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My last employer was one of the last to cancel its dB pension. They always quoted that it cost 35% of pensionable salary to provide it. It's just unsustainable to have kept it going.
It's just about to pay out for me and was generous. There's an even better one where I worked before, it is indexed to rpi so although I earned less, for the same qualifying years, it's going to pay out roughly double, albeit 2 years later.
State pension is ok, a payback of c3 years to buy the gap years. The gap years are increasing in price too.
You have to remember with these pensions that a decade or two ago the pension funds were in massive surplus and they were allowed by the government to maker a pensions contribution holiday ie not pay in for a while. Come the downturn lo and behold - your pension is now unnaffordable and we have to close the scheme.
You have to remember with these pensions that a decade or two ago the pension funds were in massive surplus and they were allowed by the government to maker a pensions contribution holiday ie not pay in for a while. Come the downturn lo and behold - your pension is now unnaffordable and we have to close the scheme.
Not quite true. Stupidly, HMRC rules only allowed a 5% surplus to a pension scheme so employers took a contribution holiday when the stock market was booming. Obviously HMRC didn't believe in putting away for a rainy day.
In theory the contributions could have been given to employees as salary/bonus but guess what........
Thankfully for the rest of us there is ever decreasing liability around final salary pensions now
Thankfully for the rest of us there is ever decreasing liability around final salary pensions now
The contributions made by NHS, Teachers, Civil Servants, Police, Armed Forces employees will dwarf the returns to be achieved.
The final salary scheme I was in was about 33% of my salary. It was unlikely that I would have achieved a similar equivalent salary increase by moving company to the same role, which was one reason for staying. Now it's closed there is no such incentive to stay. Total remuneration is always more than salary, and that includes the public sector. It's just that most people do not understand the valuation of a pension scheme (other than defined contributions) as part of the total remuneration.
That Guardian article is really basic. Read it earlier but didn't want to insult anyone's intelligence by posting to it here.
Some of it stating the obvious:
Retiring early means covering the years before the state pension kicks in
and
Little warns against cashing in the 25% tax-free pension lump sum too early: “Taking it all at once in your 50s can deplete your pot quickly. Taking it in tranches makes it last longer.”
And some of it stating complete bollocks:
The state pension is now just under £12,000 a year. “If it increased by 2.5% per year over a period of 10 years, then that would be about £150,000 extra that would need to be saved into a pension to cover that period if you were looking to retire early,”
You have to remember with these pensions that a decade or two ago the pension funds were in massive surplus and they were allowed by the government to maker a pensions contribution holiday
I get a pretty decent pension from an ex-employer. They took a pension holiday in the 90's, and then since the crash of the early 2000s the scheme has been a few hundred million short. I'm hoping the company stays afloat as if they go down my pension goes with them. It does mean that the UK arm hasn't paid any tax for 20 years because any profits go to propping up the pension scheme.
And some of it stating complete bollocks:
The state pension is now just under £12,000 a year. “If it increased by 2.5% per year over a period of 10 years, then that would be about £150,000 extra that would need to be saved into a pension to cover that period if you were looking to retire early,”
Help me with your working on that? I think language isn't great but I think my interpretation matches what I'd describe the situation as.
If you retire before your state pension age, and you intend to have the same standard of life as when you are at state pension age you need to be funding the £12k pa of state pension out of your own money. Which with an inflation of 2.5% turns 10x12=120 into more like £150k. [deleted, brain fart....personal allowances are frozen, pension is linked]
The language of having to "save" it - I guess if you have say £100k saved beforehand then you're declining by 12k + inflation each year but also increasing by whatever the investment is returning so the £150k needed isn't necessarily saved up before you start but has still to come from somewhere and is therefore in excess to what you'd need to cover your extra if you only retired at state pension age?
In the end, it's costing you about £150k of savings and investment returns.
onewheel - i think if your ex-employer goes bust and you have a pension in payment you are pretty fully covered to keep at least 90% of the payment. needs checking.
and you intend to have the same standard of life as when you are at state pension age you need to be funding the £12k pa of state pension out of your own money.
I think it would be very risky to assume that a full non-means-tested state pension will be available.
More Guardian bollocks
"Beware that gaps in your NI record to raise children or care for others can mean you fall short of the 35 years needed for the full state pension."
Up to age 12 you get NI credits for raising children.
https://www.nidirect.gov.uk/articles/getting-credits-towards-your-state-pension#toc-2
I think it would be very risky to assume that a full non-means-tested state pension will be available.
I agree but that's not the point being contested. If anything that means that you'll need even more (double edged - the more you save now the less state pension you get, so why bother??)
More Guardian bollocks
"Beware that gaps in your NI record to raise children or care for others can mean you fall short of the 35 years needed for the full state pension."
