Pension, or not to pension...

Sobraon

The following was provoked by, I think, an article I read somewhere which said that a pension pot of under 80K was not worth having.

This question about pension or not often seems to come up so I thought I would do a thought experiment. What happens if you are a married couple and you put all your savings into the best possible house you can get (council tax £200/month say) and you ensure you only have £9,999 in savings. One of the couple doesn't work and the other only pays NI (without additional pension) so today their pension is £152.30 a week from the state. No other pension arrangements are made.

I have put this situation into entitledto and the results indicate total relief from council tax (£200 a month say for the luxury house mentioned above) and an additional £46.15 of pension credit a week. Total benefit £92.82/week. Of course there are also may be a range of other benefits which cascade forward from being eligible for means tested benefits which I have not included.

To take the experiment a bit further the next question is: How big does my pension pot need to be to generate £4827 (52x92.82 ) or, assuming taxed, a private pension of £6033 (gross)?

As both council tax and benefits rise with RPI then an RPI annuity is required. As I mentioned on another thread the best today seems to be Canada Life at 2.84%.

I think this means in the scenario described above that all a pension pot of up to 212k does is replace state benefits :eek: - somebody, please, anybody, show me how I am wrong!!

TMFTP

Sobraon wrote: »

As both council tax and benefits rise with RPI then an RPI annuity is required. As I mentioned on another thread the best today seems to be Canada Life at 2.84%.

I think this means in the scenario described above that all a pension pot of up to 212k does is replace state benefits :eek: - somebody, please, anybody, show me how I am wrong!!

1 - FSA tables are not complete. Top providers rates are not being shown.
2 - You can do better than an RPI annuity - particularly if you have £212k. Anyone buying an RPI annuity with £212k would want either their head examining or their adviser questioning. Drawdown, an asset-backed annuity with minimum income guarantee or even a blend of Level and RPI would give you better long-term returns.
3 - I think your sums are wrong. A single life male aged 65 would need significantly less than £212k to generate 6k of RPI income. Somewhere around the £150k mark would be closer.

TMFTP

Follow-up - I've seen the "£80k" bandied about a lot, and it's usually the point at which it becomes "worth" an adviser becoming involved in doing work for you. Below that, their fees tend to either make a rather large dent in the value of the annuity purchased (if coming out of the customer pot), or the default commission paid isn't seen as worth their while.

So it might be worth reviewing the source of your article to see where the "spin" is.

Sobraon

Ok. thank you very much TMFTP.

1. This seems to be the often used response from persons in the IFA profession. I can only go on information which is in the public domain being just an average Joe as our American cousins would describe me.
2. Can't afford to be less than RPI as in my experience council tax and benefits increase in general a little faster than RPI.
3. Not a single male as the situation is a married couple and a married person who takes a single life annuity when their partner has no independent pension is, well, not the most thoughtful of people at the very least.

But on the other hand if we take TMFTP's reduced figure this still indicates £150k of "wasted" pension contributions..... I'm still :eek:

TMFTP

I appreciate your position, Sobraon. A year or so ago, before providers moved on to postcode pricing, the site you've used was a complete and commonly used resource for the public. The FSA are currently being pilloried by the industry for that part of their site - it's no use to man nor beast. Sadly, the public see little of this, and know no reason to think there is anything better out there.

Re point 2, using an IFA if you were in that position would very quickly show you how you could maximise your returns. For example, by using gilts and bonds in a Drawdown contract would at least match RPI rate with very little risk.

And re point 3, you'd be surprised how common that scenario is. If the single life figure is £6k and the joint figure is <£5k, how much longer does the surviving partner have to live to have a net gain over the extra available immediately through single life?

The other thing with RPI is protecting the value. If RPI is negative (i.e. in a period of deflation) then your pension may / will go down - unless you pay for a "no-negative" guarantee. If you're looking to push the cost of private pensions up in relation to state pension you'd need to factor this cost in too.

