good career prospects in the public sector.

Colleagues married to women who became (to think of a couple) head teachers or very senior NHS managers are sitting pretty.

[Craikeybaby]

I'm hoping that strategy works for me, although I have been paying more than the minimum into my workplace pension and have other investments too.

[sidicks]

walm said:

Granfondo said:

In the real world you would need a pot of about £500k to get £30kpa pension but that's a guesstimate!

£660k according to the quote I just tried and I am quite fat.

If you're talking about a public sector pension, they are RPI-linked, hence you'd need closer to £1m to fund a £30k pension...

[sidicks]

walm said:

The govt doesn't need to run a surplus - pension costs are a big chunk of the overall public spending each year.
They don't have a "pot" as such that might fall into deficit - they just pay out of the ongoing P&L of the government.
According to this it is 20% of government spending.
(Not saying it isn't going to become a problem but they don't need a surplus to service it - at the moment.)
http://www.ukpublicspending.co.uk/

The government certainly don't need to run a 'surplus'. However, what they do need to be doing is recognising the actual costs that are being incurred, rather than pretending things are much cheaper than they actually are, leaving the extra costs to be picked up by future generations.

At the moment the combined employee and employer costs are totally insufficient, given the benefits promised.

[bmwmike]

sidicks said:

If you're talking about a public sector pension, they are RPI-linked, hence you'd need closer to £1m to fund a £30k pension...

Crazy isn't it. The employee wouldn't have paid in anywhere near that.

[Sheepshanks]

bmwmike said:

Crazy isn't it. The employee wouldn't have paid in anywhere near that.

In some cases they wouldn't have paid anything at all - the original civil service pension was non-contributory.

[Jockman]

sidicks said:

walm said:

Granfondo said:

In the real world you would need a pot of about £500k to get £30kpa pension but that's a guesstimate!

£660k according to the quote I just tried and I am quite fat.

If you're talking about a public sector pension, they are RPI-linked, hence you'd need closer to £1m to fund a £30k pension...

Does the Govt have the power to change this to CPI? Would it make a noticeable difference?

[Ozzie Osmond]

Jockman said:

Does the Govt have the power to change this to CPI? Would it make a noticeable difference?

Insofar as there are minimum statutory "pension increases", which all pension schemes have been obliged to implement since 1997, the government can certainly reduce the level of the statutory requirements.

However, if a fixed mechanism for pension increases is set out in the pension scheme rules that is a contractual obligation and I very much doubt the government could/would interfere. I think scheme rules usually say that pension increases are "discretionary" and many schemes weren't paying any at all - which is why the 1997 requirement was imposed in the first place.

[sidicks]

Ozzie Osmond said:

Jockman said:

Does the Govt have the power to change this to CPI? Would it make a noticeable difference?

Insofar as there are minimum statutory "pension increases", which all pension schemes have been obliged to implement since 1997, the government can certainly reduce the level of the statutory requirements.

However, if a fixed mechanism for pension increases is set out in the pension scheme rules that is a contractual obligation and I very much doubt the government could/would interfere. I think scheme rules usually say that pension increases are "discretionary" and many schemes weren't paying any at all - which is why the 1997 requirement was imposed in the first place.

Most private sector schemes had discretionary increases which, in practice, meant 3% p.a during the 80's.

Thereafter few if any private schemes were paying much in the way of discretionary increases.

In contrast, the public sector schemes are linked to RPI (or LPI), no discretion involved.

[sidicks]

Sheepshanks said:

bmwmike said:

Crazy isn't it. The employee wouldn't have paid in anywhere near that.

In some cases they wouldn't have paid anything at all - the original civil service pension was non-contributory.

Including the appropriate investment return, the employee contribution would amount to between £200k and £300k, depending on the exact contribution.

[Ozzie Osmond]

sidicks said:

In contrast, the public sector schemes are linked to RPI (or LPI), no discretion involved.

So, question: How are those public sector schemes constituted and what is the mechanism for making changes? My limited understanding is that they will have been created by statute and so can be changed by the government. I anticipate employment contracts say "You're in the XYZ scheme" but I don't know whether specific benefits actually become part of that contract.

At the end of the day I guess that if the government decides to pass new statutes altering employment contracts - which it clearly has the power to do - it can change both the public and the private sector. Although it's pretty unusual for the government to go around re-writing contract terms.

[sidicks]

Ozzie Osmond said:

So, question: How are those public sector schemes constituted and what is the mechanism for making changes? My limited understanding is that they will have been created by statute and so can be changed by the government. I anticipate employment contracts say "You're in the XYZ scheme" but I don't know whether specific benefits actually become part of that contract.

At the end of the day I guess that if the government decides to pass new statutes altering employment contracts - which it clearly has the power to do - it can change both the public and the private sector. Although it's pretty unusual for the government to go around re-writing contract terms.

Yes, the government can change the terms of future accrual, just as private sector employers can, however when they try and do so (even proposing moderate changes that don't really address the fundamental issue), Unions threaten to strike and moan about the 'race to the bottom' etc...

[BoRED S2upid]

Vroom101 said:

I'm certainly no expert when it comes to finance, but that amount does worry me. A workmate retired at Christmas at the age of 62, and his YEARLY pension is about £30k. No idea what the pot is to get that amount. Gotta love company pension schemes

I signed up to the company pension as soon as I was able to at 19. That was 19 years ago and I've just ignored it ever since. I don't see it in my take-home pay so I just forget about it. Looking at my pay packet, this week's pension contribution was £48.23. Hopefully when I give up work I'll be able to enjoy my retirement!

I often wonder if I should be doing more with my money, but in all honesty a lot of it (investments, stocks & shares etc) completely baffles me

You pay £48.23 into a pension? Crikey that's not a lot I hope your employer is contributing massive amounts!

[Zoon]

BoRED S2upid said:

You pay £48.23 into a pension? Crikey that's not a lot I hope your employer is contributing massive amounts!

Just under £200 a month? Better than nothing I suppose.

[Granfondo]

BoRED S2upid said:

Vroom101 said:

I'm certainly no expert when it comes to finance, but that amount does worry me. A workmate retired at Christmas at the age of 62, and his YEARLY pension is about £30k. No idea what the pot is to get that amount. Gotta love company pension schemes

I signed up to the company pension as soon as I was able to at 19. That was 19 years ago and I've just ignored it ever since. I don't see it in my take-home pay so I just forget about it. Looking at my pay packet, this week's pension contribution was £48.23. Hopefully when I give up work I'll be able to enjoy my retirement!

I often wonder if I should be doing more with my money, but in all honesty a lot of it (investments, stocks & shares etc) completely baffles me

You pay £48.23 into a pension? Crikey that's not a lot I hope your employer is contributing massive amounts!

But he is hoping for about £30k a year!