Up to age 12 you get NI credits for raising children.
Not sure why Guardian is getting a slamming for a basic article that is essentially factually correct - especially as the earlier quote is attributed to someone else entirely but anyway......
Yes, you get credits for raising children if you are claiming child benefit. If you aren't, and since those limits came in a number of people are not registering since they'll get nothing, then you don't automatically. You have to apply to have them added. Article would have been better if it had made that clear but in that light "Beware that gaps in your NI record to raise children or care for others can mean you fall short of the 35 years needed" doesn't meet my threshold for bollocks.
What’s missing from that article, and most, is some simple data on what size of pension pots actually work for different people and scenarios. Up till six months ago I was in the media trap of thinking I had to strive for a £1M pension pot to retire at 60, as that is the common default in these articles.
Some honest posting on here has evidenced many people making it work well on half that or less, in some cases with a modest top up from some part time work. That has encouraged me, finding myself in a not wholly voluntary retirement position with maybe 50 - 60% of that golden number at nearly 60. I am fortunate with house paid, no debt and wife working part time mind you.
I think it would be very risky to assume that a full non-means-tested state pension will be available.
That's going to be a very difficult thing to change quickly without a huge amount of dissent. The Waaspi women campaign drags ever on and as far as I can see the changes were flagged up many years in advance. Who of us *doesn't* know that the retirement age is going to be older than it is now by the time we get there (see that link)?
People are planning their retirement - the amount they save/the things they forego - based on receiving a state pension as well. If they've saved enough that the combination makes them wealthy that was their choice.
Means testing what are considered 'universal benefits' also breaks the 'we all pay, we all benefit' element of taxation. Whats needed is a major rejig of our tax system and merging of employee national insurance and income tax. Given that NI isn't in any real sense hypothecated and state pensions are funded from tax income each year not some big pot of saved money just make pensioners pay tax (and effectively NI) like everyone else on their total income.
Ultimately, despite all the moaning in the right wing press, the reality is that middle income earners in the UK (whether retired or not) don't pay enough tax to support the services we want. You cant get good services and pensions by just taxing the very rich - the middle needs to pay more (and they do in the European countries many of us visit)
Keeping options open here. 56 in January. Son has decided he's moving out soon - assuming he get's a full time job (grand plans). I'm still looking to go early 60's. Just checking two of my 'spare' pensions and they have recovered nicely from the Trump shenanigans and have grown since January (big dip up until April).
Help me with your working on that? I think language isn't great but I think my interpretation matches what I'd describe the situation as.
I agree with what you wrote after this. Basically you may need to allocate £150k to this top-up, but you don't need £150k saved up front in order to do this... you only need perhaps £95k or £100k. ( CBA do do the maths)
What’s missing from that article, and most, is some simple data on what size of pension pots actually work for different people and scenarios. Up till six months ago I was in the media trap of thinking I had to strive for a £1M pension pot to retire at 60, as that is the common default in these articles.
Maybe this has been covered in previous posts but from all the examples I've see (James Shack YouTube etc) everyone has a plan, and then they get care costs, which is like your finances getting a punch in the head from Mike Tyson.
Few people need more than 2y of care (vast majority is much less of course), which makes a dent in the estate for sure but won't actually overwhelm it.
Agreed, and I think combining the misconceptions therein, along with the utopia pushed by the pension companies that retiring with a pot under 500k, and not kicking close to 1M, is going to leave you well short, is causing a load of worry, much of which has no solution other than taking the leap of faith.
Wealthy, middle and upper class finance company who make money of people saving money encouraging more people to save more money shocker....
Agreed that so many articles focus on 'needing' £30-40k a year income from their pension - and that is frightening when you see the figures behind it. I started too late, and even bunging £700 a month (A frikking month) into a pension now at age 51 I will not have saved 'enough' according to these companies. The last one told me I should be looking to retire on about 3/4 of my current salary - which would take me into £50k a year income territory! FFS.
All ignore the houses, other savings, working slowly into retirement etc.
I personally am aiming to earn as much as I can now age 50-60ish and then start winding down part time and other jobs. I personally would be quite happy with a couple of Tesco till shifts when I am in my 60's if I can wind down a bit and have a few more days out between that - but not many CEO's as I am would share that view....and the pension companies certainly do not understand that view.
I personally would be quite happy with a couple of Tesco till shifts
Mrsdb found it quite difficult to get a "wind down" job, most employers thought she'd get bored and leave, it's something I've thought about too but decided I'd rather do my current job* for less hours than take a large pay cut per hour.
*only average UK salary but quiet easy on me & much better than minimum wage.
A few friends have found the sweet spot with a part time role that pays a decent rate and keeps below the tax allowance, netting around £1k a month to supplement a couple of k from pension/savings, again with no or minimal tax for the first good few years utilising the 25% tax free etc.
