Small company pension - what's the point?

[clockworks]

I worked part time for a supermarket for 9 years, and joined the company pension scheme. I was paying, I think, the middle level of voluntary contributions : 6%. Since I wasn't earning much, I was paying in less than £40 a month, so my total contributions were less than £4.5k, plus the "free" money from my employer.

I never expected to get much of a pension from it, more a case of getting the matching amount from the company.

I've just had a statement from L&G:

Current Pot £9,709
Estimated Pot at 65 £9490
Tax Free Lump Sum £2370
Annual Pension £168

The pot value seems fine, around double what I actually paid in.

The monthly pension is pitiful though - I would have to live for 40+ years in retirement to even get my money back!
Further down the statement it says that it takes a pot of £42,244 to get an annual income of £1,000.

Are annuity rates really that bad?
Looks like I'd be better off taking the 25% tax free lump sum now, and cashing in the rest as soon as I hit retirement age?
Any other options to consider?

Another question:

I'm 23 months away from my state pension age of 66, but the statement is based on a retirement date of May 2022, when I'll be 65.
Seems odd that the company scheme retirement age doesn't match the state pension age.


For info, I also have two proper DB company pensions, which I've been drawing for 12 years now. Added to the basic state pension, I'll have an income of at least £16k, plus the income from self-employment until I decide to give that up. An extra £3.23 a week isn't going to make much difference.


Edited to correct the numbers

Edited by clockworks on Tuesday 22 June 12:32

[anonymous-user]

Surely this is the exact situation where you would use drawdown rather than an annuity?

[V8mate]

clockworks said:

I've just had a statement from L&G:

Current Pot £9,709
Estimated Pot at 65 £9490
Tax Free Lump Sum £2370
Monthly Pension £168

The pot value seems fine, around double what I actually paid in.

The monthly pension is pitiful though - I would have to live for 40+ years in retirement to even get my money back!
Further down the statement it says that it takes a pot of £42,244 to get an annual income of £1,000.

And yet you're getting over two grand a year?

[bitchstewie]

Are those numbers right?

Multiply that by 10 and I don't know many DC pensions where a £100K pot gets you £1680 a month?

[darreni]

The £168 is likely to be annually rather than monthly.

[Fishlegs]

Annual pension of £168, not monthly.

[Jawls]

clockworks said:

I worked part time for a supermarket for 9 years, and joined the company pension scheme. I was paying, I think, the middle level of voluntary contributions : 6%. Since I wasn't earning much, I was paying in less than £40 a month, so my total contributions were less than £4.5k, plus the "free" money from my employer.

I never expected to get much of a pension from it, more a case of getting the matching amount from the company.

I've just had a statement from L&G:

Current Pot £9,709
Estimated Pot at 65 £9490
Tax Free Lump Sum £2370
Monthly Pension £168

The pot value seems fine, around double what I actually paid in.

The monthly pension is pitiful though - I would have to live for 40+ years in retirement to even get my money back!
Further down the statement it says that it takes a pot of £42,244 to get an annual income of £1,000.

Are annuity rates really that bad?
Looks like I'd be better off taking the 25% tax free lump sum now, and cashing in the rest as soon as I hit retirement age?
Any other options to consider?

Another question:

I'm 23 months away from my state pension age of 66, but the statement is based on a retirement date of May 2022, when I'll be 65.
Seems odd that the company scheme retirement age doesn't match the state pension age.


For info, I also have two proper DB company pensions, which I've been drawing for 12 years now. Added to the basic state pension, I'll have an income of at least £16k, plus the income from self-employment until I decide to give that up. An extra £3.23 a week isn't going to make much difference.

How are they predicting that the pot at 65 will be smaller than now? If their investment return doesn’t beat the charges, that’s pretty bad.

In their annual income of £1000 example, that will be index linked I suspect. So you wouldn’t need to live for 42 years to break even. Inflation over twenty years of drawdown is not insignificant.

[clockworks]

Sorry, yes the £168 is the annual pension.

