No Pension - 25, Gov looking to increase SPA to 75 HELP!!

[BoRED S2upid]

Zigster said:

Exactly. £300 pm for 30 years adds up to £108,000 to fund perhaps 35 years of not working. Yes, investment returns will make that bigger, but not enough that any hope of retiring at 55 is possible even if you have very low expectations of lifestyle.

Pay (a lot) more or retire (a lot) later.

£108k is nowhere near enough it needs to be triple that at least.

[red_slr]

b0rk said:

red_slr said:

As for how much you will need I would use this (very) rough formula to get you started if going the ISA route.

Decide age to retire, say 55. That gives you a 30 year window.
Decide what income you want at 55. Lets say £25k, just for this example.
Take that amount and x it by 25. So 25x25 = £625k.
So you will need, very roughly a pot of £625k at 55 to support an income of £25k.

Then to work out how much you need to contribute run a compound interest calculation at 4% growth per year.
This gets you back to about £850-£900 a month required for £25k with an investment window of 30 years.
You will have paid in about £300k. So you are doubling your money.

If you were to save £300 flat for 30 years you are probably, very roughly, going to end up with £200k ish. That will give you a possible income of around £8k a year.

However with inflation at say a modest 2.5% pa the value in real terms of the 625k would nearly half over 25 years of drawn down which is something to consider in terms of pot size required.

Moreover whilst whilst compound interest on the investments over time will increase the final sum getting to the 625k figure inflation will reduce the spending power. So the 625k pot would in 30 years have the spending power less than half of same sum today, which then roughly halves over the drawn down period. Basically to have the equivalent of 25k pa in today's money to "play" with in 30 years time and pot needs to be roughly £1.1m, quite a lot isn't it?

4% assumes 7% return, 2% inflation and 1% taxes and fees IIRC.

[200Plus Club]

Quite a few people I know in their 50s who have contracted or been self employed etc have zero or minimal pension provision. A few are relying on property downsizing to release cash but will have to move further northward to achieve their dream.

[anonymous-user]

Don't beat yourself up about it, work hard now and enjoy life as you need less when your older if you don't build up debts between now until your 40. . . Concentrate on investments that are tax free upon maturity at 50, 55, 60 years old. . . . After then all you should be worried about is how to spend it before you go into care or die as then it will be all taken off you by the state as they can't afford to keep you and they need the income from Inheritance tax

[amare32]

Seeing that you're 25. Don't get married or have kids. That'll save you at least £1m down the line.

You're welcome

On a more serious note, having seen my mum only enjoyed 5 years of her retirement before passing away last year due to a short illness at 58, sometimes you can't plan ahead too far. It's a balance of not frittering away your cash but still enjoying your life today.

[ClaphamGT3]

200Plus Club said:

Quite a few people I know in their 50s who have contracted or been self employed etc have zero or minimal pension provision. A few are relying on property downsizing to release cash but will have to move further northward to achieve their dream.

Which isn’t necessarily to bad an approach, provided that you are willing and able to actively manage your capital once you’ve released it. Selling properties in London to generate capital for re-investment is a not insignificant part of my pension planning

[p1doc]

red_slr said:

If you are planning to want to retire at 50-55 then I would strongly advise you look at a S&S ISA.



A SIPP on the other hand the very earliest you can draw is 55 at things stand now, but its likely to go up. The government keeps saying they want SIPPs to be 10 years behind SPA. So if they really do push to 75 then its 65.... not good. This will have a massive impact on me as I plan to retire early and that plan is based around me being able to access my SIPP late 50s. The other down sides of SIPPs is often the fees are higher than an ISA. Not in every case, but often they are. Then when you come to draw down on your SIPP you pay tax at your normal rate after TFLS and Personal Allowance etc.

have government already said in 2028 minimum pension age will rise to 57/58 ten yrs behind state pension age, I can only see this creeping up as you say

[red_slr]

They have said that is what they intend to do but have yet to pass the legislation so it may happen it may not but its looking like they will.

[Croutons]

red_slr said:

They have said that is what they intend to do but have yet to pass the legislation so it may happen it may not but its looking like they will.

In another thread that I can't easily find when I asked about it Julian said it had passed, JPH?

Another few small points of clarity, if you pay into a pension the provider should automatically claim 20% base rate tax back. Which is good.

The "extra" 20% higher rate tax payers can get back through their tax return comes back as cash, ie a tax rebate from HMRC, it does not top up your pension. Naturally you can put that sum into your pension yourself (if the scheme allows), but it's important people understand you don't get all 40% in the pension pot.

Also there was a question about not paying income tax if you draw down up to the tax free limit (12500). Correct no income tax if that's your lot, but you may still pay NI (that stops when you hit state pension age).

