The one word that caused the pension crisis! Blog Discussion

oldandhappy

20 Years ago we purchased a foreign property...the price was right for us. We sold it 2 years ago and it has made a huge difference to our early retirement lifestyle, unlike a friend the same age as us whose private pension was to be his early retirement plan but it is no longer there for him....

mayb_2

:T There you go what more can I say? Long may you live and prosper.

garryhq

Apologies up front for knowing very little about pensions but, after reading some of the articles here, I've realised just what a gamble pensions have become these days.
Flippin’ annuities eh...?!!
I never thought about what happens to accrued pension funds after an early death - well, apart from the widow's pension of course. I suppose these companies just 'absorb' the remainder - they appear to be much like William Hill, hoping the favourite falls at the first fence!

Actually, my main reason for posting to this group was to ask you knowledgeable folks four really simple questions.
1. Must all pensioners buy an annuity and, if so, why?
2. Is it possible to take a bigger (100% perhaps?) lump sum and buy property, or at least reduce the annuity to maximise the lump sum?
3. Are there any rules governing the lump sum/annual pension ratio?
4. I'm aware of some tax limits on lump sum payments (is it up to 30,000 tax free?) so would I be correct in assuming amounts greater than this wouldn't be cost effective?

mayb_2

Wow - if they are the simple questions I am glad you are not asking any difficult ones garry hq. Have to agree with you about the minefield though.

I believe you cannot have all of your money in a lump sum, so assume that is why you must purchase an annuity with the rest. I know that you don't have to have your annuity from the Company that your pension is invested with and that they don't like to tell you too much about that in case you go somewhere else. You are at liberty to chose your own investment company but I don't know if this can be property. There was a move to include propery in the pension portfolio but I am not sure what happened to it.

There are many posters on here much better qualified than me to speak on this subject - that is because I am not qualified at all! However, this thread has been dead for quite a while and you may get a better response on the main Investments and Savings Forum.

Good luck and be careful.

memark

garryhq wrote: »

Apologies up front for knowing very little about pensions but, after reading some of the articles here, I've realised just what a gamble pensions have become these days.
Flippin’ annuities eh...?!!
I never thought about what happens to accrued pension funds after an early death - well, apart from the widow's pension of course. I suppose these companies just 'absorb' the remainder - they appear to be much like William Hill, hoping the favourite falls at the first fence!

Actually, my main reason for posting to this group was to ask you knowledgeable folks four really simple questions.
1. Must all pensioners buy an annuity and, if so, why?
2. Is it possible to take a bigger (100% perhaps?) lump sum and buy property, or at least reduce the annuity to maximise the lump sum?
3. Are there any rules governing the lump sum/annual pension ratio?
4. I'm aware of some tax limits on lump sum payments (is it up to 30,000 tax free?) so would I be correct in assuming amounts greater than this wouldn't be cost effective?

In brief response to your questions (sorry, time is short):

1. No, not usually but most insurers have minimum purchase prices that may preclude anything else from consideration. Some people may even end up buying an annuity just out of ignorance that there are other products out there.
2. No. Maximising the lump sum may be a good idea, though, because that's tax-free whereas the pension income stream is taxable.
3. Under new rules introduced 6/4/06, the general rule is 25% of your accumulated pot is available as a tax-free lump sum. Certain people might retain the right to a higher figure under the transitional protection provisions when the rules changed. Also, if you've got very high pensions savings (like £1.5 m +), you might not get it all tax-free.
4. No. The £30k you refer to is compensation for loss of office, nothing to do with pensions.

The whole arena of pensions is such a minefield, even though the government tried to simplify it all last year. This is where a decent IFA can be worth his weight in gold and I would recommend any readers to seek their counsel. Make sure you get one specialising in pensions and offering a fee (rather than commission) option for paying him. I know Martin :money: often knocks IFAs as being commission hungry sharks but it would be a very brave layperson trying to find their way round the glut of legislation and options to get the best deal for themselves, particularly if you've got a decent amount of money in your pot (say £50k plus). Don't blame the IFA if you end up paying a decent fee, blame the government for making it all so complicated!

Naturally, it goes without saying that the above is not meant to be financial advice at all, just friendly guidance.

discosantana

Not being an expert on these things I guess that this may sound like a daft question but it's one I hope someone can attempt to answer!

What amount of money should I be looking to get per year as a pension (one that I will set up, not state)?

Website calculators will tell you how much a month to pay to achieve a certain amount but I don't know what a realistic figure would be that far down the line with inflation etc.

I am 30 this summer and therefore have 35 years until pension age. I currently earn £28K pA and am unemcumbered with dependents at the moment.

Any help most gratefully received!

mayb_2

memark - what did happen to the property thing?

memark

mayb wrote: »

memark - what did happen to the property thing?

Don't think that was me, was it? Someone earlier on in the thread did post about property but not me!

memark

discosantana wrote: »

Not being an expert on these things I guess that this may sound like a daft question but it's one I hope someone can attempt to answer!

What amount of money should I be looking to get per year as a pension (one that I will set up, not state)?

Website calculators will tell you how much a month to pay to achieve a certain amount but I don't know what a realistic figure would be that far down the line with inflation etc.

I am 30 this summer and therefore have 35 years until pension age. I currently earn £28K pA and am unemcumbered with dependents at the moment.

Any help most gratefully received!

A tricky one this...

All depends on what you spend, of course, and what commitments come your way later on in life.

Most people aim to target 50% to 2/3rds of their pay, adjusted for inflation. Don't necessarily count on the State being in addition, either, as it really wouldn't surprise me if it ends up being means tested in some way by then. Put it this way, I'm 25 years away from 65 and if I do get anything from the State, I'm going to regard it as a bonus.

So, what would you need now to give you your target? Have a look at this: http://www.invidion.co.uk/pension_calculator.php and see if that helps. It alllows for inflation and even tells you the shortfall. HTH.

discosantana

Cheers for that memark,

the calculator on that link makes so much more sense than others I'd tried.