I'll edit to correct it

[clockworks]

Jawls said:

How are they predicting that the pot at 65 will be smaller than now? If their investment return doesn’t beat the charges, that’s pretty bad.

I couldn't figure that out either.
Pot value went up £550 from April 2020 to April 2021, but is predicted to go down by £250 in the next year

[Abdul Abulbul Amir]

clockworks said:

Jawls said:

How are they predicting that the pot at 65 will be smaller than now? If their investment return doesn’t beat the charges, that’s pretty bad.

I couldn't figure that out either.
Pot value went up £550 from April 2020 to April 2021, but is predicted to go down by £250 in the next year

One of my pots estimates was based on the recent market performance so was forecasted to halve before I retire! I'd ignore their estimated pot value.

[TTmonkey]

It’s a pointless waste of effort. Most if us will struggle in retirement.

The only people getting comfortable out of 95% of pensions are the pension companies.

[Colonel Cupcake]

Are you not able to take the whole pot as a cash lump sum?

https://www.pensionsadvisoryservice.org.uk/about-p...

[timbo999]

TTmonkey said:

It’s a pointless waste of effort. Most if us will struggle in retirement.

The only people getting comfortable out of 95% of pensions are the pension companies.

And yet the OP states that the pot in this pension is twice what he paid in... clearly all pension companies are sharks!

[V8mate]

timbo999 said:

And yet the OP states that the pot in this pension is twice what he paid in... clearly all pension companies are sharks!

Probably because his employer matched his contributions?

[clockworks]

I've just set up online access to the L&G pension website, and checked what my options are:

Cash lump sum
Flexi-access drawdown
Annuity
Leave it as it is for as long as I want

Taking an annuity seems pointless for such a small amount, so I'll be taking a lump sum of some kind, at some point.

I'm wondering if it'd be best to take the tax free 25% lump sum, then leave the rest where it is until the point where I actually need the money?
I don't have any urgent need for cash right now, but there might come a time when a taxable lump sum would be useful, probably after I actually give up self-employment.

I'm guessing that I'll get a much better return leaving 75% of the pot with L&G than I would if I just stuck it into the bank or bought Premium Bonds?

I can't see any circumstances where I'll be anything other than a basic rate tax payer, and I'll always be using up all of my personal allowance.

[clockworks]

anonymous said:

[redacted]

I've got no debts, already have a shed-load of clocks and watches, and a reasonable amount of cash in the bank - enough so that I don't really need to keep working.

Never tried coke or hookers though....

[timbo999]

V8mate said:

timbo999 said:

And yet the OP states that the pot in this pension is twice what he paid in... clearly all pension companies are sharks!

Probably because his employer matched his contributions?

Absolutely! Free money you can't get any other way...

[xeny]

clockworks said:

I'm wondering if it'd be best to take the tax free 25% lump sum, then leave the rest where it is until the point where I actually need the money?
I don't have any urgent need for cash right now, but there might come a time when a taxable lump sum would be useful, probably after I actually give up self-employment.

I'm guessing that I'll get a much better return leaving 75% of the pot with L&G than I would if I just stuck it into the bank or bought Premium Bonds?

Are you possibly better off not taking the 25% tax free lump sum now? - if the 100% grows, the 25% tax free will also hopefully grow.

Long term you'd expect to get better returns from an investment than premium bonds, but there's inevitably uncertainty in investment, more or less so depending on what iti is invested in - do you have any options/information there?

[IJWS15]

Does the scheme force you into an annuity, one of mine did.

If it does move the fund to somewhere more flexible that will allow you to take it as drawdown if you want to.

[clockworks]

IJWS15 said:

Does the scheme force you into an annuity, one of mine did.

If it does move the fund to somewhere more flexible that will allow you to take it as drawdown if you want to.

It doesn't appear to force me into an annuity, from what I can make out from my pension account details on the website.
I've applied for a "retirement pack" from L&G just now, which is supposed to explain my options in more detail, and tell me what to do when I've decided.


It might be better to defer the 25%. I'm fairly risk-averse though, probably feel happier if I cover all the bases (apart from the annuity one, which seems like a lose-lose option to me)..