[golf_addict]

Croutons said:

In another thread that I can't easily find when I asked about it Julian said it had passed, JPH?

Another few small points of clarity, if you pay into a pension the provider should automatically claim 20% base rate tax back. Which is good.

The "extra" 20% higher rate tax payers can get back through their tax return comes back as cash, ie a tax rebate from HMRC, it does not top up your pension. Naturally you can put that sum into your pension yourself (if the scheme allows), but it's important people understand you don't get all 40% in the pension pot.

I think this is the difference between a personal
Pension and and employer pension. I’m sure it is possible to get the full relief within your pension.

[Mr Pointy]

m3jappa said:

I am in a similar position but i am 39

I just dont know who to go to and how to do it, i know how to build something, i now about mortgages, finance etc etc but when it comes to pensions most of the lingo isn't too understandable and worse than that like yourself i dont know who to use.
You hear all these stories about people paying in all their life and not getting much or them losing it so i am worried.

Would i just go to someone like hargreaves lansdown and just say 'i want a pension, i want to put in x per month'

I have a ltd company which is going ok so paying into a pension now has to make sense.

I don't think anyone has responded to you yet but you could do worse than look at the IM sticky thread & maybe drop Nik an email to see if you can have a chat with him.

For most people pensions aren't terrifically complicated once you have decided who you are going to invest with - & you can invest with more than one provider if you wish. There's a lot of discussion about exactly what sort of funds you should invest in UK/global/active/passive & this is where it can be confusing. You'll read a lot on these pages about funds like Vantage Lifestrategy which are simple passive funds with global spread & which have, in the past, done perfectly well for their investors. That's not to say they can't be beaten but over the years they have beaten most funds. Of course no-one can predict the future but if you want to beat inflation then you have to take some risk. How much risk you are happy with is another key issue you need to decide on.

A personal pension (ie one you set up, not one run by an employer) can be very tax efficient if you have a ltdco but it's only one aspect - there are ISAs as well which can be good when it comes to getting the money out in retirement & can be accessed at any time (unlike an pension fund). It's all about balance & tax effectiveness.

Hargreaves Lansdown have done a lot to make investing easier but they aren't the cheapest in terms of charges & charges are very important as they reduce your returns over time. There's nothing wrong with adviser fees, but you need to be getting value for money. HL will charge you a considerable amount if you actually want to talk to someone for individual advice so I would be wary about going that route.

[rossub]

200Plus Club said:

Quite a few people I know in their 50s who have contracted or been self employed etc have zero or minimal pension provision. A few are relying on property downsizing to release cash but will have to move further northward to achieve their dream.

My Dad is one.... except living in a council house means he's also still working as a driver 5 mornings a week at 70.

[Zigster]

Croutons said:

Also there was a question about not paying income tax if you draw down up to the tax free limit (12500). Correct no income tax if that's your lot, but you may still pay NI (that stops when you hit state pension age).

You don’t pay NI on a pension regardless on whether you are over SPA or not.
https://www.pensionsadvisoryservice.org.uk/about-p...

The minimum age at which you can take a pension is expected to move to 57 so that it remains 10 years below SPA, with the change happening from 2028 when SPA increases to 67. But I’m reasonably sure the legislation hasn’t yet been passed to make that happen.

[JulianPH]

Croutons said:

In another thread that I can't easily find when I asked about it Julian said it had passed, JPH?

It has been passed when it come to the increase in state retirement age and as access to personal pensions is 10 years before this age it is fully expected that this will increase accordingly.

There was talk about changing this to 5 years before state retirement age, but the Treasury rejected this and kept it at 10 years.

So whilst it may not yet be enacted (I've tried to find out, but to no avail) the decision of the Treasury to reject the 5 year period in favour for the 10 year one would suggest that this will be the case.

[JulianPH]

Zigster said:

You don’t pay NI on a pension regardless on whether you are over SPA or not.
https://www.pensionsadvisoryservice.org.uk/about-p...

This is correct. All pension income is free of NI regardless of age.

It is when you hit state retirement age that all earnings (from employment or self-employment) also stop being subject to NI.

[JulianPH]

Mr Pointy said:

I don't think anyone has responded to you yet but you could do worse than look at the IM sticky thread & maybe drop Nik an email to see if you can have a chat with him.

Thanks for the recommendation!

[p1doc]

Zigster said:

You don’t pay NI on a pension regardless on whether you are over SPA or not.
https://www.pensionsadvisoryservice.org.uk/about-p...

The minimum age at which you can take a pension is expected to move to 57 so that it remains 10 years below SPA, with the change happening from 2028 when SPA increases to 67. But I’m reasonably sure the legislation hasn’t yet been passed to make that happen.

cannot wait when early retirement will mean retiring at 65 lol

[m3jappa]

Mr Pointy said:

I don't think anyone has responded to you yet but you could do worse than look at the IM sticky thread & maybe drop Nik an email to see if you can have a chat with him.

