Are you also saving for retirement?

patch3228

I will worry about this once I have bought my house!

Hi DD, excellent thread :T

Obsessed with saving for a Home - Pensions have not even blipped on my radar!

Like many I have always thought of pension and general savings interchangeably. If I kept my current ISA's and each year going forwards saved £3600 then this would be a healthy amount for retirement...

...I would be naive to believe this will remain untouched until retirement. There will be unforeseen life events that will prove too tempting to dip into this fund.

Hence, I started looking at occupational pension schemes today and it appears my employer will not let me enrol (shucks!). I have to wait 3 years until I am 25 and then I get:

• Defined contribution = 7.5%
• Voluntary contributions = matched up to 2%

To avoid putting all eggs in 1 basket perhaps it is best to just put in:

- 2% additional contributions
- and be able to put more into £3600 ISA allowance and making mortgage overpayments

Or anybody think putting 2% is too pitiful? - is there a general rule of thumb % of salary you should be putting into the occupational pension?

PasturesNew

I will worry about this once I have bought my house!

When you're forever single and not in good paying or continuous jobs, it's hard to even think about saving of any kind.

But I'll be looking into something at some point ... er, some time.

lana22

longtimelurker wrote: »

My partner and I are only 22, I currently don't think we've got our priorities wrong in saving for a deposit before stashing money into savings for our old age.

I started my pension fund when I was 16 years old; it's never too young.
I pay 6% of my salary, and I am on the old NHS final salary scheme.

My boyfriend works for the police and pays 12% pension, which he has done since age 19.

Dithering_Dad

Yep, I have a Company/Personal Pension and/or ISA savings

Not many people realise that there is a deliberate loophole in the Tax Credit system to encourage low income families to save into a pension scheme. The Tax Credits are means tested, but on income after pension contributions have been made.

So for example, the following is calculated with 2 kids and single parent earning £14500 (gross) with £4320 (gross) pension payment, and as a home owner with childcare costs of £200 pw (using www.entitledto.com):

Tax Credit: £15,887.35.
Income after tax: £10,000.
Payment into Pension: £4320 including 20% tax rebate.
Net Income: £21567.35

If you didn't pay anything into a pension....

Tax Credits: £14,202.55
Income after tax: £10,000
Payment into Pension: £0.
Net Income: £24202.55

So in summary, if you pay £4320 into a pension, you are actually only paying £2635 of your own money, with the government paying in £1685.

I would challenge anyone to find a better investment where you put in £219.58 per month and it instantly increases by £140.42!! Totally risk free.

kennyboy66_2

Yep, I have a Company/Personal Pension and/or ISA savings

Dithering_Dad wrote: »

Not many people realise that there is a deliberate loophole in the Tax Credit system to encourage low income families to save into a pension scheme. The Tax Credits are means tested, but on income after pension contributions have been made.

So for example, the following is calculated with 2 kids and single parent earning £14500 (gross) with £4320 (gross) pension payment, and as a home owner with childcare costs of £200 pw (using www.entitledto.com):

Tax Credit: £15,887.35.
Income after tax: £10,000.
Payment into Pension: £4320 including 20% tax rebate.
Net Income: £21567.35

If you didn't pay anything into a pension....

Tax Credits: £14,202.55
Income after tax: £10,000
Payment into Pension: £0.
Net Income: £24202.55

So in summary, if you pay £4320 into a pension, you are actually only paying £2635 of your own money, with the government paying in £1685.

I would challenge anyone to find a better investment where you put in £219.58 per month and it instantly increases by £140.42!! Totally risk free.

This is more or less identical to the break that a higher rate tax payer gets.

The big problem with this loophole (other than someone on that money paying for a mortgage, & looking after 2 children and finding £220 a month to save in a pension) is that the way means tested benefits for pensioners have gone in the last decade, there is little point in having a small pension pot when you retire - you would find you are barely better off than someone with no pension provision.

This is one of the huge problem with means testing - it discourages sound saving behaviour.

It wouldn't stop me saving in a pension, but I would be looking to have a pot a fair bit higher than the £265k that you target.

davilown

Yep, I have a Company/Personal Pension and/or ISA savings

Dithering_Dad wrote: »

Just been having a bit of a pensions/retirement chat with Pobby on another thread and it made me think about whether those people in here, who are saving like mad for a house deposit (and prudently waiting for house prices to normalise), are also making sure they're saving for their old age.

I also contribute on the MFW board and one of the accusations directed against MFW's is that we're putting too much money into a single asset (our houses) and neglecting other investments such as our emergency and retirement savings. A quick straw poll found that most of us had company pensions and sufficient emergency savings and that we only paid spare money onto the mortgage after paying into both of these.

As saving into a house purchaseg pot is very similar to overpaying into a mortgage pot, I thought it'd be interesting to do the same straw poll here.

I have an MOD final salary pension although once I have saved for my deposit, I will look at a seperate source on income for when I'm a lot older:D.

Dithering_Dad

Yep, I have a Company/Personal Pension and/or ISA savings

kennyboy66 wrote: »

This is more or less identical to the break that a higher rate tax payer gets.

The big problem with this loophole (other than someone on that money paying for a mortgage, & looking after 2 children and finding £220 a month to save in a pension) is that the way means tested benefits for pensioners have gone in the last decade, there is little point in having a small pension pot when you retire - you would find you are barely better off than someone with no pension provision.

