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  • FIRST POST
    • Puddylove
    • By Puddylove 11th Jul 17, 12:01 PM
    • 384Posts
    • 608Thanks
    Puddylove
    I don't understand pensions...
    • #1
    • 11th Jul 17, 12:01 PM
    I don't understand pensions... 11th Jul 17 at 12:01 PM
    ...which is bad news as I'm in my 40's.

    Can anyone point me to any resources so I can better understand how pensions work?

    Thanks.
Page 1
    • xylophone
    • By xylophone 11th Jul 17, 12:15 PM
    • 22,033 Posts
    • 12,710 Thanks
    xylophone
    • #2
    • 11th Jul 17, 12:15 PM
    • #2
    • 11th Jul 17, 12:15 PM
    https://www.gov.uk/new-state-pension/how-its-calculated

    Get a new state pension statement.

    https://www.gov.uk/check-state-pension


    Do you have/have you ever had an occupational/private pension?

    https://www.moneyadviceservice.org.uk/en/categories/types-of-pensions
    • atush
    • By atush 11th Jul 17, 12:18 PM
    • 16,104 Posts
    • 9,811 Thanks
    atush
    • #3
    • 11th Jul 17, 12:18 PM
    • #3
    • 11th Jul 17, 12:18 PM
    Look at the links above, esp pension need to knows.

    Then, a few basics.

    The very best pension, is the one someone pays in for you- if your employer has a pension- join it today. Otherwise you are throwing away free money.

    There are 2 kinds f employers pensions, one is DB- based on no of years you work there, and your salary (be it final or average). No pot of money, but a list of guaranteed benefits when you retire. Second is DC, based on you and your employer paying into a pot, which is invested into funds. Rises and falls with t he market, but rises overall as the decades go by. And you will have more than 2 decades to retirement as you havent started yet.


    Second, your contributions. If you pay basic rate tax, every 100 you put in costs you 80. As the income tax you paid in it is refunded to you within the pension (if you pay HR, every 100 you put in costs you 60).

    If your employer using something called Salary sacrifice, that is even better (ie paying into the pension from money that hasnt been taxed yet) as this means you also save the NI contributions, and extra 13% or so back to you!).

    Lastly investing in general (go to monevator website and read some articles). 2 important ones for you to read are compounding returns, and pound cost averaging as these will explain some advantages to investing from your income monthly (which is how most people pay for their pensions).
    • Puddylove
    • By Puddylove 11th Jul 17, 12:51 PM
    • 384 Posts
    • 608 Thanks
    Puddylove
    • #4
    • 11th Jul 17, 12:51 PM
    • #4
    • 11th Jul 17, 12:51 PM
    Thanks, both.

    I should get the full state pension, so that part is ok.

    I also have a TPS pension which will pay me £4K roughly each year, and £12k lump sum once I turn 60.

    At the moment I pay into USS scheme, but I cannot get my head round how it works. It seems to have three parts;
    A final salary scheme bit, now closed which suggests it will pay the same as the TPS one, by chance.
    Then a new scheme which pays 1/75 of salary - but my salary is made up of a FT job, then multiple variable contracts so they only show my FT earnings on the system.
    The third but is where I make 1% contributions, matched by my employer - I have only started this a few months ago, but no clue what happens to that money...
    I've asked for a statement from USS.

    I'm worried I'm not doing enough...but don't know what else I should be doing...
    • PeacefulWaters
    • By PeacefulWaters 11th Jul 17, 1:23 PM
    • 6,591 Posts
    • 8,091 Thanks
    PeacefulWaters
    • #5
    • 11th Jul 17, 1:23 PM
    • #5
    • 11th Jul 17, 1:23 PM
    I make 1% contributions, matched by my employer
    If you pay more do they pay more? If so, do it. Maximise their match.

    I'm worried I'm not doing enough...but don't know what else I should be doing...
    Pay more in, get more out. No need to over complicate things.
    • GunJack
    • By GunJack 11th Jul 17, 1:39 PM
    • 9,606 Posts
    • 7,171 Thanks
    GunJack
    • #6
    • 11th Jul 17, 1:39 PM
    • #6
    • 11th Jul 17, 1:39 PM
    so you should get approx. £16k-ish p.a. from state, tps and part of uss, with "some more" from the other 2 parts of uss....

