Pension panic!
Discussion
At 34, I've not really been paying into a pension for any significant period, due to starting University late, so consequently not starting work until my mid 20's, then messing around for a couple of years, assuming I'll never get old.
My current pension is with Standard Life and work helpfully add a nice contribution, so I'm paying in a total of £500 a month.
I did start a small pension when I was 18, which is now dormant and has a fund value of a whopping, £14k or so.
So, two questions:
Should I transfer the old pension into my current fund (different providers) - I think it would make it easier to actively manage and swap funds, as the platform/interface seems much better. But am I missing anything (fees, change of regs etc)?
Also, £500 a month seems a reasonable amount, but is it *really*? I pay the amount which gains me the best % from my employer, but no more. The pension company blurb seems to suggest a 7% pa growth rate, which seems generous - so should I account for this generosity and pay more in? I don't want to be living on beans and wondering if to turn on the heating or the holo-deck as a pensioner!
Being PH, I obviously have several directorships as well and am working on a dictatorship too.
My current pension is with Standard Life and work helpfully add a nice contribution, so I'm paying in a total of £500 a month.
I did start a small pension when I was 18, which is now dormant and has a fund value of a whopping, £14k or so.
So, two questions:
Should I transfer the old pension into my current fund (different providers) - I think it would make it easier to actively manage and swap funds, as the platform/interface seems much better. But am I missing anything (fees, change of regs etc)?
Also, £500 a month seems a reasonable amount, but is it *really*? I pay the amount which gains me the best % from my employer, but no more. The pension company blurb seems to suggest a 7% pa growth rate, which seems generous - so should I account for this generosity and pay more in? I don't want to be living on beans and wondering if to turn on the heating or the holo-deck as a pensioner!
Being PH, I obviously have several directorships as well and am working on a dictatorship too.
I started late too, but don't worry, 34 isn't too bad, at least you're thinking about it.
What's your employer's contribution?
I think a combined contribution from you and them of 10% is the absolute minimum, if you ever want to retire. I'm doing Salary Sacrifice to get a combined total of just over 15%, doesn't feel like too much to me.
What are the annual management charges of the two different pensions? One might be 0.5% and the other 2%, it makes a big difference.
As for the 7% growth projection, I believe these rates are set by the government. They don't know, and nor does anyone else, but the stock exchange went up around 7% on average in the last 50+ years. At least it allows you to compare different pensions with the same assumption.
What's your employer's contribution?
I think a combined contribution from you and them of 10% is the absolute minimum, if you ever want to retire. I'm doing Salary Sacrifice to get a combined total of just over 15%, doesn't feel like too much to me.
What are the annual management charges of the two different pensions? One might be 0.5% and the other 2%, it makes a big difference.
As for the 7% growth projection, I believe these rates are set by the government. They don't know, and nor does anyone else, but the stock exchange went up around 7% on average in the last 50+ years. At least it allows you to compare different pensions with the same assumption.
Max,
On the surface of it, consolidating pension funds has lots of advantages; they're easier to manage, you might get a charge rebate for larger funds under management etc.
Being PH, this place is teeming with financial planning experts so you'll not be starved of advice. But your needs are unique - try not to think what you should be doing NOW simply because thats what everyone else is doing, instead think about what you want life to look like at 55 (if planning for retirement is your thing), and work backwards from that and see if what you're doing now is right for the objective - remembering to take into account the other 'intrusions' that life chucks at you (liquidity for children, home, work etc).
Over the long term, 7% doesn't seem too bad, the FSA compels providers to illustrate at certain rates. But the thing is, how much do you want at 55, or 65? Will your current retirement contributions currently allow you to achieve that? If so, and if you hit your income objective at, say, aged 51, then you can park the fund in cash or safer funds and do something else with the £500. You and your needs are unique, and so are your circumstances.
On the surface of it, consolidating pension funds has lots of advantages; they're easier to manage, you might get a charge rebate for larger funds under management etc.
Being PH, this place is teeming with financial planning experts so you'll not be starved of advice. But your needs are unique - try not to think what you should be doing NOW simply because thats what everyone else is doing, instead think about what you want life to look like at 55 (if planning for retirement is your thing), and work backwards from that and see if what you're doing now is right for the objective - remembering to take into account the other 'intrusions' that life chucks at you (liquidity for children, home, work etc).