This is one of the huge problem with means testing - it discourages sound saving behaviour.

The current issue with a small minority of pension savers being penalised by means tested pensions credit was created by Gordon Brown and his introduction of Pensions Credit. I can't see Gordon being in power when I retire and I can't see this anomoly continuing long after the current government is ousted.

The 'A day' changes in the state pension reduced the number of qualifying years from 44 to 30 years for a full state pension. This means that the vast majority of people, even women who have had time off work with small children, will be able to get a full pension. They are also re-applying the link between pension and earnings. Given that most people will be on a full state pension when we retire and that pension will be of a decent level, I canot conceive of a reason to continue with the Pensions Credit top-up.

Having your own pensions provision, however small, will not be impacted by the current idiocy of penalising savers. It simply means that you can retire earlier than the state pension age (68) if you choose, and it will provide you with an increased pension amount.

I take the point about how hard it is to find the money to put into a pension, yet would also point out that people seem able to find money to pay for mobile phones, sky tv and other consumer items. I'd also point out that on the £14k income, the family would also be able to receive discounted council tax and child bens. They could put £80 pm away (£100 gross) instead of £220 and still accrue a pension pot of £21,600 during the 18 years that they receive hildren's tax credits.

If they were age 25 when they had children, and continued putting £80pm away until they retired at age 65, they would have a pension pot of £48,000 (excluding any stockmarket gains or interest on cash account). A £48k pot would pay an annual annuity of £4000 or £333 per month. People spend more than £80pm on fags, mobile phones, sky tv and the like.

An additional factor is that if they are similar to me, they would be receiving a state pension of £6284.20, topped up with the £4000pa personal pension, would give them an annual income of £10k, which is under the age related tax free allowance.

This means that their entire pension income (state & Personal) would be completely tax free!

Dithering_Dad

Yep, I have a Company/Personal Pension and/or ISA savings

kennyboy66 wrote: »

It wouldn't stop me saving in a pension, but I would be looking to have a pot a fair bit higher than the £265k that you target.

The £265k is my 'minimum' target, naturally I will be happy to achieve more, but I'm wary of impacting my current lifestyle in order to salt more and more money away for my retirement. I think people need to strike a balance and mine is to work to achieve a minimum pension pot that will give me a decent retirement. Anything above that is gravy.

What you must do though (if you're in a couple) is to ensure that you have equal sized pension pots. Currently I'm bringing in 100% of the income into the Dither household, this means that I am paying 40% tax while my wife's tax free and 20% tax allowances are not being used. Due to taxation, a couple with a large single income is worse off than a couple with two smaller incomes, even though the gross income of the two families is the same.

This will continue into retirement if I put away all of our pension savings into my own pension. What makes it worse is that when we retire, we get a £10k tax free allowance, but this is means tested and reduces back down the the standard £5k tax free allowance gradually for all income above £10k. If all the retirement income comes from my pension we will again have lost at least £4k of my wife's tax free allowance.

If my wife and I both have £6k income from state pensions and £4k income from our personal pension pots, we will have a joint income of £20k which is completely tax free. It also means that when one person dies, the survivor is not crippled because their income was all in the deceased name.

Within the current pension rules, the recognised best practice would be to aim to build up a pension pot that will top-up your state pension to the £10k tax free limit. The remainder of your pension savings should then go into ISAs (2 x £14k for a couple) which also would provide a tax free income.

Pobby

Yep, I have a Company/Personal Pension and/or ISA savings

I thought this an interesting thread on the subject.
http://forums.moneysavingexpert.com/showthread.html?t=1454107
It does point out that people have different requirements in retiring.

We have a similar pension pot to DD. That`s made up of private and company pensions plus isas, savings and bonds. It`s a bit difficult to say right now exactly what it will be as the stock market is very low at this time but assuming it will return in time things will be OK.

We are fortunate to have a full state pension and serps each which will form a nice back bone to everything else.

Thankfully we have both paid into pensions since our 20`s, not a great sum of money, but over the time it has grown nicely and certainly I wouldn`t want to be without it.

We find that we don`t spend anything like what we hope to receive in retirement as the mortgage is paid and no kids at home. We won`t need to run 2 cars as we do now. Holidays we have always viewed as a luxury but we have travelled to lots of places in the past so we are very "take it or leave it".

We are close to some loverly beaches so hopefully some nice days out.

The age tax allowance, as DD has mentioned, is very welcome and imho makes it worth while saving.

All in all I think an income of £400 per week for 2 of us is ample to enjoy a decent retirement.

kennyboy66_2

Yep, I have a Company/Personal Pension and/or ISA savings

Dithering_Dad wrote: »

. A £48k pot would pay an annual annuity of £4000 or £333 per month. People spend more than £80pm on fags, mobile phones, sky tv and the like.

An additional factor is that if they are similar to me, they would be receiving a state pension of £6284.20, topped up with the £4000pa personal pension, would give them an annual income of £10k, which is under the age related tax free allowance.

This means that their entire pension income (state & Personal) would be completely tax free!

£48k gets an annuity of £4k a year !!!!

A female at 65 would be lucky to get 1/2 that if they want RPI increases.