    1. find out from uss what the other two parts are likely to produce.
    2. add that to the £16k
    3. decide if that's enough or not in retirement, and if not look into how to improve it
    ......Gettin' There, Wherever There is......
    • Puddylove
    • By Puddylove 11th Jul 17, 2:12 PM
    • 384 Posts
    • 608 Thanks
    Puddylove
    • #7
    • 11th Jul 17, 2:12 PM
    • #7
    • 11th Jul 17, 2:12 PM
    If you pay more do they pay more? If so, do it. Maximise their match.

    Pay more in, get more out. No need to over complicate things.
    Originally posted by PeacefulWaters
    No, I can pay more in but the employer stops at 1%.

    Pay more into USS, or elsewhere?
    • Puddylove
    • By Puddylove 11th Jul 17, 2:16 PM
    • 384 Posts
    • 608 Thanks
    Puddylove
    • #8
    • 11th Jul 17, 2:16 PM
    • #8
    • 11th Jul 17, 2:16 PM
    so you should get approx. £16k-ish p.a. from state, tps and part of uss, with "some more" from the other 2 parts of uss....

    1. find out from uss what the other two parts are likely to produce.
    2. add that to the £16k
    3. decide if that's enough or not in retirement, and if not look into how to improve it
    Originally posted by GunJack
    I make it around £14k - and if only it was easy to work out the other 2 parts! If it's 1/75 of salary, and I earned £60k this year, would that mean my pension would increase by £800 due to this year's contributions? (I'm ignoring the 1% bit).
    • AnotherJoe
    • By AnotherJoe 11th Jul 17, 3:01 PM
    • 6,910 Posts
    • 7,348 Thanks
    AnotherJoe
    • #9
    • 11th Jul 17, 3:01 PM
    • #9
    • 11th Jul 17, 3:01 PM
    I make it around £14k - and if only it was easy to work out the other 2 parts! If it's 1/75 of salary, and I earned £60k this year, would that mean my pension would increase by £800 due to this year's contributions? (I'm ignoring the 1% bit).
    Originally posted by Puddylove

    Thats a definite maybe.

    It may be on your salary at retirement, an average of your salary over the final x years, or your highest salary throughout your career, or some other measure of "salary"

    Plus it may be on your whole salary, your salary minus bonuses, or some melding of the two.
    • GunJack
    • By GunJack 11th Jul 17, 3:15 PM
    • 9,606 Posts
    • 7,171 Thanks
    GunJack
    I make it around £14k - and if only it was easy to work out the other 2 parts! If it's 1/75 of salary, and I earned £60k this year, would that mean my pension would increase by £800 due to this year's contributions? (I'm ignoring the 1% bit).
    Originally posted by Puddylove
    1. full SP is £8.1k a year, added to (your figures) of another £8k between tps and part of uss....£16k-ish in my book

    2. in broad principles, yes (but as anotherjoe says above, salary +/- bonuses, etc), that's how career average schemes work.
    Last edited by GunJack; 11-07-2017 at 3:18 PM.
    ......Gettin' There, Wherever There is......
    • Puddylove
    • By Puddylove 11th Jul 17, 3:15 PM
    • 384 Posts
    • 608 Thanks
    Puddylove

    Thats a definite maybe.

    It may be on your salary at retirement, an average of your salary over the final x years, or your highest salary throughout your career, or some other measure of "salary"

    Plus it may be on your whole salary, your salary minus bonuses, or some melding of the two.
    Originally posted by AnotherJoe
    No, no, no, you are not meant to confuse me more!

    The TPS website is so clear....the USS ones (yes two different ones for different parts) are like mud.

    I rather wish I had just saved instead...
    • GunJack
    • By GunJack 11th Jul 17, 3:19 PM
    • 9,606 Posts
    • 7,171 Thanks
    GunJack
    I rather wish I had just saved instead...
    Originally posted by Puddylove
    Oh no you don't....the pensions will be better value...
    ......Gettin' There, Wherever There is......
    • atush
    • By atush 11th Jul 17, 4:52 PM
    • 16,104 Posts
    • 9,811 Thanks
    atush
    I rather wish I had just saved instead...
    No you dont. AS a teacher/university professor surely you are not quite so silly.

