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40 and no pension, where do i start?
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# 1
camso69
Old 09-08-2009, 5:53 PM
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Default 40 and no pension, where do i start?

NI contributions low, stayed at home with children for 8 years, now working again and need to make pension arrangements - help!
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# 2
EdInvestor
Old 09-08-2009, 6:03 PM
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First of all check your state pension forecast and make sure you have Home responsibilities credits recorded for your years at home.

www.thepensionservice.gov.uk

There are 2 state pensions so getting an idea of how much you will get from there is an excellent starting point for your pension provision.

Does your company offer a pension?
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# 3
Pssst
Old 09-08-2009, 6:16 PM
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At 40,I'm not sure its worth bothering getting involved in a pension scheme. You can gamble your own money just the same as the institutions can gamble it.
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# 4
seven-day-weekend
Old 09-08-2009, 7:00 PM
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Agree with Edinvestor, start off by getting a State Pension forecast, you may be pleasnatly surprised (I was). You need 30 years NI paid/credited to get a full State Pension. Your eight years of childcare should be credited as Home Responsibilities (providing you were claiming Child Benefit).

Then join your Company Pension if they also contribute to it.

I am not a Pensions professional.
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# 5
bristol_pilot
Old 09-08-2009, 7:02 PM
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At 40 starting a pension can still be worth it if you are a high earner and prepared to pay 50% or more of salary into said pension (before tax relief). Many people think that now is actually a good time to start a pension as the stock market is still quite low. If not, plan to throw yourself on the mercy of the state instead. The worst thing to have is a small pension - just enough to mean that you are not entitled to any benefits in retirement, or have your pension income deducted pound-for-pound from your benefits.
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# 6
knuckledragger
Old 09-08-2009, 8:29 PM
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camso69,
time is not in your favour, but timing may be...
I think I read on here somewhere that you should look to put half your age as a percentage of your salary into your pension. So 20% would be the minimum you should start tucking away. Realistically you will be looking for at least 15 years of contributions. The compounding effect should not be underestimated.

As has been stated already, equities (look at the FTSE100 as a crude measure) are relatively cheap and offer good buying opportunities.

Best wishes. It's seldom too late.
...and then the window licker said to me...
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# 7
bendix
Old 10-08-2009, 10:52 AM
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Quote:
Originally Posted by Pssst View Post
At 40,I'm not sure its worth bothering getting involved in a pension scheme. You can gamble your own money just the same as the institutions can gamble it.
Nonsense.

The OP has at least 20 years in which to acquire a decent pension nest egg. The tax relief alone makes it worthwhile. It should be very easy indeed to generate a pension fund of between 100-150k in that time, which would put them far in advance of the average person reaching retirement age.

Why on earth would you want to discourage them from doing that?
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# 8
sandsy
Old 11-08-2009, 10:34 AM
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I did some calculations on this a couple of years ago and worked out that a man starting retirement savings at age 40 would need to put aside about 32% of salary in order to retire on half their final income (increasing at RPI and with allowance for a spouse's pension). A woman would need slightly more.

So ideally, put aiside as much as you can afford.
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# 9
marklv
Old 11-08-2009, 10:42 AM
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Quote:
Originally Posted by camso69 View Post
NI contributions low, stayed at home with children for 8 years, now working again and need to make pension arrangements - help!
If your employer offers a final salary scheme do take it. Even only 20 years of service will pay off - big time. If not, then consider your options - you may be better off by investing in an ISA. You should take professional advice in this case.
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# 10
marklv
Old 11-08-2009, 1:58 PM
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Quote:
Originally Posted by bristol_pilot View Post
At 40 starting a pension can still be worth it if you are a high earner and prepared to pay 50% or more of salary into said pension (before tax relief). Many people think that now is actually a good time to start a pension as the stock market is still quite low. If not, plan to throw yourself on the mercy of the state instead. The worst thing to have is a small pension - just enough to mean that you are not entitled to any benefits in retirement, or have your pension income deducted pound-for-pound from your benefits.

No need to pay as much as 50% of salary! It would hardly be worth working if you are going to contribute this much. :rolleyes:

The key thing is contribute what you can afford - I would suggest 25% of salary between your contribution and your employer's. That should be enough to provide a reasonable pension at 65 - probably only around 35-40% of your final salary, but you have to be realistic about expectations at this stage of your life. You need to balance earning enough to make work worthwhile, and building up a reasonable retirement fund. Even at 40, retirement is still a long way off and you are still relatively young. Aim to enjoy your current life, not just plan for old age.

I also recommend not putting all your money into the stockmarket, regardless of what the 'gurus' say. Spread your investments across shares and bonds.

Last edited by marklv; 11-08-2009 at 2:01 PM.
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# 11
Pssst
Old 11-08-2009, 5:57 PM
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Quote:
Originally Posted by bendix View Post
Nonsense.

The OP has at least 20 years in which to acquire a decent pension nest egg. The tax relief alone makes it worthwhile. It should be very easy indeed to generate a pension fund of between 100-150k in that time, which would put them far in advance of the average person reaching retirement age.