For most people pensions aren't terrifically complicated once you have decided who you are going to invest with - & you can invest with more than one provider if you wish. There's a lot of discussion about exactly what sort of funds you should invest in UK/global/active/passive & this is where it can be confusing. You'll read a lot on these pages about funds like Vantage Lifestrategy which are simple passive funds with global spread & which have, in the past, done perfectly well for their investors. That's not to say they can't be beaten but over the years they have beaten most funds. Of course no-one can predict the future but if you want to beat inflation then you have to take some risk. How much risk you are happy with is another key issue you need to decide on.

A personal pension (ie one you set up, not one run by an employer) can be very tax efficient if you have a ltdco but it's only one aspect - there are ISAs as well which can be good when it comes to getting the money out in retirement & can be accessed at any time (unlike an pension fund). It's all about balance & tax effectiveness.

Hargreaves Lansdown have done a lot to make investing easier but they aren't the cheapest in terms of charges & charges are very important as they reduce your returns over time. There's nothing wrong with adviser fees, but you need to be getting value for money. HL will charge you a considerable amount if you actually want to talk to someone for individual advice so I would be wary about going that route.

Thanks very much for the reply, i will call or email Nik.

It has taken a long time to become established to the extent where i feel i could afford it, it even worries me now to be committed to x amount per month but i need to do something.

[anonymous-user]

So many young people are just not bothering with a pension, I mean why would they when the average life expectancy where they live is 71 and they won't get to use it until long after they are dead?

Plus they see their parents are living off rises in property prices, which also kept them from buying a house. Seems like the only viable plan is to buy a house, wait for it to increase in value and then downsize and pocket the rest. Why break your back for years working when you can just do that?

The contract has been broken. Pensions are broken.

[JulianPH]

kuro68k said:

So many young people are just not bothering with a pension, I mean why would they when the average life expectancy where they live is 71 and they won't get to use it until long after they are dead?

Plus they see their parents are living off rises in property prices, which also kept them from buying a house. Seems like the only viable plan is to buy a house, wait for it to increase in value and then downsize and pocket the rest. Why break your back for years working when you can just do that?

The contract has been broken. Pensions are broken.

Because of the tax savings. Pensions are not broken, many people just don't understand them.

I'll keep the numbers simple, but:


Basic Rate Taxpayer

Buy a £300,000 house with a £30,000 deposit.

You would need to have earned £37,500 to have the deposit (after tax, more when you factor in NI).

Assuming a constant 3% interest rate over 25 years (which is a big assumption) and you would need to earn £1,600 a month to pay off the mortgage.

The house has cost you £517,500 of taxable earnings.

Let us say in 25 years it is now worth £900,000 and you sold it to buy something at half the price (so the equivalent of what you could get for £150,000 today).

This would leave you with £450,000 to fund your retirement.

Put the same money into a pension (where there is no income tax deducted and (assuming 7% annual average returns) you would have £1,463,479 in 25 years time.


Higher Rate Taxpayer

Buy a £500,000 house with a £50,000 deposit.

You would need to have earned £83,333 to have the deposit (after tax, more when you factor in NI).

Assuming a constant 3% interest rate over 25 years (which is a big assumption) and you would need to earn £3,566 a month to pay off the mortgage.

The house has cost you £1,153,133 of taxable earnings.

Let us say in 25 years it is now worth £1,500,000 and you sold it to buy something at half the price (so the equivalent of what you could get for £250,000 today).

This would leave you with £750,000 to fund your retirement.

Put the same money into a pension (where there is no income tax deducted and (assuming 7% annual average returns) you would have £3,260,339 in 25 years time.


Granted, you have to have a roof over your head and the property gives you this. But the principle remains that putting money into a pension is far from broken and is highly tax efficient.

The basic rate tax payer investing £517,500 in property is £563,479 better off when placing this into a pension.

The higher rate tax payer investing £1,153,133 into a property is £1,760,339 better off when placing this into a pension.


Now let's look at the reality:

The basic rate tax payer realises that he doesn't want to downsize into a hovel in 25 years time in order to retire, so does some financial planning and compromises, buying a £200,000 property, aiming to extend or up-size as his future earnings increase.

He then pays the difference in the deposit and mortgage repayments into a pension.

In 25 years time he owns the (now £600,000) house outright with no need to downsize and has £486,776 in his pension.

The higher rate taxpayer does the same and buys a £300,000 home with the same intentions.

In 25 years time he owns the (now £900,000) house outright with no need to downsize and has £1,307,781 in his pension.