Retirement – Evaluation of Your Plans

Therefore seems better to retain the tax-free element and use it to reduce the future tax bill – or someone tell me I’m wrong?

That’s my view.

Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later. Of course if you are lucky these may be at different rates. If you are very lucky, they may be at the same rate. If the rules change to 30% relief flat rate, as the treasury would like, you’ll be losing if you’re a higher rate pensioner. At that point it’s time to look at different investments.

The two biggest advantages of pension savings for me were always; compound interest and inaccessibility. So I paid in extra from as early as I could because once in, I could not touch it and it would be growing. The tax relief is also nice.

I think it’s one of labour governments big targets.
The better paid minority benefits more than the lower paid workers in many ways . Tax breaks on pension contributions being one of those.
If you’re canny you can save 40% taxation , and then pay yourself back at 20% taxation in later years.
The lifting of the lifetime allowance helps a really small percentage of the population even more.
Although I do understand the reasons, it’s not hard nowadays with compound growth in unit linked investment to get to 7 figures if your funds performance is consistently good.

Every time I have a bad day at work, which seems to be 3 or 4 days a week atm I re-evaluate my retirement plans.

I’m 43, I need another 18 months to 2 years of my high stress, long hours, but well paid pointless corporate job before my pension is at a number I would be happy to leave untouched to grow naturally to 58. Then I could in theory switch and do something (no idea what) and earn maybe 20% of what I do now from 45 – 50, before doing a tactical downsize and move away from london at 50 to free up equity and live off the surplus for 8 years til the pension kicks in at 58.

There would be a lot of beans on toast and not a lot of 5 star hotels in that future but I’m hoping that once I get to that point at 45 when I have a safety net level as a baseline then maybe mentally things get easier.

Am very envious of those of you with contribtory pensions. Through most of my working life (56 now) I haven’t had this benefit. I recently located a pension from a previous job that offered this. I only worked there for 5 years 25 years ago. And at 30 pension planning was a long way down my list of priorities. Probably put in the bare minimum. I wound up with 65k in there which I recently transferred. Better than a kick in the balls, but really hit home how life would be looking rather different now had I had a lifetime of employer contributions.

I’m only 31 but pretty conscious now about trying to make the most of a pension. My current employer sadly only contributes the bare minimum they legally have to which is one of the main reasons I’m considering jumping ship.

My current employer sadly only contributes the bare minimum they legally have to which is one of the main reasons I’m considering jumping ship.

Not unusual for the private sector and TBH if you were a shareholder this is probably what you’d want them to do 🙂

But even in well-paid jobs companies aren’t paying big-time, unless you’re very, very senior.  Where I work they’ll match to 7.5% of salary at the senior grades, and this folk on circa £100k.

Old adage, “save half your age as a percentage of your earnings” – example; if you’re 36, need to be saving 18%.

Old adage, “save half your age as a percentage of your earnings” – example; if you’re 36, need to be saving 18%.

I feel like that old adage is based on wealthy folk from the 1960s and 70s. The middle-aged, full-sus riding IT managers of their day!

I just can’t see it being achievable for the average 36 year old on the average wage, with house prices and nursery fees and student loans being what they are these days.

Old adage, “save half your age as a percentage of your earnings” – example; if you’re 36, need to be saving 18%.

Remind me again, is that the adage that banks who want you to give them money for the next 50 years keep pedalling?

It is just not realistic for most folk I know.

is that the adage that banks who want you to give them money for the next 50 years keep pedalling?

Heh.  Perhaps it was the banks who pushed it, just like it was DeBeers who said you should spend X months salary on an engagement ring otherwise your other half won’t love you, and that somehow got adopted into common parlance….

It makes sense for it to work in reverse to me, you want to contribute as much as you can when you’re young so it compounds, then once you get older then interest it makes will be worth more than the actual contributions so you can dial them back down.

I ‘retired’ some years ago, due to a number of issues including severe injury. I still do bits and pieces but can pick and choose. We have investments that provide a little cushion, and pensions about to kick in/mature. So we’ll probably be ok for a while at least. Nobody can predict the future. But for me, the key is to live as frugally as is comfortable. To consider all those things you can easily live without, and then living without them. So, expensive TV/media subscriptions, choosing expensive over cheap holidays, cars, loads of new clothes all the time, eating out a lot, etc.  Read a book, stay in cheaper hotels, cook and eat at home, buy second hand stuff and don’t own a car (easy in London or other big cities). My shabby old commuter bike saves me thousands a year in travel costs. An €80 a night hotel does the same job as a much more expensive one. You can eat fillet steak and haute cuisine far cheaper if you cook at home. So you can still have a great lifestyle with a fraction of the cost. Consuming is the modern evil; consume less.

