pension information

jamesd

DD4 wrote: »

I keep seeing this rolled out and it really winds me up. Can you please explain how large a pension pot you would need in order to purchase an annuity that is RPI linked, with a 5 year guarantee and a 50% spouse pension that is ABOVE the age-related £10k tax free allowance (i.e. taxable), where the 25% tax free sum has been taken? Given that most people will receive a state pension of £6k (average state pension currently).

Too many variables there, notably age for annuities. Assuming a very cautious 5% income level then £45 a month for 40 years would take net income over £10,000 of which £9300 would be taxable.* £10,300 a year in my spreadsheet. Increasing the contribution to £100 a month increases that to £13,320 with 12,050 taxable. £60 a month gets you to £10,000 taxable.

Pension pot sizes after inflation adjustment would be £61,000 at £45 and £134,000 at £100.

DD4 wrote: »

Could you then explain to me how many ordinary people will actually be able to save that sort of a pot from their own money???

£100 a month to take someone to a retirement income greater than the amount I spend for my normal needs including housing costs doesn't seem unreasonable to me.

Forty years for the calculations allows for 10 years of no payments at all, just to be fairly cautious about it.

*assumptions: contributions are before tax relief, 7% growth, 3% inflation and annual contribution increase, £7,000 from state pensions, basic rate tax relief, taking 25% lump sum and using ISA for ongoing income from it.