I personally would be quite happy with a couple of Tesco till shifts
Mrsdb found it quite difficult to get a "wind down" job, most employers thought she'd get bored and leave, it's something I've thought about too but decided I'd rather do my current job* for less hours than take a large pay cut per hour.
*only average UK salary but quiet easy on me & much better than minimum wage.
I watched my father in law negotiate a nice deal - moved from sales manager of a mushroom seller to inspecting stockists and quality. He was paid 5 days per month to travel the UK (including overnight accommodation) and randomly inspect supermarkets who had their stock, then send simple reports to the new sales manager and team. Was paid £1k a month to do this for 6 years - basically he and my MiL spent the time touring all sorts of random places in the UK at someone else's expense...
Quite a few colleagues are on compressed or even part time hours before they step off into retirement. All depends on your employer and your role.
keeps below the tax allowance, netting around £1k a month to supplement a couple of k from pension/savings, again with no or minimal tax for the first good few years utilising the 25% tax free etc.
This sounds like effective tax avoidance. But it does mean a fairly low income. OK for later years, but something of a change if you were taking home much more before retiring.
If you had a 500k pension pot and 50 or 60k in cash/savings you could have a combined ‘in your hand’ of 4k a month for close to 5 years, possibly getting you to to state pension age. Not necessarily the most tax efficient way to do over say a 20 year pension period though, but would increase available disposable income in the early years.
I seem to be doing ok on the pension front thanks to sticking in good sized contributions from relatively easy in the career. I kinda thought i'd not be able to retire until 60 or whatever, but maybe I can do it at 55 if I don't go mad (30k a year or whatever). I have a chunk in an isa, and it occurred to me the other day I could just burn through that from age 55 to 57 when my pension would kick in - somehow feels wrong as that's my 'savings' and just spending them seems somehow 'incorrect'. Any downside to this?
I guess the main one I can think of is that it means all your savings are then effectively in your pension, which means the double taxation thing when I die (I know it's not actually double taxation as I didn't pay tax on it in the first place - i'm not anti tax!). Anything else? Means testing of the state pension I guess would screw my maths, as would a tax raid on large pension pots which I assume will come sooner rather than later.
But, the 25% you can take tax-free, do you have to do self-assessment for that
Not sure I’ll ever not do self assessment though most times I seem to owe money despite PAYE. My SO has continued to do it every year since retiring and each year has had a refund from HMRC.
keeps below the tax allowance, netting around £1k a month to supplement a couple of k from pension/savings, again with no or minimal tax for the first good few years utilising the 25% tax free etc.
This sounds like effective tax avoidance. But it does mean a fairly low income. OK for later years, but something of a change if you were taking home much more before retiring.
£3k per month take home is about 50% more than national average take home pay, it might be something of a change for those used to more but to call it a fairly low income?.... even if you are talking joint income it should be plenty to live on if retired & mortgaged paid off etc
I turn 43 this year and whilst I have no thoughts on retiring, I'm a little nervous given I only have about £100k in total savings (mostly pensions). Seems I'm in it for the long haul.
I have a chunk in an isa, and it occurred to me the other day I could just burn through that from age 55 to 57 when my pension would kick in - somehow feels wrong as that's my 'savings' and just spending them seems somehow 'incorrect'. Any downside to this?
no real downside, I think it’s a mindset thing, spending it after years of saving to it..
Ultimately, despite all the moaning in the right wing press, the reality is that middle income earners in the UK (whether retired or not) don't pay enough tax to support the services we want. You cant get good services and pensions by just taxing the very rich - the middle needs to pay more (and they do in the European countries many of us visit)
The good news is, if things carry on like this, the middle soon will be! Average wages are now only about 20% below the higher tax threshold.
I just looked up some previous years, out of interest. Adjusted for inflation, in 2019 the top rate kicked in around £65k in today's money, in 2010 it was about £68k, in 2000 it was about £62k, and in 1990 it was about £58k in today's monday. So middle-higher earners are definitely getting taxed more.
Higher rate tax is not something that's concerned any household I've ever lived in, but a few more years and it just might...
all your savings are then effectively in your pension, which means the double taxation thing when I die (I know it's not actually double taxation as I didn't pay tax on it in the first place - i'm not anti tax!).
really all depends on size of pot, you get 25% tax free, so with a large pot and spreading that out over say 10 years, and adding in the 12k a year tax free income, you could keep a decent monthly income with low or no tax.
for the ‘when you die’ bit, and assuming you’re considering inheritance tax, if your estate is under about £1M it won’t really amount to much, and if it’s over that then it’s probably fair enough !
we plan to spend most of the pot, and leave a decent chunk in the house to the next generation, all below IHT Threshold. God willing 🤞
Factoring in the house it might be over a million when I cork it - kinda depends on the market. If it happens to stay favourable then the withdrawal rate will leave most of the principle - reasonably unlikely it'll go down to nothing. As I say no problems paying the tax, but I guess i'd be stupid if I didn't minimise it. Essentially a choice between retiring early and leaving the kids a larger pot that only gets taxed once (as opposed to IHT + the receivers marginal rate).
