Retirement Income

exil

cheerfulcat wrote:

Someone used to a lifestyle based on even a fairly modest income of £25,000 - £30,000 is going to find life on £10,000 a year pretty unpleasant. £10k after taxes leaves about £8800;
take off rates/council tax, energy and water costs ( using figures in my area ) and you're left with about £5000 to live on. That's pretty tight.

There's a lot to be said for aiming for a pension "pot" which will give you three quarters of your income before retirement; this should allow you to maintain more or less the same lifestyle ( assuming no debt or young children ) . Note that to get an income of £10,000 currently requires a capital sum of ~£200,000...

£10,000 after tax is in fact £9,600 (forgotten the age allowance perhaps?)

Council tax £1000, energy/water £800, leaves £7,800 not £5,000.

3/4 of pre-retirement income? Sure, it's a target that you can aim for - but
very few of TODAY's pensioners come anywhere near that. When I am retired I won't need to
- keep children in clothes and food
- won't need as big a house
- won't be paying National Insurance
- won't need to contribute to a pension scheme
- won't need to spend vast sums travelling to work

What I am saying is that if we don't all get 75% of our working income
in retirement, doesn't mean we have a "crisis".

"By the by, how is it possible to "impoverish" yourself when you are saving money rather than spending it?"

Never heard of Scrooge? It's perfectly possible for a well-off person to live like a pauper whilst saving for retirement or to leave a big inheritance. Of course that is "impoverishing yourself".

Frankly, I'm fed up of being told by the Personal Finance industry that I need to save up vast sums every year to give me a pension which will give me a higher standard of living than I have today (when I may (a) not survive that long (b) be too decrepit to enjoy the money), in addition to paying taxes and pension contributions to maintain today's pensioners, AND insuring myself against every eventuality AND saving up for college expenses AND a car for my kids AND a deposit for their houses AND to help my aged parents whose
pension is certainly nowhere near 75% of their pre-retirement income.

Even worse, the govt. seems to be falling for the hype, and rather than helping those who are heading for genuine hardship in retirement (which I would define as those getting less than 10-15k) - either due to not being in a good scheme, or having their retirement funds effectively stolen, are giving tax relief to help those who will already be comfortably off in retirement become even more comfortably off. Those with good final salary schemes and a good salary, or those who are so well off that they can fund their old age without difficulty.

After all, as has been pointed out, many people who are working full time have to get by on a lot less than the pensions people here seem to be saying they would be "struggling" on.

End of rant.

cheerfulcat

exil wrote:

£10,000 after tax is in fact £9,600 (forgotten the age allowance perhaps?)

Yes, I had forgotten the extra personal allowance.

Council tax £1000, energy/water £800, leaves £7,800 not £5,000.

Everyone's circumstances are different, which is why it is more appropriate to speak of percentages of income than to lay down figures. As I said in my post, my calculations are based on the prices in my area. Rates £1400, oil £1200, electricity £400, water unknown ( not introduced yet ) but average predicted to be £300. This leaves £6100, £117 per week. Not an awful lot...

Don't forget, too, that pensions are fixed income; they ( mostly ) do not go up in line with taxes, energy prices or wages; if your starting income is low, it's going to get even lower over time ( if your income is high enough to allow for saving you can mitigate some of the effects of inflation ).

3/4 of pre-retirement income? Sure, it's a target that you can aim for - but
very few of TODAY's pensioners come anywhere near that.

It's only a target. Realistically very few people will save enough to reach it. In fact, very few people are even making the effort. BTW, yes there are some expenses you won't have in retirement but there are some which will in fact go up, like heating and lighting costs and medical expenses.

Never heard of Scrooge? It's perfectly possible for a well-off person to live like a pauper whilst saving for retirement or to leave a big inheritance. Of course that is "impoverishing yourself".

It is also perfectly possible to save large amounts without being a complete miser. Especially if you avoid the materialism trap.

Frankly, I'm fed up of being told by the Personal Finance industry that I need to save up vast sums every year to give me a pension which will give me a higher standard of living than I have today [...] AND to help my aged parents whose
pension is certainly nowhere near 75% of their pre-retirement income.

Surely the fact that your pensioner parents require your financial assistance should make it clear that there is a crisis? And that everyone should be concerned?

Even worse, the govt. seems to be falling for the hype

The government is largely responsible for the mess we're in.

Those with good final salary schemes and a good salary, or those who are so well off that they can fund their old age without difficulty.

Or those whose pensions are paid by the taxpayer.

exil

cheerfulcat wrote:

Yes, I had forgotten the extra personal allowance.