    Easiest option is to add more to the DC part of USS. Find out fromt h scheme- A what it is worth today, B what it is invested in and C what other choices of investments are there.

    Is the DC pension self sacrifice?

    How much of your 40% band do you have left after the current pension contribs? If you can live on the HR band (is it 45K now?) then put th rest into a DC pension, either the USS one or a PP or Sipp.

    If you use a PP or sipp, use something simple yet diversified. So a multi asset fund (read the thread on Vanguard) or a global index tracker (there are a number of these, go for the one with lowest costs).

    The good news is, while you know nothing about pensions (or used to know nothing Now you know that you managed to get 2 different DB pensions, which are the best pensions.

    Now, you need to work our your Number- go to the Number thread and read it. Everyone has a different one, so it doesnt help for us to tell you what ours is.

    Then put your current pots/contribs into a retirement calculator and see how much you need to put in extra to get to your number in retirement.
    • Puddylove
    • By Puddylove 11th Jul 17, 10:15 PM
    • 384 Posts
    • 608 Thanks
    Puddylove
    No you dont. AS a teacher/university professor surely you are not quite so silly.



    Easiest option is to add more to the DC part of USS. Find out fromt h scheme- A what it is worth today, B what it is invested in and C what other choices of investments are there.
    As far as I can work out, I have a Final Salary Scheme pension of approx £4K with £12k lump, closed 2016. From then it has become a 'Retired Income Builder' which says 1/75 of salary - but no other info. And a strange added 'USS investment Builder' which has a few hundred in - not clear how this works whe I retire but in a USS Growth Fund.
    Is the DC pension self sacrifice?
    Errrr....not sure but I do Salary Sacrifice?

    How much of your 40% band do you have left after the current pension contribs? If you can live on the HR band (is it 45K now?) then put th rest into a DC pension, either the USS one or a PP or
    a SIPP.
    Again, I don't know - my monthly salary varies, but I save a bit. Do you think I should pay more to the USS Income Builder part?

    If you use a PP or sipp, use something simple yet diversified. So a multi asset fund (read the thread on Vanguard) or a global index tracker (there are a number of these, go for the one with lowest costs).
    I may look at an ISA with Vanguard.

    The good news is, while you know nothing about pensions (or used to know nothing Now you know that you managed to get 2 different DB pensions, which are the best pensions.
    In my defence at least I know that I know nothing - and had the good sense to ask parents/accountant friends 'should I pay into the TPS?' etc.

    Now, you need to work our your Number- go to the Number thread and read it. Everyone has a different one, so it doesnt help for us to tell you what ours is.
    Will do!


    Then put your current pots/contribs into a retirement calculator and see how much you need to put in extra to get to your number in retirement.
    Originally posted by atush
    Thanks for your help, atush. And Zylophone as the State Pension calculator showed me I was £13 short of ne year's NI so now paid. And everyone else - I appreciate your time.
    • atush
    • By atush 12th Jul 17, 12:33 PM
    • 16,104 Posts
    • 9,811 Thanks
    atush
    Errrr....not sure but I do Salary Sacrifice?
    ASk your employer, it means it is taken out before tax an NI as if that part of your salary never exited but instead goes into a pension. So you save an additional 2% Nics (as you pay HRT, it would be over 13% for someone who pays BR)

    Again, I don't know - my monthly salary varies, but I save a bit. Do you think I should pay more to the USS Income Builder part?
    Probably, but you could also use a PP or sipp. but using your current AVC scheme wouuld be fastest/easiest.

    I may look at an ISA with Vanguard.
    A great idea, but also pay more into pension as well as you get 100 into a pension for a cost of 60. 100 into an ISa costs 100. Both have their place in a good plan.

    In my defence at least I know that I know nothing
    You know more now?
    • LHW99
    • By LHW99 12th Jul 17, 1:39 PM
    • 809 Posts
    • 627 Thanks
    LHW99
    I sympathise as my OH has a small, old USS pension. The site isn't the best.

    Nevertheless, the basic idea of a pension is you give up something now out of your current salary, that is put "somewhere" (maybe a pot of cash if a DC, or into a less well defined place if DB) and then when you are old enough and don't want to work, you can use those payments in one way or another to give you enough (hopefully) to live on.

    and as PeacefulWaters says
    Pay more in, get more out. No need to over complicate things.
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