Remind me again, is that the adage that banks who want you to give them money for the next 50 years keep pedalling?

I think the fees on my pension fund are 0.05% per annum (50p per £1000 saved). I’d hope growth in any reasonable tracker could achieve that. Seriously, it’s not the fees here. That half your age includes employer contribution. Take it out right from the beginning when you start work and you don’t miss it and can’t access it. That’s the advice I’ve given to Son2 who has just started earning. And drive an older car 😉 If you can manage more at the beginning, the eighth wonder of the world means you will need to contribute less should you need the money for kids.

It is just not realistic for most folk I know.

And neither is a comfortable retirement…

I and my OH have paid into pensions for nearly 40 years, with half of them DB pensions.  I estimate (once the State Pension kicks in) we’ll be on just over half our working earnings, which as high earners shouldn’t be an issue for us, but IME this is a best case scenario and likely to put us into the minority.

This is for me an elephant in the room that’s been ignored by the majority, and the Govt – but a key reason of why taxes will continue to rise; growing numbers of pensioners on benefits (think +£1000-1500 PCM on rent etc).

But for me, the key is to live as frugally as is comfortable. To consider all those things you can easily live without, and then living without them. So, expensive TV/media subscriptions, choosing expensive over cheap holidays, cars, loads of new clothes all the time, eating out a lot, etc.  Read a book, stay in cheaper hotels, cook and eat at home, buy second hand stuff and don’t own a car (easy in London or other big cities). My shabby old commuter bike saves me thousands a year in travel costs. An €80 a night hotel does the same job as a much more expensive one.

The opposite of the YOLO approach then.  To others living frugally just in case you live a long time is wasting the years until you get very old, assuming you do get very old and by that time most people seem to turn into complete tight arses anyway.

It’s all about balance for me. I could do nothing and retire a few years earlier if I wanted. No fun in that though if I’m sat in my house and not going out.

The interesting thing for me is that the government want us not to retire early but instead be productive and add to the economy.   For that to happen it’s got to be a attractive.  I can’t see tax breaks for  older workers coming so the alternative is punitive changes so we can’t afford to stop working…… depressing.

The interesting thing for me is that the government want us not to retire early but instead be productive and add to the economy.   For that to happen it’s got to be a attractive. 

Could do a few things to help with that – a right to lower hours/flexible hours, a right to WFH etc,. basically make it easier to semi retire so not as much time spent working but still doing some work.

basically make it easier to semi retire so not as much time spent working but still doing some work.

Without going all left wing, ahem, there is some personal responsibility in deciding to do this and finding a way. Mrs_oab’s health means she will be stepping down from teaching as the mortgage is paid off, then onto some less physical and stressful employment.
What I find hard is that despite saving into a pension from my late 20’s (and likely not saving enough due to all sorts but mainly having kids and working for a charity) I’m still pretty screwed on the amount I’ve saved. Not helped by -20% between pandemic and Truss-onomics. 🙁

So I do think the early auto enrollment is a brilliant thing.

I was late to start my pension, so am now paying in as much as I can and hoping for the best.

I appreciate the answer will be “it depends” but in general terms, how much do you need in your pension pot for a reasonable standard of living? Ive no idea?! Are there any easy ways to guesstimate?

Although I do understand the reasons, it’s not hard nowadays with compound growth in unit linked investment to get to 7 figures if your funds performance is consistently good.

i wonder what percentage achieve this though, especially private sector workers.  I count myself lucky, however will be a long way short of 7 figures if/when i retire in 3 or so years, with a fair wind maybe I’ll be 60 – 70% of the way there.

I have worked in the private sector all my life, and started paying into company pension schemes in my mid 20’s, I am now late 50’s.  I  have moved around employers a few times, and transferred pensions into a central managed fund,  and currently pay in close to 30% of my income (between employer and my contributions).  As a high rate tax payer I put in as much as i can, whilst still funding 2 grown up children who are just getting going on their careers.