Over the long term, 7% doesn't seem too bad, the FSA compels providers to illustrate at certain rates. But the thing is, how much do you want at 55, or 65? Will your current retirement contributions currently allow you to achieve that? If so, and if you hit your income objective at, say, aged 51, then you can park the fund in cash or safer funds and do something else with the £500. You and your needs are unique, and so are your circumstances.
Sadly, this stuff interests me, as I maybe in a similar position to the OP.
Now I know that it can all be conjecture, but are there any sites out there where we can plug in:
Now I know that it can all be conjecture, but are there any sites out there where we can plug in:
- Age
- Current fund
- Current monthly contribution
- Future contributions
- Fund at different retirement ages
It's really easy to do in excel. The problem is, nobody knows what growth you're going to get and what inflation will do to your pension fund. So that's why I'd say 10% min from you and your employee is ok, 15% if you can afford it. Money paid in now is better than money later, so if you don't have dependants get on with it, you can always cut back later if necessary.
Thanks for all of the info - its very useful. I've not thought about 'what I want' rather than what I can afford, so thats a very useful starting point.
Fortunatley I'm in the kind of job where I could easily do a couple of days a week as and when up until I'm bored of it, so a total retirement is actually quite unlikely until I'm well past the current statutory age.
Is there a % of salary that people aim for as a pension? I really have no idea what I'd need at 65 but am certainly planning on spending a good deal of time doing fun stuff!
My dormant pension provider charge 1% pa, which I think is in line with the current one, so I'm going to move and eat whatever fee there is to move (apparently none, but I can't quite believe that).
My company allow us to pay a % of our annual bonus into our pension - I've always shunned this and taken the cash (not huge amounts, but meaningful) - I'm assuming that this actually isnt such a stupid idea as it sounds now and can top up my annual payment to get me closer to the figure I eventually decide I need.
Finally, the golden question... how safe are pensions? Some of the older guys here lost money when one provider (Equitable Life, I think) went pop. Can this still happen? Is the amount guaranteed as with savings?
Thanks again for the help.
Fortunatley I'm in the kind of job where I could easily do a couple of days a week as and when up until I'm bored of it, so a total retirement is actually quite unlikely until I'm well past the current statutory age.
Is there a % of salary that people aim for as a pension? I really have no idea what I'd need at 65 but am certainly planning on spending a good deal of time doing fun stuff!
My dormant pension provider charge 1% pa, which I think is in line with the current one, so I'm going to move and eat whatever fee there is to move (apparently none, but I can't quite believe that).
My company allow us to pay a % of our annual bonus into our pension - I've always shunned this and taken the cash (not huge amounts, but meaningful) - I'm assuming that this actually isnt such a stupid idea as it sounds now and can top up my annual payment to get me closer to the figure I eventually decide I need.
Finally, the golden question... how safe are pensions? Some of the older guys here lost money when one provider (Equitable Life, I think) went pop. Can this still happen? Is the amount guaranteed as with savings?
Thanks again for the help.
chris7676 said:
Pensions safe? Expect continous changes in legistlation (already been happening), taxation and at worst legalised theft due to the dire budget situation.
For these reasons I'm out
Surely the 'theft' will happen to whatever you do with your money? BTL tax regs can change, commercial property is subject to huge potential costs, interest rates on savings are terrible - hell, the government could even come round and take your gold off you!For these reasons I'm out
My problem is, I get a nice % from my employers, but I have to pay in to get it - even if that wasn't the case I think it would be far too easy for me (with no willpower) to be 'investing' my old age savings in a 458 italia, once the pot gets to that level.
Maxf said:
Surely the 'theft' will happen to whatever you do with your money? BTL tax regs can change, commercial property is subject to huge potential costs, interest rates on savings are terrible - hell, the government could even come round and take your gold off you!
It will but the main problem with the pension is you cannot access it unless you are quite old and this is likely to get worse. With other assets you have so much more flexibility and even in the worst case scenario you should be able to have some access to your means (spread over cash, property, shares, possible precious metals).Btw, quite another aspect is that the fund(s) may do quite badly, and while you have the SIPP alternative, this is still subject to the above restrictions.
chris7676 said:
It will but the main problem with the pension is you cannot access it unless you are quite old and this is likely to get worse. With other assets you have so much more flexibility and even in the worst case scenario you should be able to have some access to your means (spread over cash, property, shares, possible precious metals).
