Pension Review & Advice

Daft_Pegasus

I’m looking to review my current pension arrangements and am hoping that some of the experts on here would give me some advice.

I’m 37 years old and all my pensions are set to mature at 55. Whilst I don’t believe I will retire at that age I’d like to know I have an income stream, if necessary, so that I can either work part time or change to a job for the enjoyment of work and not the salary.

I’d like to get about £2k a month when my pension matures.

Currently I have 4 pensions, 1 private one started many years ago and 3 stakeholder pensions from the last three employers.

• The fund valuation of the private pension is £30,400 and I’m contributing £100 a month to it.

• The first stakeholder pension has a fund valuation of £2400 and no current contributions

• The second stakeholder pension has a fund valuation of £11800 and no current contributions

• The third stakeholder pension has a fund valuation of £6100 and contributions of £410 per month going in

I’m tempted to combine the first two stakeholder pensions into the current active one but I suspect that it will make no difference overall and therefore maybe it’s sensible to have the risk spread amongst different companies. I’ve spoken to an advisor in the past about transferring the private pension into a stakeholder but been told that the fees would make that a bad idea financially.

So I have about 18 years to get my pension pot from its current £60k value up to where I want/need to be. My first question then is how much does my pot need to be at in order to achieve my goal?

Would anyone recommend combining the stakeholder plans? Apart from easier management of them, are their any benefits? Would the money currently being put into my private pension be better put into the active stakeholder pension?

EdInvestor

You can work out the size of pension pot you might need by going to the pension annuities section and playing around with the figures:

https://www.fsa.gov.uk/tables

Suggest you give us more details of the pensions - provider, what the money is invested in, charges.

Are you getting any contributions from your employer?

ffacoffipawb

Daft_Pegasus wrote: »

I’d like to get about £2k a month when my pension matures.

My first question then is how much does my pot need to be at in order to achieve my goal?

Assuming that £24,000 per annum net is about £30,000 gross. Also assume that you want it to be in today's money.

I would guess that a fund of £600,000 (today's money) would be required to have that pension from age 55.

Assuming growth = inflation over the long term, you need to put away over the next 18 years £540,000 in today's money.

This is £30,000 per annum gross, or £2,500 per month.

This should increase by inflation each year to maintain the real value.

If growth > inflation, then the amount needed could come down to maybe £1,500 per month, but it is still a fair amount of money to contribute.

dunstonh

I’ve spoken to an advisor in the past about transferring the private pension into a stakeholder but been told that the fees would make that a bad idea financially.

There can be good reasons for consolidating. e.g. fund based discounts on larger fund values. However, it depends on the quality and charges of the existing plans. There is no point transferring a cheaper stakeholder into a more expensive one unless the investment options make sense to do so.

If it was an FA then the FA probably doenst hold authorisation to do pension transfers. Most don't (and those that do really ought not to in my opinion). So, being told not to do it may have been down to lack of authorisation rather than them saying they cant do it. If it was an IFA, they would normally do a cost analysis and tell/show you why it isnt.

My first question then is how much does my pot need to be at in order to achieve my goal?

Its probably worth working to a 5% income rule. Rates change but 5% is typically achievable for income as a long term average. If you are lower risk, you may prefer to use a lower rate. Possibly not a bad idea for early retirement as well so you can factor in some inflation proofing. e.g. 3% income and 2% inflation. An income of £2000 a month would need a pot of around £480,000 in todays money using 5% income rate. Remember that you need to calculate growth and inflation back from that to get your monthly cost to get you there. £480k today may be closer to £750k in the future. So, annually increasing premiums should be used and your pension should be reviewed ongoing.

Your state pension age is 67 as well. So, you need to be prepared to fund that gap.

Would anyone recommend combining the stakeholder plans?

Depends on the plans and the costs and the types of plans you would consider going forward and the investments you want and as Ed says, if there is any "free money" from the employer available

Daft_Pegasus

Thanks for the feedback - a lot to take in and I can see already that my hope of 2k a month is unlikely to be realised.

In terms of the details requested by Ed it might take me a little time to go through all the literature and get the information but I'll start with the private pension. It was started with Allied Dunbar who have subsequently been taken over by Zurich and the funds are split as follows:

70% Managed Fund
15% Far East
15% European

They have bee like that since it started about 17 years ago - hence one of the reason for my current pension review.

My employer does contribute to my stakeholder pension - that's included in the £410 per month current contribution.

bendix

Daft_Pegasus wrote: »

So I have about 18 years to get my pension pot from its current £60k value up to where I want/need to be. My first question then is how much does my pot need to be at in order to achieve my goal?

According to my calcuations, your pot is currently at 50k, not 60k as you wrote.

You're going to need to increase your contributions significantly to get close to your target. I see you are overpaying your mortgage - given the power of compound returns on your pension and the low interest rate on your mortgage, wouldnt it make sense to over pay into your pension and have the money working there for 18 years instead? Your mortgage balance is negligible and will go down in real terms over the years too.

Daft_Pegasus

The first stakeholder pension is held with Clerical Medical and is split as follows:

50% Balanced Managed Fund
25% Adventurous Managed Fund
25% UK Equity Tracker Fund

Daft_Pegasus

The second stakeholder pension is held with Norwich Union and is split as follows:

30% US Equity S2
35% Index Tracking S2
35% Property S2

Daft_Pegasus

The third/current stakeholder pension is with Scottish Widows and is split as follows:

30% All Share Tracker
20% Property
20% Environmental
15% Global Equity
15% SW Merrill Lynch Mgt

Daft_Pegasus

bendix wrote: »

According to my calcuations, your pot is currently at 50k, not 60k as you wrote.

You're going to need to increase your contributions significantly to get close to your target. I see you are overpaying your mortgage - given the power of compound returns on your pension and the low interest rate on your mortgage, wouldnt it make sense to over pay into your pension and have the money working there for 18 years instead? Your mortgage balance is negligible and will go down in real terms over the years too.

You're absolutely correct it's 50k not 60k

We are overpaying the mortgage as a priority over a pension and have been for some years. As you say it's now at a very manageable level and maybe we do need to look else where rather than overpay the mortgage. I do think it's easier to pay off the mortgage than into a pension fund. You can see your debt decrease with a mortgage whilst the pension funds are less tangible and despite being paid into have decreased in recent times.

Daft_Pegasus

In terms of charges it is as follows:

Clerical Medical Pension 1%
Norwich Union 0.8%
Scottish Widows 0.5%

so I guess it's a good idea to consolidate the old stakeholder plans into the current one?

I don't understand the charges on the Private pension so I'll list when they've written:

"Charges
Percentage of investment contribution allocated to Funds: 35% for 30 months then 105% for the rest of the contribution Payment Term

Annual Charge: currently of 1%, will be reinvested for the contribution shown during the Contribution Payment Term

Expense Deduction : for 1997, £3.69 per month"