Sobraon

Thanks again TMFTP,

But can we agree on the lower bound of "wasted" contributions is it really circa. £150k?

dunstonh

1 - FSA tables are not complete. Top providers rates are not being shown.
<and response>
1. This seems to be the often used response from persons in the IFA profession. I can only go on information which is in the public domain being just an average Joe as our American cousins would describe me.

FSA tables are notoriously unreliable. They dont have all options and they dont take into account economy of scale pricing that some providers give to IFAs and with some providers you can haggle.

As I mentioned on another thread the best today seems to be Canada Life at 2.84%.

Canada Life are a good example. Whilst I have used them a few times over the years, more recently you tend to see them up there on the top of the lists but when you get real quotes from the providers, you find the others come in better. Especially when there are multiple pension funds to transfer. They seem to drop away under transfer compared to OMO.

Batchy

Sobraon wrote: »

The following was provoked by, I think, an article I read somewhere which said that a pension pot of under 80K was not worth having.

This question about pension or not often seems to come up so I thought I would do a thought experiment. What happens if you are a married couple and you put all your savings into the best possible house you can get (council tax £200/month say) and you ensure you only have £9,999 in savings. One of the couple doesn't work and the other only pays NI (without additional pension) so today their pension is £152.30 a week from the state. No other pension arrangements are made.

I have put this situation into entitledto and the results indicate total relief from council tax (£200 a month say for the luxury house mentioned above) and an additional £46.15 of pension credit a week. Total benefit £92.82/week. Of course there are also may be a range of other benefits which cascade forward from being eligible for means tested benefits which I have not included.

To take the experiment a bit further the next question is: How big does my pension pot need to be to generate £4827 (52x92.82 ) or, assuming taxed, a private pension of £6033 (gross)?

As both council tax and benefits rise with RPI then an RPI annuity is required. As I mentioned on another thread the best today seems to be Canada Life at 2.84%.

I think this means in the scenario described above that all a pension pot of up to 212k does is replace state benefits :eek: - somebody, please, anybody, show me how I am wrong!!

The question is... would you be happy living in luxury house, with only 10k in bank and only the state pension to live off?

Sorry but, you have to set your sights higher rather than expect the government not to move the goal posts. Imagine 59 year old thinking 30 years ago, can't wait till im 60 so I can retire, then finding out it wont happen till im 65. I wouldn't want the government to have a large say in that decision for me, so I make necessary provisions.

Also, think big, imagine there are two of you living in said luxury house... thats two pension pots which should be saved, two state pensions and two lots of investments and savings. Are you really going to be that bothered about 92 per week of benefits you might have been able to claim to keep you off the breadline... also, if you are on the bread line, why would you be living in a luxury house, and how if you have been able to afford it, will you be able to keep you savings below 10k and be able to keep up the lifestyle you had before you retired, when your in retirement?

your figures are true, but your common sense is off the scale, its not going to happen, and no one would do it. Its for people who work hard, have little to save that get the top ups. They deserve it after all.

For someone living in a 500k+ house, and not having any savings nor having any pension provisions you must be off your trolley. they would have to be a scrooge who was very wasteful during their lifetime and have a miserable retirement to look forward to! it just wouldnt happen. IMO unless they had some terrible financial planning in place. or had a failed company just prior to retirement. With all their eggs in one basket as it were.

TMFTP

It was positioned as a "thought experiment" Batchy - not as a "how do I scam the government." Quite a good one (though obviously extreme) in my opinion. The equivalent benefit of the benefits is significant.

If the assumption about "savings doesn't include assets" is correct, of course. I'm horrified to think that people who deliberately don't save but have other tangible trappings of wealth would be entitled to that level of benefit support.

DiggerUK

bendix wrote: »

Yes, I noticed that. 16 months to reply and decide. How long will it take the OP to decide on his asset allocation? 8 years?

I'm prepared to accept that the thread author has indeed spent some serious time considering their decision.
They are after all young, and have no need to rush.

As I see dead shoots, I am genuinely interested in how the OP views the world.