Thankfully we paid the mortgage off with inheritance a year or 2 back, and will continue to up the pension contributions in these last few years wherever I can.

Industry standard quotations for living in retirement here

https://www.retirementlivingstandards.org.uk/

For annuities, the DC sum for a couple with index linked increases is about 27-30x the annual income required. This ignores the additional state pension added at 67 in my case. If you are single, or don’t want index linking, the ratio goes down to below 20x. Of course you can just take out the cash each year instead.

The minimum for a couple is £22k, so a lump sum of approx £594k, without the state pension. Comfortable would be £43k, so about the same lump sum WITH the state pension included.

IANAFA, but these standard appear in multiple places, including our own company scheme.

i wonder what percentage achieve this though, especially private sector workers.  I count myself lucky, however will be a long way short of 7 figures if/when i retire in 3 or so years, with a fair wind maybe I’ll be 3/4 of the way there

£700,000 even with taking 25% tax free seems to be £40,000 a year… Realistically if we’ve all got no mortgage when we retire, so we really need more than £40,000 a year ? (That’s not including any government pension either).

Lets call that £3000 a month without a mortgage, that’s not bad is it ?

So I do think the early auto enrollment is a brilliant thing.

I’m an evangelist for ‘people need to be saving for their retirement, and start as early as possible’, and auto-enrollment is a good thing, but there is an issue with it – for many it gives a false sense of security. They see the auto-enrollment pension contributions in their payslip and think ‘retirement saving done’, when in actual fact the auto-enrollment minimum contribution (8%, usually 5% employer, 3% employee), which is what most will be on, is far too low to create a liveable-on pension pot in retirement.

It all comes down to financial literacy or the lack thereof. The fact is that we do not teach children about money, so they grow in to adults who do not really understand money. It’s nuts.

£700,000 even with taking 25% tax free seems to be £40,000 a year… Realistically if we’ve all got no mortgage when we retire, so we really need more than £40,000 a year ? (That’s not including any government pension either).

Lets call that £3000 a month without a mortgage, that’s not bad is it ?

yes, as i say, I count myself in the lucky group.  Wife’s pension is minimal, but we’d be comfortable for sure.  I can’t imagine more than a very few get into the 7 figure pot sizes though, unless on some old established public sector schemes.

I think luck can play a big factor for sure. My pension through company is 6% (me)-12% (them) so ends up stacking up massively and puts me in a far far better postion than i ever thought i’d be in retirement. But like i say, very little of this was choice and most of it was luck and right time right place

Sorry if this is a slight aside but a question;

At 52, I can take from my private pensions at 57 right?  So if I was trying to save for the future, but wanted a lump sum in 5 years for something, what if anything is “triggered” by me taking the 25% at 57?

Or, is it better to save for that lump sum outside of the private pension e.g. in ISA’s and leave that private pension intact for as long as possible?

£700,000 even with taking 25% tax free seems to be £40,000 a year

If your pot was £800k and you drew down £40k a year AND your pot continued to grow at 5% you would still have a pot of £800k when you cark it.  The good news is when that pot goes to your dependents there is no tax if you die before 75 or if you are over 75  tax is treated as income for the beneficiary.

So if I was trying to save for the future, but wanted a lump sum in 5 years for something, what if anything is “triggered” by me taking the 25% at 57?

Nothing is triggered.  Things only get triggered if you also take out non tax free and that only matters if you are still paying into a pension as you are limited to £10K per year rather than the standard £60K

Ok thanks Kerley.  With my mortgage ending I intend to now save the former mortgage payment to pump up my retirement funds / get the best shot of retiring at 60, just wondering where the best place to put it is, leaving some flexibility for anything big e.g. the house needs a new roof type of thing.

I’m tempted to make half of that a month at least salary sacrifice with my employer to make it a bit more tax efficient.

I can’t see tax breaks for  older workers coming so the alternative is punitive changes so we can’t afford to stop working…… depressing.

“Punitive changes” aren’t needed, just pure general cost of living will keep most people working – bottom line, they can’t afford not to.

I’m 53, and self employed, being paying into a private pension for over 30 years. I’m planning on winning the Euro Millions, and a big one too!

