pension problem please help?

Terri_B

Hi
I am new to this site and not sure excatly how it works but just wondered if any one out there can help me and give some advice?

I am female now aged 35 I took out a pension on the advice of a broker when I was 20, at the time it was with norwich union it has now changed to aviva?, I was paying in roughly £25 a month to start with and had this policy index linked? so up to this year it increased to about £40 a month, a couple of months ago when the company changed so did all the paper work and the format in which the statement was given to me, before I didn't really understand as it was all in units etc, but when I received the statement and it said in plain black and white what my pension was worth and what i would be expected to receive whenI retire I was shocked as it was only £485 a YEAR!!! I phoned them up to see if this was correct, and it was! so I cancelled it straight away with my bank and the company and they have frozen it, but they won't let me take the money out and I can only have a lump sum of 25% when I retire, but I really want to be able to get at my money now or at least have it tranferred into something like a bond where it will be making more money and I will see some return on it, I was very shocked and dissapointed as I thought it was making sufficient provisions for myself for when I retire, I do not earn very much money in my present job, so I cannot up the amount I pay into it, if any one has any advise or suggestions for me I would be so grateful thank you very much.

kind regards

Terri

bendix

Terri

What exactly did you expect your pension to be worth when you have paid such low sums into it? If you are paying in only £25 - £40 a month in, you can't really expect it to grow very much and - thus - deliver much by way of a pension. As I've said a million times before, a pension is not a magic bean that will turn into something huge. You have to take it much more seriously.

On the plus side, you are only 35. You have years before you retire. If you can't increase the amount you put into your pension, then I don't know what to suggest. Paying a tiny amount in will guarantee a tiny amount back out. It's not rocket science.

And - no - you cannot withdraw it now. It is NOT a bank account.

dunstonh

I was very shocked and dissapointed as I thought it was making sufficient provisions for myself for when I retire

With respect, your contribution level was tiny and indeed, not far off the minimum level. You cannot expect to pay £40 a month for 25-30 years and get back tons more than that for 25-30 years in retirement.

The change in projections is probably a move to SMPI basis (includes a deducton for inflation) instead of monetary growth basis (which doesnt include inflation). That doesnt mean you are getting any less. It just puts it in todays money terms rather than future. Also, illustrations now show joint life annuities with increasing income. This is not far from being the worst initial income option possible. It appears you have likely misunderstood this and jumped the gun by cancelling it.

or at least have it tranferred into something like a bond where it will be making more money and I will see some return on it

That will actually make less money and is totally unsuitable for a 35 year old to use for retirement planning.

if any one has any advise or suggestions for me I would be so grateful thank you very much.

For income provision, nothing beats a pension. So, if you dont want to contribute to a pension then you really need to start making plans to be poor in retirement. I know that sounds blunt but that is the only thing that is going to happen.

EdInvestor

What is the fund value?

Bogle

Dunston is absolutly correct, you are going to have a very poor retirement unless you start to take this more seriously. Yes pensions have a drawback that you can't take your money until your 55, but that can play in your favour as at least you won't be able to dip into it and spend the money.

I come accross this on a daily basis and it completly blows my mind when people are shocked that they will get next to nowt back when they are only willing to pay low amounts in!!!

Have you ever asked the financial adviser to review your pension? you should do this at least once a year. If your adviser can't or won't do this for you find one that can sit down with you and do a proper budget report for you, this will help you identify how much you can afford to put towards the pension. The adviser will have access to tools that can help calculate how much income you will need in retirement, its never an exact science but I think you might be in for quite a shock!!

Put it this way im nearly 30 and pay 10% of my salary into a pension and I plan to increase this by 1% for the next 10 years

markr007

Although honest, I think the above posts are a little harsh. If you truly are on a low income and have put in all you can afford then you did the right thing cancelling and will probably not feel that much poorer in retirement after state pensions, pensions credit etc.

For a good pension (50-70% of salary) you need to contribute about half your age as a percentage of pay to your retirement. Starting at 20 which is a really good thing and should be praised - many people don't think about pensions until much later in life - means you should have contributed 10% of your pay.

If £25pm was 10% then your salary would have only been £3,000 pa. Even 15 years ago this seems unlikely. However, life doesn't work like that and when you are on a low income putting 10% of what little you have into a policy you can't get anything from for 35 years is hard to swallow and so understandable.

You need to think about what you can afford and what your priorities are.

bendix

markr007 wrote: »

Although honest, I think the above posts are a little harsh. .

Yes, they're harsh. And yes, they are true.

Would you prefer us to softsoap the OP and say 'there there, it's going to be alright'?

If only life were so fluffy.

EdInvestor

But the fact is people on low incomes should normally not bother with small pensions absent free money from their company as they will be wasting money - they will simply lose benefits they would get if they didn't have the pension.

The OP should get a state pension forecast in the first instance so she knows where she's starting from.

https://www.thepensionservice.gov.uk

dunstonh

But the fact is people on low incomes should normally not bother with small pensions absent free money from their company as they will be wasting money - they will simply lose benefits they would get if they didn't have the pension.

For those that are closer to retirement then that can be the case. However, someone starting at 20 with say £30 and indexing it to RPI should find that by age 67 (the OPs state pension age) they should have a personal pension income of around £10k in todays terms.

Add the state pension on top and thats £15k-18k income depending on qualification for the second state pension. It could well be more than they earn now. Something that is not uncommon in Norfolk for example where it used to be joked that you got a pay rise when you retired.

The problem is that many people earning much larger incomes are only paying in £20-£40pm and they are the ones that are being unreasonable with the income.

The OP has an issue that she has made a decision based on assumptions and data which she hasnt understood. Decisions that dont appear to be the right thing. Terri, please do respond as no-one is having a go at you. When posts are made, the emotion is often removed and they can appear blunt but it is better to have simple factual information rather than cuddly cotton wool responses telling you everything will be fine.

markr007

Yes, they're harsh. And yes, they are true.

Would you prefer us to softsoap the OP and say 'there there, it's going to be alright'?

If only life were so fluffy.

No, just a bit more respect to people's possible circumstances and financial education (a system flaw). That said, re-reading again I don't think any particular post was that harsh - more the combination!

For those that are closer to retirement then that can be the case. However, someone starting at 20 with say £30 and indexing it to RPI should find that by age 67 (the OPs state pension age) they should have a personal pension income of around £10k in todays terms.

If only this were true. I make it £2,330 for a single life pension if you index £30 pm from age 20 to 67 in today's prices on 2008 SMPI assumptions.

The OP has an issue that she has made a decision based on assumptions and data which she hasnt understood. ... Terri, please do respond as no-one is having a go at you. When posts are made, the emotion is often removed and they can appear blunt but it is better to have simple factual information rather than cuddly cotton wool responses telling you everything will be fine.

Agreed and well said.