Btw, quite another aspect is that the fund(s) may do quite badly, and while you have the SIPP alternative, this is still subject to the above restrictions.
You are referring to a pension in the abstract when instead, it is a unique proposition.. everyone's needs are different, and 55 is not 'very old' these days - especially for someone in his 40s (like me!). An investor who doesn't mind the lack of liquidity or who might, for instance, want to use a SIPP to fund a commercial property (or dare I say, a classic car?!) will be able to use the pension in such a way before aged 55 anyway. This use of a pension does away with the problem of liquidity. Btw, quite another aspect is that the fund(s) may do quite badly, and while you have the SIPP alternative, this is still subject to the above restrictions.
One disadvantage with having so MUCH access to liquid cash is that you run the risk of compromising growth for the lack of volatility which you might be prepared to accept if you are investing in higher risk funds for the long(er) term. If you do need the cash or funds in the shorter term, you possibly shouldn't be in those higher risk funds. I'm not saying you're wrong, but what might be a downside for one person, doesn't automatically make the product or wrapper a bad product in its own right, for a.n other.
I was being a little tongue in cheek with the car business, they do attract a tax charge if held within a SIPP.
However, for the right person, the SIPP is a great idea. You can use them to buy or invest in various forms of commercial property - I have clients who also use certain SIPP providers to invest in physical gold, which is held in secure depositories in the US (not bad, if you add the increase in value of gold this year in addition to the (potential) 20-40% relief you get on what you buy, within HMRC limits).
Not all SIPPs provide full functionality - and are sometimes referred to as a 'SIPP lite'. Many people have a SIPP without ever realising the full potential of them - usually, a plain vanilla personal pension or even a stakeholder may suffice for some people.
http://en.wikipedia.org/wiki/Self-invested_persona...
edit: POTENTIAL 20-40% tax relief.
However, for the right person, the SIPP is a great idea. You can use them to buy or invest in various forms of commercial property - I have clients who also use certain SIPP providers to invest in physical gold, which is held in secure depositories in the US (not bad, if you add the increase in value of gold this year in addition to the (potential) 20-40% relief you get on what you buy, within HMRC limits).
Not all SIPPs provide full functionality - and are sometimes referred to as a 'SIPP lite'. Many people have a SIPP without ever realising the full potential of them - usually, a plain vanilla personal pension or even a stakeholder may suffice for some people.
http://en.wikipedia.org/wiki/Self-invested_persona...
edit: POTENTIAL 20-40% tax relief.
Edited by Ginge R on Monday 17th October 16:24
When the wife goes on maternity if we have any spare cash should I pay into my pension what she would have paid into hers? Ie she will be income tax free vs 40%.
Problem I see is it's building up more in my name than in my wifes. The issue being that when we draw our pensions over all we will pay more tax. Though is the tax relief now and then the 25% tax free pot which we would certainly take be overall better off??
What mind of salary or pension pot is required for SIPPS? And would it be crazy to take our final salary pension funds and move then into a SIPP?
A reason why I'd even consider this is one my wife is a teacher ... So that final salary start date could keep changing etc throughout the time between now and drawing it. Vs get a SIPP.
SdKicks numbers wise I believe the wife currently has a final salary without taking out the 25% tax Free of £3,600 pa from 60. What would the fund be?
Problem I see is it's building up more in my name than in my wifes. The issue being that when we draw our pensions over all we will pay more tax. Though is the tax relief now and then the 25% tax free pot which we would certainly take be overall better off??
What mind of salary or pension pot is required for SIPPS? And would it be crazy to take our final salary pension funds and move then into a SIPP?
A reason why I'd even consider this is one my wife is a teacher ... So that final salary start date could keep changing etc throughout the time between now and drawing it. Vs get a SIPP.
SdKicks numbers wise I believe the wife currently has a final salary without taking out the 25% tax Free of £3,600 pa from 60. What would the fund be?
Lots of interesting comments here; I've another one.
Do we still think that a pension which buys into an annuity/fund come retirement is the best use of your lifetime's savings?
Obvious upside: it's an income for life.
Obvious downside: you might die on day 2 of your retirement
What steps are people taking to mitigate/improve on these risks?
Do we still think that a pension which buys into an annuity/fund come retirement is the best use of your lifetime's savings?
Obvious upside: it's an income for life.
Obvious downside: you might die on day 2 of your retirement
What steps are people taking to mitigate/improve on these risks?
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