I turn 43 this year and whilst I have no thoughts on retiring, I'm a little nervous given I only have about £100k in total savings (mostly pensions). Seems I'm in it for the long haul.
£100k is good. Now it's do you have spare to make this a lot better over the next 5/7 years to really see it grow. Have you paid attention to what it's invested in? Consolidated any other pensions. Checked on lifestyling and when it kicks in and if it can be turned off.
A few of these threads last year kicked me into looking at it properly so spent 6 months learning about it, getting all the ducks in a row and playing with spreadsheets to see where we are at and what is needed to be done.
Meaningful Money is superb for guiding what you should do and this is probably the main season to listen too before getting sucked into everything else https://meaningfulmoney.tv/category/podcast/season-25-finance-os/
All assuming most of it doesn't go in care home fees, like MIL's estate. Let's hope for a long 'mobile/healthy' retirement.
That Guardian article really wasn't aimed at most of the people on this thread who are already doing something, even if they think they should be doing more.
It was aimed at people who are doing nothing, the message is you really need to think about this a bit and do something. I've had conversations with people about this stuff over the years who have zero financial literacy. As soon as you talk actual numbers, interest rates etc they just glaze over and become paralysed by indecision/disinterest/fear. Result - they still have no pension. Hopefully auto-enrolment has improved this slightly, but we still had one of our daughters outraged at this deduction from their pay packet and wanted to opt out...
but we still had one of our daughters outraged at this deduction from their pay packet and wanted to opt out...
Employer contributions are free money that will compound nicely from a young age... total no-brainer even if the company scheme isn't very generous!
I think it’s a mindset thing, spending it after years of saving to it..
This, very much this. It's exactly what a pension adviser said to me a couple of years ago when I first started thinking about it. But it's a big change of mindset after ~40 years of saving in various ways & places, and I'm still a way off properly committing to it, despite finishing work in Apr at 62, and having just got all my (4) bits of pensions into actual payment this month. That took a little while to administer, although they did say "It will likely take 10 weeks or so to get these into payment"
I turn 43 this year and whilst I have no thoughts on retiring, I'm a little nervous given I only have about £100k in total savings (mostly pensions). Seems I'm in it for the long haul.
100k compounded at 4% for the next 25 years to retirement at 68 (by then it'll be 68, if not later) will be 270k approx
Add in another 10% pa of an average sort of salary of £32k (your + Eer contribs) would be another 3200 x 25 = 80k and also compound that at 4% over 12.5 years (rough and ready of averaging growth of a sum that starts from zero but increases over period is to compound over half that period) = 130k. Total is 400k in today's money
I'd say you're well on the way, and as salary grows and you can increase the amount you put in, and also hopefully returns-inflation are better than 4% ....you're a damn sight better off than a lot of people.
If nothing else, youngsters, start early and max out the free money from the Eer and taxman.
4% is weak but allows for inflation to be reducing the effective amount....
^^ very much this, and retiring today with a 400k pot would be quite doable for most people, and even before mid/late 60’s.
Yep. Based on my own recent experience, and assuming you're in reasonably good health, it should give you an annuity of about £20k. That depends a bit on whether you take the tax free lumpsum at the start, and a few other variables, but it's reasonably indicative
I'm getting very near to retirement (certainly mentally) and interested in people who have taken lower paid shelf stacking or delivery type jobs to keep some additional income coming in or to keep occupied.
There must be many people on here with a high to very high degree of autonomy in their roles - how do you manage working and being at someone else's beck and call? Quite likely working to some frightful person on a bonus driven mission! Showing my prejudices here.
I'm in the multiple smaller pensions from various employers bracket and needing to change the mindset from saving to spending while these pensions and the state pension phase in.
If you had a 500k pension pot and 50 or 60k in cash/savings you could have a combined ‘in your hand’ of 4k a month for close to 5 years, possibly getting you to to state pension age. Not necessarily the most tax efficient way to do over say a 20 year pension period though, but would increase available disposable income in the early years.
Can you check this/ confirm what the point was as I'm not getting it. Not saying it is wrong, but not seeing where it leads...
4k pcm is £48k PA, so lasts loads more than 5 years, but probably a bit less than 20.
What am I missing?
100k compounded at 4% for the next 25 years to retirement at 68 (by then it'll be 68, if not later) will be 270k approx
I guess that as this is an early retirement thread the message you will need to work to 68 isn't welcome!