“£700,000 even with taking 25% tax free seems to be £40,000 a year… Realistically if we’ve all got no mortgage when we retire, so we really need more than £40,000 a year ? (That’s not including any government pension either).

Lets call that £3000 a month without a mortgage, that’s not bad is it ?”

How did you get to those numbers? Assuming you drawdown at 4% a year (some people say that’s too high…) and take 25% tax free then you get £21k a year…. Not a lot to live on if you want to retire at 60 or something. I’m aiming to get to 7 figures for the two of us, but I probably wont – would need a lot of very optimistic assumptions to be true! Have been doing the half your age into your pension since mid to late twenties (more than that most years – every bonus etc).

It just seems completely unattainable to get to the standard of living my father has (mid ranking civil servant) – I get paid more than he did, put more into a pension than he did, haven’t gone mental with the mortgage – but still it’s more than he paid. I’ve just resigned myself to being poorer (relative to current income as 25k a year or whatever isn’t poor to a lot of people) when old.

It just seems completely unattainable to get to the standard of living my father has (mid ranking civil servant) – I get paid more than he did, put more into a pension than he did, haven’t gone mental with the mortgage – but still it’s more than he paid.

There a reason people don’t have pensions like your fathers anymore and never will again.  They were based on retiring at 65 and not living for another 20-30 years.

How did you get to those numbers?

From Scottish Widows and looking at my pension with 25% off and not taken….

According to their figures my pension will be worth £900k when i retire at 65 (currently £525,000), which comes in at £59,000 a year according to them.

This means your regular annual income for life in today’s money could be:

£44,100

with

£223,000as a one-off, tax-free lump sum.

I have no idea how they come up with these figures

Does the 44K per year include state pension, and what age are you dying in the calculation?

No idea 🙂

How we work out your estimate
We start with the current value of your pension.
We then add the growth you might expect between now and when you retire. This helps us show you what your pension value may be and how much you might get as an annual income.

It’s worth knowing this estimate assumes you’ll buy a regular income for life. This is also known as an annuity. The figure we show you is based on an annuity that’s guaranteed to give you an income for the rest of your life, or a minimum of five years, whichever is longer.

We can’t guarantee how much you’ll get from your pension when you retire. Things like annuity rates and tax rules could change.

You might also decide to take your pension in another way. This could be as cash or as a flexible income, which you’d take as and when you need it, instead of buying a regular income for life.
Assumptions we make
To work out your estimate, we assume:

You’ll carry on making regular payments. We assume your wage will rise over time, and so will your monthly contributions. We’ve based this assumption on the Average Weekly Earnings (AWE) index.
You’ll leave your pension invested as it is today and pay the same percentage as a charge.
Your investments perform as we expect them to. We show you three levels of performance here. But we’ve used the ‘medium’ rate of return to work out this estimate.
Any adviser charges are already included and will carry on until you retire.
We show you what the value of your pension might be in today’s money. This means we account for things like a rise in the cost of living. We think this will increase by 2% each year. Put simply, this means that what £10 buys you in future will be less than what £10 buys you today.
Growth rates for each fund
Your future income will also depend on how your pension investments perform over time. That’s why we show you three possible scenarios here.

Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later.

Hmmm, yes but no but. I know stacks of people who are currently saving 40%, 60% or 45% tax but who have sod all chance of being in that bracket in retirement.  In theory what you say is true, but in practice rarely.

< Edit to say that actually a lot of them are actually planning to retire mid fifties. Which explains why their pots aren’t likely to give them high tax bracket incomes. If they worked through to 65 then I agree it is likely they will tip into the 40% marginal rate ( but still not 60% eff marginal or 45% marginal rate)>

And also, the people to which your statement does apply are likely to be well in control of their finances, and not the sort of people to which a thread like this is useful.

Of course if you are lucky these may be at different rates. If you are very lucky, they may be at the same rate

Totally agree

Retirement is 12-13 years away for me @48…

I have planned well from 21 so I will be OK

But has anyone experience of drawing down a pension with PIE option…?  thoughts?

know stacks of people who are currently saving 40%, 60% or 45% tax but who have sod all chance of being in that bracket in retirement.  In theory what you say is true, but in practice rarely.

Thisd be why I posted above – increasing my salary sacrifice is reducing the amount I’ll pay 40% on through my wages, then I’ll pay 25% in retirement so a net saving of 15% tax.