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    • grayman01
    • By grayman01 17th Mar 17, 10:55 AM
    • 3Posts
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    grayman01
    Pension pot target
    • #1
    • 17th Mar 17, 10:55 AM
    Pension pot target 17th Mar 17 at 10:55 AM
    Hi all, I'm new to this site so here goes with my first post.

    I'm 40 years old and have an Aviva (risk level 3) pension with a current pot of £42k. I'm sensible enough to know that pensions are not what they were and have lowered my expectations accordingly. I'll receive my state pension at the age of 67 - roughly £8100pa. I'm aiming for a retirement income of £20-22K total, including the state pension, so I am aiming for £12-14k from my Aviva pension.

    Just wondered if anyone has any advice on what my target pot would be and how to achieve it? I am presently blessed with a fairly well paid job so I can make quite significant deposits into the scheme in the near future. Also, I would like if possible to semi-retire (possibly making no more pension contributions) at 55.

    Any advice/tips would be much appreciated. Thanks in advance.
Page 1
    • dunstonh
    • By dunstonh 17th Mar 17, 11:07 AM
    • 87,236 Posts
    • 52,392 Thanks
    dunstonh
    • #2
    • 17th Mar 17, 11:07 AM
    • #2
    • 17th Mar 17, 11:07 AM
    I'm sensible enough to know that pensions are not what they were and have lowered my expectations accordingly.
    Why do you think that?
    Money purchase pensions have never been better. The product offers are cheaper, more flexible and offer more investment options than at any time in their history. The retirement options have been significantly improved and options that were previously only really available to the wealthy are now available to all.

    Just wondered if anyone has any advice on what my target pot would be and how to achieve it?
    About £400,000 in todays terms if you want fund sustainability or around £300,000 if you dont mind chance of fund that may well fall in retirement (But not likely run out).

    Also, I would like if possible to semi-retire (possibly making no more pension contributions) at 55.
    You are behind on your current planning if you want that. You can still do it if you start making decent contributions.
    I am an Independent Financial Adviser (IFA). 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.
    • Linton
    • By Linton 17th Mar 17, 11:49 AM
    • 7,489 Posts
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    Linton
    • #3
    • 17th Mar 17, 11:49 AM
    • #3
    • 17th Mar 17, 11:49 AM
    Quickly putting together a spreadsheet to give you some idea of the numbers involved:

    Assumptions:

    Inflation 2%
    Gross income required: 55-66: £22000, 67-94:£14000 rising with inflation
    Run out of money at 95
    Start paying contribution at 40 continue until 55th birthday
    Total of all current pensions:£42K

    Investment Return 5% (3% real)

    Contribution 41-54: £19000/year increasing with inflation
    Pension pot at 55:£547K

    Investment Return 6% (4% real)
    Contribution 41-54: £16000/year increasing with inflation
    Pension pot at end of 54:£489K

    In real life you wouldnt want to have a plan as tight as this.

    Advice for OP: you need to put a lot into your pension
    Advice for anyone else: You should have a lot more than £42K in your pension pot by 40.
    • kidmugsy
    • By kidmugsy 17th Mar 17, 12:06 PM
    • 9,176 Posts
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    kidmugsy
    • #4
    • 17th Mar 17, 12:06 PM
    • #4
    • 17th Mar 17, 12:06 PM
    I am presently blessed with a fairly well paid job
    Originally posted by grayman01
    At least aim to contribute enough to a pension to avoid higher rate tax.

    After that you need to tell us more.
    • grayman01
    • By grayman01 17th Mar 17, 12:14 PM
    • 3 Posts
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    grayman01
    • #5
    • 17th Mar 17, 12:14 PM
    • #5
    • 17th Mar 17, 12:14 PM
    Thanks for the info. Just for clarity even though I mentioned the possibility of no contributions after 55 I would not actually claim the pension until 67. I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average. Also, many of my colleagues of a similar age have got less than me in their pots! According to AVIVA the average 45 year old has only got £53K! I think thats the pension black hole everyone is talking about.

    My understanding is that I would need a pot of £350k-£400k to get my target income of £12k pa (in todays money) at the age of 67. Question: If I pay in £1200/month how long will it take me to be more or less assured of hitting this target?
    Last edited by grayman01; 17-03-2017 at 12:57 PM.
    • dunstonh
    • By dunstonh 17th Mar 17, 1:03 PM
    • 87,236 Posts
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    dunstonh
    • #6
    • 17th Mar 17, 1:03 PM
    • #6
    • 17th Mar 17, 1:03 PM
    I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average.
    You are coming from a position that puts you behind and you have a high target requirement.

    According to the FSA the average 45 year old has only got £53K!
    Data needs to be read carefully. The FSA, as it was, would not have had access to data on occupational pensions. Plus, it would have no way of matching plans with people with multiple pension schemes. However, it was not FSA that ran the study. It was Aviva (who also dont have access to that data). It was based on plans that they have on their books. Anyone that knows aviva will know that frequently people with Aviva plans have multiple plan versions. Plus, most people have multiple pensions with different providers So, data and assumptions always has flaws or quirks.

    However, does it matter what others have. You have an objective. Do you want to meet it or not?

    Question: If I pay in £1200/month how long will it take me roughly to hit this target?
    Is that £1200 net or gross? What level of investment risk are you taking?
    I am an Independent Financial Adviser (IFA). 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.
    • grayman01
    • By grayman01 17th Mar 17, 1:14 PM
    • 3 Posts
    • 0 Thanks
    grayman01
    • #7
    • 17th Mar 17, 1:14 PM
    • #7
    • 17th Mar 17, 1:14 PM
    It's all done on salary sacrifice so I believe its NET - it's £1200 actually going into the fund every month. Its a level 3 out of 5 risk.