Why on earth would you want to discourage them from doing that?
If he bought an annuity with his 150k,how much would he get back per month?
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# 12
dunstonh
Old 11-08-2009, 6:25 PM
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Quote:
HY Markets is headquartered in London and is authorized and regulated by the Financial Services Authority of the United Kingdom.
Yet you cannot spell authorised and you make a financial promotion that is in breach of FSA guidelines.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 13
jamesd
Old 12-08-2009, 2:40 AM
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Quote:
Originally Posted by Pssst View Post
If he bought an annuity with his 150k,how much would he get back per month?
For early retirement income drawdown would be the way to go and could reasonably pay 6% of the pot indefinitely, so around 750 a month of which about 250 would be taxed at 20%. Once state pensions start that would rise by around 580 a month before tax assuming reasonably typical contribution record. So with state pensions about 1,164 a month after tax. Once higher personal allowances start from age 65 that income would rise by about 60 a month.

I can live on less than that and still pay the rent, a retired person with a paid for home could live a fair bit better on that than I do.

If retiring before state pension age then it may be necessary to draw more than the capital can sustain until the state pensions start, to give a high enough income. Having money invested in ISAs or non-ISA savings also helps.

Starting a good deal after 40 and with lots of commitment and a good income I should be in a position to retire on a liveable but fairly low income before I'm 50. By 55 having around 25,000 of annual income in retirement before the state pensions start looks possible.
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# 14
marklv
Old 12-08-2009, 1:55 PM
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Quote:
Originally Posted by jamesd View Post
For early retirement income drawdown would be the way to go and could reasonably pay 6% of the pot indefinitely, so around 750 a month of which about 250 would be taxed at 20%. Once state pensions start that would rise by around 580 a month before tax assuming reasonably typical contribution record. So with state pensions about 1,164 a month after tax. Once higher personal allowances start from age 65 that income would rise by about 60 a month.

I can live on less than that and still pay the rent, a retired person with a paid for home could live a fair bit better on that than I do.

If retiring before state pension age then it may be necessary to draw more than the capital can sustain until the state pensions start, to give a high enough income. Having money invested in ISAs or non-ISA savings also helps.

Starting a good deal after 40 and with lots of commitment and a good income I should be in a position to retire on a liveable but fairly low income before I'm 50. By 55 having around 25,000 of annual income in retirement before the state pensions start looks possible.
I'm puzzled by what you describe as 'income drawdown'. Surely, a pot of 150k would only generate around 4.5% of this as an annual income (i.e. 6,750 a year). Where did the 6% figure come from? I assume this is based on a flat rate, level pension, with no indexation.
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# 15
Jake'sGran
Old 12-08-2009, 5:35 PM
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Quote:
Originally Posted by Pssst View Post
At 40,I'm not sure its worth bothering getting involved in a pension scheme. You can gamble your own money just the same as the institutions can gamble it.
I agree especially in view of the projected figures now being quoted to my son and son in law. My SIL is so worried about his pension that he started a SIPP with Hargreaves Lansdown a few years ago. Even though the investments in his SIPP have now taken a hit there is time for it to recover before he retires. I did not start a company pension until late in my working life but have found that the best income comes from the investments I arranged myself.
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# 16
bendix
Old 12-08-2009, 5:42 PM
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Quote:
Originally Posted by Pssst View Post
If he bought an annuity with his 150k,how much would he get back per month?

probably around 800 per month which - added to any state pensions - is not to be sniffed at.

Either way, it's a damn sight better than your suggestion which is to do nothing.

Brilliant. Utterly brilliant.
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# 17
jamesd
Old 13-08-2009, 2:03 AM
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Quote:
Originally Posted by marklv View Post
I'm puzzled by what you describe as 'income drawdown'. Surely, a pot of 150k would only generate around 4.5% of this as an annual income (i.e. 6,750 a year). Where did the 6% figure come from? I assume this is based on a flat rate, level pension, with no indexation.
Income drawdown means leaving the money invested and taking the pension income from the investments. It's also sometimes called an unsecured pension. Based on long term performance someone can expect to be able to take around 6% income without long term loss of capital.

Because annuity rates heavily depend on age it's generally the case that income drawdown will provide a higher income than an annuity at younger ages. According to the report of the Pensions Commission 75 is the optimal age to buy an annuity.

The amount you can take from the capital in drawdown is related to the 15 year gilt yield. I checked today and a 60 year old man would be limited to taking out no more than 10,800 a year from a 150,000 fund with no tax free cash taken. That can be increased by taking the tax free cash and using that to provide income. For a 50 year old man the maximum would be 9,180 and for a 65 year old man 12,240. At 75 and older using an ASP, 13,095. These numbers use a 4% gilt yield. For my 6% prudent long term income calculation the amount is 9,000 a year, less than the GAD limit, so permissible.
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# 18
marklv
Old 13-08-2009, 11:57 AM
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Interesting, but I assume you can only do that with a personal pension, not an emplyer provided one.
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# 19
dunstonh
Old 13-08-2009, 12:09 PM
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Interesting, but I assume you can only do that with a personal pension, not an emplyer provided one.
Not a final salary scheme but you can with money purchase (after you transfer it to a personal pension/income drawdown plan or SIPP). You can transfer a final salary scheme as well but for most it wont be worth it. Although in some cases it can be.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 20
Harry Powell
Old 13-08-2009, 1:18 PM
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Quote:
Originally Posted by Pssst View Post
At 40,I'm not sure its worth bothering getting involved in a pension scheme. You can gamble your own money just the same as the institutions can gamble it.
What do you suggest as an alternative to a pension scheme? :confused:
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