Advice required for brother in denial!

London_Town

I hope someone can give me some guidance please. My brother is 42 now and has no occupational or private pension provision. He's been with the same employer nearly 20 years and never took up the option to join his occupational scheme. Ironically it's now closed to new members and he realises how stupid he's been.

My question is, what is the best way for him to make some pension provision now? I've read about compulsary occupational pensions coming in for everyone by law in 2012. Have I understood this correctly and if so, could it potentially ensure my brother has something more than the state pension to fall back on? If not, what are his other options. He's a standard rate tax payer on a modest income, living alone, with a repayment mortgage he'll clear by the time he's 65.

Any constructive guidance would be much appreciated.

Thanks

bendix

If he realises how stupid he has been, what's the issue? Why doesnt he just start a personal pension plan off his own back. He's incredibly late but - frankly - that's his fault. He's going to need to save a significant proportion of his salary to get a decent return on his pension. You don't say how much he earns, but at 42 he should be looking at saving at least 25-30 to make up for lost time, and even then it might be difficult seeing as how he's lost years of the power of compounding.

dunstonh

what is the best way for him to make some pension provision now?

Putting lots of money aside quickly and frequently.

I've read about compulsary occupational pensions coming in for everyone by law in 2012. Have I understood this correctly and if so, could it potentially ensure my brother has something more than the state pension to fall back on?

Don't rely on that happening now. Rumours are coming out that the Govt may shelve it or postpone it due to the recession (forcing people to pay 4% and employers 3% when money is tight is not likely to be a vote winner). Conservatives don't want that scheme either so a change of party in power would impact on it as well. However, as it stands now at time of posting, it is on track for 2012.

If it happens, it will help your brother but it wont be the answer. 7% is not good enough for a 42 year old with no provision already.

Whilst the employer no longers the occupational scheme of old, did they replace it with another one?

Has he got any savings or investments?

Lastly (for this post) a rough guide for income purposes would see a investment fund of £100k provide 5% income which is £5000 a year. So, if he wants £10k on top of that state pension then he has to be aiming for £200k (in real terms) by his retirement age.

penrhyn

I would suggest that he/you check when his state pension retirement age is, as he could be 66 before he is entitled to it with the changes in SRA.
http://www.thepensionservice.gov.uk/state-pension/age-calculator.asp

I'd also apply for his state retirement pension forecast , do it on line or by post. The form is a BR19.

London_Town

Bendix - thanks for your reply, but with respect, please remember we don't always do what we know we should. I can't force him to face facts, but hoped some research may wake him up to reality.

dunstonh - thanks for your comprehensive post. It's interesting to hear that the new policy may not even come in, especially with a change of government.

I don't know if my brother's employers made a new pension available, I'm guessing not, but I'll ask him. Unfortunately, my brother has no real savings or investments, only the equity in his flat. If he wanted the £5000 a year you mention, what amount would he need to put away from now on? At his age, would it be a fixed amount, or a figure that should increase like someone younger? Also, in your example, what sort of pension is it that would give a return like this?

penrhyn -thanks for your post. My brother is on target to get in the required 30 years of national insurance, so should receive the full state pension. However, I'll suggest he requests a forecast.

LizzieS_2

London_Town wrote: »

I don't know if my brother's employers made a new pension available, I'm guessing not, but I'll ask him.

It is compulsory for employers to make a pension scheme available if they have a certain number of employees.

chesky369

I suspect your brother's company will offer a money-purchase scheme which they may well contribute to, in which he should join it as quickly as possible. As he didn't contract out of the government scheme, he will have some kind of 'second pension' to come from the State - it used to be called SERPS, so he won't be on the very basic amount. If he lives on his own, without family commitments, even if he has a fairly modest salary, he may well have managed to make savings. If not, try to get him to at least start with a savings account (nothing too fancy to start with as it sounds like he's not a bit interested in the nuts and bolts of money-matters).

bendix

If you assume that he is working until he is 65 (ie 23 years) and that his investment would achieve around 2.5% net real return (eg, taking into account inflation), then to accumulate a pension pot of £200,000 (in today's money) would need a contribution of around £550 per month. This would give him an income of around £10-£12,000 on top of his state pension, subject to whatever the prevailing annuity rates are.

nw_man

LizzieS wrote: »

It is compulsory for employers to make a pension scheme available if they have a certain number of employees.

Yes, but not compulsory for employers to actually pay in.... hence half the mess we are in !

Government forces employers to make a pension available, employer complys with legislation, then thinks ' stuff that for a game of soldiers ' , sticks certificate on the wall and does precisely nothing.

Result : no employees pay in either :rolleyes:

dunstonh

It is compulsory for employers to make a pension scheme available if they have a certain number of employees.

That rule is no longer enforced and is about to be abolished.

London_Town

So could he secure an income of around £5000 to supplement his pension by paying approximately £275 a month? To get a pension like this, is it a case of finding an IFA, as I guess this example is of a private pension?