    BTW when I talked about the "average", I meant the monthly payment, not the pot.

    Cheer's
    Last edited by grayman01; 17-03-2017 at 1:19 PM.
    • bmm78
    • By bmm78 17th Mar 17, 1:25 PM
    • 399 Posts
    • 498 Thanks
    bmm78
    • #8
    • 17th Mar 17, 1:25 PM
    • #8
    • 17th Mar 17, 1:25 PM
    A couple of points to consider:

    - The government stated in the Freedom and Choice consultation in 2014 that they intended to link the minimum age at which private pensions can be accessed to 10 years below State Pension age. This has not been legislated for yet, but appears likely to be introduced by 2028.

    As always this is subject to change, but it is important to factor in that the age private pensions can (normally) be accessed is likely to rise from 55 in the future.


    - Although your state pension age is currently 67, the rise to 68 and possibly beyond is likely to be accelerated in the future. The current cut-off for 67+ is April 1977, so it would only take a slight adjustment to impact on your state pension age.



    There are a huge amount of variables to consider, but ultimately the most important factor at this point is having a realistic plan and putting away some proper contributions (which you seem to be doing now). It's best to ignore what other people are doing or what the "average person" has, as the average person of this generation is likely to have a less-than-average retirement in comparison to their expectations.
    I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation
    • bmm78
    • By bmm78 17th Mar 17, 1:27 PM
    • 399 Posts
    • 498 Thanks
    bmm78
    • #9
    • 17th Mar 17, 1:27 PM
    • #9
    • 17th Mar 17, 1:27 PM
    http://www.invidion.co.uk/pencalc/index.php?linker=http://www.invidion.co.uk/css/tools.css

    This is a useful calculator for playing around with contributions, investment growth, inflation etc.
    I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation
    • Linton
    • By Linton 17th Mar 17, 2:02 PM
    • 7,489 Posts
    • 7,232 Thanks
    Linton
    Thanks for the info. Just for clarity even though I mentioned the possibility of no contributions after 55 I would not actually claim the pension until 67. I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average. Also, many of my colleagues of a similar age have got less than me in their pots! According to AVIVA the average 45 year old has only got £53K! I think thats the pension black hole everyone is talking about.

    My understanding is that I would need a pot of £350k-£400k to get my target income of £12k pa (in todays money) at the age of 67. Question: If I pay in £1200/month how long will it take me to be more or less assured of hitting this target?
    Originally posted by grayman01
    The comments on low contributions dont apply to what you are putting in now, rather what you were putting in the the previous 15-20 years.

    However contributing £1200/month increasing with inflation and stopping at the end of your 48th year is enough to meet your objectives, assuming 5% investment return and 2% inflation. Your money could increase by about 70% in real terms between 48 and 67 even without any further contributions.

    On the same return and inflation assumptions, were you to carry on paying £1200/month, inflation adjusted, until you were 55 you could be able to live entirely off your pension from 60.
    • wolvoman
    • By wolvoman 17th Mar 17, 2:07 PM
    • 950 Posts
    • 1,020 Thanks
    wolvoman
    Thanks for the info. Just for clarity even though I mentioned the possibility of no contributions after 55 I would not actually claim the pension until 67. I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average. Also, many of my colleagues of a similar age have got less than me in their pots! According to AVIVA the average 45 year old has only got £53K! I think thats the pension black hole everyone is talking about.

    My understanding is that I would need a pot of £350k-£400k to get my target income of £12k pa (in todays money) at the age of 67. Question: If I pay in £1200/month how long will it take me to be more or less assured of hitting this target?
    Originally posted by grayman01
    If you get a £400k pot you'll withdraw £100k tax free. Using your £12k a year target, this funds you to age 75.
    Then you still have £300k in the fund (assuming no further growth). Why would you then convert this to an annual income, when you could just do drawdown?


    If you take an annuity at age 75 with £300k in the fund, you'll need to live to beyond 105 to break even. Why would you need a regular income?
    • dunstonh
    • By dunstonh 17th Mar 17, 2:14 PM
    • 87,236 Posts
    • 52,392 Thanks
    dunstonh
    If you get a £400k pot you'll withdraw £100k tax free. Using your £12k a year target, this funds you to age 75.
    Although phased flexi access drawdown could well be better option than full drawdown unless there is a specific reason to draw so much money in one go.
    I am an Independent Financial Adviser (IFA). 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.
    • zagfles
    • By zagfles 17th Mar 17, 2:42 PM
    • 11,616 Posts
    • 9,599 Thanks
    zagfles
    Although phased flexi access drawdown could well be better option than full drawdown unless there is a specific reason to draw so much money in one go.
    Originally posted by dunstonh
    Indeed - and although "phased flexi access drawdown" sounds complicated, it really isn't. It just means taking benefits from part of your pot, not all.

    For instance, with a £400k pot. You "crystallise" £100k of it, leaving the other £300k untouched (uncrystallised). You take a £25k tax free lump sum from the crystallised part and leave £75k in drawdown, from which you can take taxed income when you want.

    The other £300k is like a separate pot which you do what you like with later. So eg you could do the same with another £100k later.

    Alternatively you can take UFPLS's, this is where you take a lump sum out of an uncrystallised pension and get 25% of that lump sum tax free and pay tax on 75% of it. For instance take £20k out, £5k is tax free and £15k is taxable. Usually not a good idea to take big lump sums out this way as you'll get taxed on 75% of it which could push you into higher bands of tax.
    Last edited by zagfles; 17-03-2017 at 2:45 PM.
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