OK!

Everyone's circumstances are different, which is why it is more appropriate to speak of percentages of income than to lay down figures. As I said in my post, my calculations are based on the prices in my area. Rates £1400, oil £1200, electricity £400, water unknown ( not introduced yet ) but average predicted to be £300. This leaves £6100, £117 per week. Not an awful lot...

I'm talking about a typical household in Britain. I think my figures are closer to the average.

Don't forget, too, that pensions are fixed income; they ( mostly ) do not go up in line with taxes, energy prices or wages; if your starting income is low, it's going to get even lower over time ( if your income is high enough to allow for saving you can mitigate some of the effects of inflation ).

The state pension, SERPS and company pensions are indexed. If you are lucky enough to have an additional lump sum to convert to an annuity, you can get that index-linked too - though with inflation at 2-3% it takes a long time for this to beat taking a level annuity.

It's only a target. Realistically very few people will save enough to reach it. In fact, very few people are even making the effort. BTW, yes there are some expenses you won't have in retirement but there are some which will in fact go up, like heating and lighting costs and medical expenses.

These are relatively small compared to the costs of raising a family and going to work.

Most people are either (a) in a company scheme or (b) in SERPS/S2P. A few people are in neither - mainly those in very low paid jobs or not working. That is, those who can't save for retirement anyway. Self-employed people, I accept, fall into this category as well.

It is also perfectly possible to save large amounts without being a complete miser. Especially if you avoid the materialism trap.

True. However if you look at the debt boards on here, many people are struggling to live within their income. Hard for them to save for a pension as well.

Surely the fact that your pensioner parents require your financial assistance should make it clear that there is a crisis? And that everyone should be concerned?

The "crisis" being talked about is not to do with current pensioners, but with those currently saving (or not saving) for a future pension. There is a problem of many pensioners living in hardship, but this isn't going to be solved by giving tax relief to people already well on the way to a good pension.

The government is largely responsible for the mess we're in.

Having given the govt a broadside in my previous post I'm now going to come to their defence. Since the main cause of the "crisis" if there is one is increased longevity, it's difficult to see how they can be blamed for that.
I am however not convinced they're doing the right thing to avert the problems that may arise in a couple of decades when the ageing population kicks in.

Or those whose pensions are paid by the taxpayer.

Oh fine, let's have a go at nurses, soldiers, doctors, the police, etc.

If someone works for the state, their employer's contributions are going to be paid by the state. Obviously - I don't see how things could be any different.
Unless we are going to outlaw employer contributions altogether.

Civil Servants are in the growing list of groups who now get money purchase instead of final salary.

I am lucky enough to be in a FS scheme, with a good salary. My point is that the proposed measures for April will be extremely useful for me to boost my pension - but I don't need any such help!

cheerfulcat

exil wrote:

I'm talking about a typical household in Britain. I think my figures are closer to the average.

My point is that to some people, an income of £10,000 will mean just about existing and no more. It doesn't matter whether your figures are closer to the average or not. You simply cannot say £x amount is enough for anyone as circumstances vary widely.

The "crisis" being talked about is not to do with current pensioners, but with those currently saving (or not saving) for a future pension. There is a problem of many pensioners living in hardship, but this isn't going to be solved by giving tax relief to people already well on the way to a good pension.

No, the pensions crisis is now. There are pension funds closing everywhere;like the state pension they are too expensive. There are many people close to retirement who have just seen 45 years' worth of pension contributions go up in smoke, not least those who put their faith in Equitable Life. The talk about it being for the future is just so much spin IMHO.

Having given the govt a broadside in my previous post I'm now going to come to their defence. Since the main cause of the "crisis" if there is one is increased longevity, it's difficult to see how they can be blamed for that.
I am however not convinced they're doing the right thing to avert the problems that may arise in a couple of decades when the ageing population kicks in.

The black hole in most pension funds can be largely attributed to Gordon Brown's raid on them.

Oh fine, let's have a go at nurses, soldiers, doctors, the police, etc.


If someone works for the state, their employer's contributions are going to be paid by the state. Obviously - I don't see how things could be any different.
Unless we are going to outlaw employer contributions altogether.

But it isn't a contributory scheme; civil service pensions are paid directly from taxation. And please stop and consider for a moment how many of the people who work for the state are front liners, and how many of them are pen pushers before you accuse me of having a go at nurses and soldiers.

EdInvestor

The "crisis" being talked about is not to do with current pensioners, but with those currently saving (or not saving) for a future pension.

This is true - the Turner report and all the general discussion at the moment is about a "crisis" which may or may not arise in about 2050.There is quite considerably doubt about how serious this crisis will be - if indeed it is a crisis at all.

What there is now though is a quite considerable chunk of people coming up to retirement who are going to be a helluva lot worse off than they thought.This is due to the collapse of With profit pensions and endowments, the major fall in annuity rates,the failure of some final salary company pensions, the big reduction in index linking in the future on those f/s pensions which are OK, and the big fall in investment returns generally due to the low inflation/ low interest rate environment.

What will save many of these people from a quite unexpected and really unpleasant retirement is the major rise in house prices - they should be able to downsize or use equity release to make up some of the shortfall.

But I think we have to accept that the people who retired in the second half of the 90s on final salary pensions, with top dollar on their contracted out topups and AVCs, a big extra payout on their endowments and a rising housing market to finish it all off were the lucky ones, whose experience will never be repeated.

Significantly more attention will need to be paid from now on to how investments work so that people can get the best out of their money.Apathy must become a thing of the past.

It's actually not rocket science when you get to grips with it

dunstonh

This is true - the Turner report and all the general discussion at the moment is about a "crisis" which may or may not arise in about 2050.There is quite considerably doubt about how serious this crisis will be - if indeed it is a crisis at all.

Statistically, there will be a crisis. As the number of pensioners goes above 30% of the adult population, which has never happened before, the theory is that there will not be enough money going into the DSS pot to pay out all the pensions and benefits in place at the current level.

The crisis should have began to take effect around 1982 but the 1960s baby boom delayed it as the working population held relatively steady. However, as the baby boom comes up to retirement, the rate of increase in the problem suddenly accelerates.

As to what sort of crisis we will see, that is guess work. It could be like the visions of the future that we see from time to time. Just look at those in the past. We should all be in rocket cars now and living on the moon! Its very hard to say what sort of problem there would be.

What will save many of these people from a quite unexpected and really unpleasant retirement is the major rise in house prices - they should be able to downsize or use equity release to make up some of the shortfall.

I sort of agree and disagree at the same time on this point. If someone has to sell their house and downsize, they incur significant costs to move house and they may not have the scope to downsize. A move to Eastern Europe may be the best option there . Also, property can go down as well as up. Anyone relying solely on property could be in for a nasty shock.

Inheritances could make a significant difference in the future. As more home owning parents pass away, the children, and more often, the grandchildren stand to gain much larger amounts than any time in the past. These could turn someone's finances right around.

Of course, all that indicates that the gap between the richer and the poorer is likely to keep increasing.

One of the biggest issues now is just getting people to save for retirement. There is too much expectation on that the state will just look after them so why should they bother when they dont need to. This sort of mindset needs to be broken. Much easier said than done. How do you get someone willing to pay nearly £50pm for Sky TV and similar amounts on takeaways each week that they should pay £50pm into a retirement plan that they are not going to benefit from for 40 odd years when if they dont do it, the Govt will pay them extra anyway?

EdInvestor

Statistically, there will be a crisis. As the number of pensioners goes above 30% of the adult population, which has never happened before, the theory is that there will not be enough money going into the DSS pot to pay out all the pensions and benefits in place at the current level.

I'm not convinced. The Pension Commission report talks about a big increase in the number of pensioners that have to be supported by each person below pension age.But this ignores the fact that plenty of people below pension age don't pay taxes and most pensioners do. Factor that in, and the numbers do rise a bit, but not in any way to an alarming crisis level.

It's also far from clear if this unexpected increase in forecast longevity will come to pass. The actuaries have got it wrong before - eg on AIDS, which they thought would be much worse than it has been.

In the latest case it seems they are basing their predictions on a group of oldies born between the wars who are particularly healthy (for quite obvious reasons when you think about the lifestyle in those days.) They seem to have failed to note that the generation now retiring is quite different - there's rather a lot of obesity about and this leads to diabetes, heart disease, early death etc - not to mention all the damage the babyboomers probably did to themselves in the sixties with all that sex,drugs and rock 'n roll.;)

To my mind the A-day changes will have a much bigger and more positive effect on the savings landscape in the longer term, once people work out how to use the the new rules to their advantage. They remove a lot of the disincentives to saving we had in the past.

And of course the stockmarket has nearly recovered and the property market hasn't crashed. Every little helps.

ReportInvestor

Minette Marin in the Sunday Times today talks about the advantages of immigrant labour for the UK economy in the long term.

You don't have to spend a fortune educating them and they might go back to their home country when they retire and start to need more health care.

How lucky we are to live in the best country in the world and also speak English, the lingua franca .