Worried 25 year old

bendix

marklv wrote: »

£100k in the pension pot is very achievable, but it will only generate a flat pension of £6k a year or so at age 65. Realistically, I would aim for a pot of at least £200k for a retirement above the poverty line. In 40 years it can be done by anyone on average income.

A pot of £100,000 at retirement is, I would think, the bare minimum that people should be aiming for. Even £200k seems light to me.

The key problem is that people expect to get a retirement sum and think it doesn't take discipline or commitment. It's bloody hard work. I have made a huge personal sacrifice to secure my future - I lived the dream life of an expat in Thailand for five years and saved hard, but then realised I wasn't on course to maintain that lifestyle so moved back here and am committing to being here for a few years until I've saved enough to retire at 48-50 back in paradise.

My lifestyle in London is much worse than in Thailand, but it's a price I am prepared to pay for the greater good.

marklv

£200k is still light, absolutely correct, but for a person on say, median average income, it is not 'small fry'. It's still a tough target for many people.

I'm on track for a £600k pot by my early 60s, but that is only because I have a defined benefit scheme. A pipe dream for many I'm afraid.

[Deleted User]

marklv wrote: »

If you work in the public sector you still get a defined benefit pension, though no doubt Cameron will end this sharpish when he gets in.

Not so sure about this Mark. My other half works for the NHS and I'm pretty sure she's in a defined contribution scheme. It's true what you said about defined benfit pensions. They are few and far between.

I have a question though: I'm also 25 (the missus is 25 too), we're both professionals so aren't doing too bad for our ages financially. However, I'm told (and keep hearing) that the likelihood of a state pension for us in the future is slim-to-none.

So: Is it worth us opting to pay the lower 'contracted out' rate of national insurance (paying 9.4% NI instead of 11%)? What's the point in us contributing towards something that we're never going to benefit from?

mintedmatty

Upon reading this thread I attempted to find a story I read on the internet relating to a couple and the effect of compunded interest? It was along the lines of the girl had saved a small but regular amount into a ISA from the age of 18, when she reached 30 the couple decided to get married and she stopped contributing to her ISA? The man hadnt contributed anything to an ISA from 18, but started to contribute at 30? The moral of the story was that due to compunded interest when the couple both reached 40 the mans ISA would still not have half the amount that was in the females even though he had almost contributed to it for the same length of time but later in his life?

Just reading that back it doesnt quite make sense but i hope you get my meaning? The basis is that by starting younger and contributing a small but regular amount, whether to a pension or an ISA? it can benefit you many times over later in life? Even £20 per month can make a significant difference when it comes to retirement?

Im 28, and im going on the basis that the government will just take,take,take for as long as I live? Im banking on there being no state pension when I retire, but I dont plan to need one? If it turns out the £130 per week or so is still in exsistence then.....BONUS!!!

Hope that helps?

jh2009

If your other halfs in the NHS Scheme shes probably in a Defined benefit scheme. These schemes ar likely to be looked at though after the election, whoever wins.

Theres no plans to get rid of a state pension, just to pay it later. AS you are both 25 your state pension ages will be 68, and possibly 70. They wont abolish the state pension as older people - the grey vote - always vote in larger numbers, so its political suicide. Whats more likely is its more likely to become a safety net, an amount you can get but would rather not live on.

As far as contracting out, this is ceasing in April 2012, so isnt a major issue for you. The point of lower NI is that rebates are paid into your personal pension and these must grow at a higher rate to provide an equal or better pension than the state second pension you gave up. Theres much debate over whether this is beneficial for anyone, and certainly not for anyone over 35. As its so complex its ending in private pensions in 2 years so not worth losing to much sleep over.

marklv

wrongmark wrote: »

Not so sure about this Mark. My other half works for the NHS and I'm pretty sure she's in a defined contribution scheme. It's true what you said about defined benfit pensions. They are few and far between.

I have a question though: I'm also 25 (the missus is 25 too), we're both professionals so aren't doing too bad for our ages financially. However, I'm told (and keep hearing) that the likelihood of a state pension for us in the future is slim-to-none.

So: Is it worth us opting to pay the lower 'contracted out' rate of national insurance (paying 9.4% NI instead of 11%)? What's the point in us contributing towards something that we're never going to benefit from?

As far as I know the NHS still offers a final salary scheme to new joiners - maybe you can ask your 'other half' what schemes she was offered. I'm soon to start a new role in the civil service and the scheme offered is the Nuvos one, which is excellent (1/44th of average salary for each year of service). The NHS is 1/80th of final salary plus a lump sum of three times the annual pension - unless it has changed very recently and I'm not aware of it.

This talk about the likelihood of the state pension becoming nothing is pure BS. No democratic government will ever remove the state pension because it would be political suicide. What will happen instead is what has been happening since Thatcher removed the average earnings link in 1980: the gradual degradation of the state pension to the point when it will be worth almost nothing (in relative terms).

You pay the contracted out rate of NIC if your pension scheme offers this option - not all of them do. Defined benefit schemes tend to be contracted out of the state second pension, defined contribution ones do not. My advice would be to stay in, if you can, because for the tiny additional contribution you do get a secure and valuable extra top-up on the state pension, but it's up to you. You will benefit from the contribution - don't believe the doom and gloom mongers.

marklv

jh2009 wrote: »

If your other half is in the NHS Scheme shes probably in a Defined benefit scheme. These schemes are likely to be looked at though after the election, whoever wins.

They have already been looked at on a number of occasions, and changes have been made. No doubt they will be looked at again, but I think it very unlikely that existing members will have their schemes closed; for new joiners though the situation may well be different. Even the public sector hating Tories are well aware that to tinker with public sector pensions would open a big can of worms - not even Thatcher did that.

mintedmatty

marklv wrote: »

As far as I know the NHS still offers a final salary scheme to new joiners - maybe you can ask your 'other half' what schemes she was offered. I'm soon to start a new role in the civil service and the scheme offered is the Nuvos one, which is excellent (1/44th of average salary for each year of service). The NHS is 1/80th of final salary plus a lump sum of three times the annual pension - unless it has changed very recently and I'm not aware of it.

This talk about the likelihood of the state pension becoming nothing is pure BS. No democratic government will ever remove the state pension because it would be political suicide. What will happen instead is what has been happening since Thatcher removed the average earnings link in 1980: the gradual degradation of the state pension to the point when it will be worth almost nothing (in relative terms).

You pay the contracted out rate of NIC if your pension scheme offers this option - not all of them do. Defined benefit schemes tend to be contracted out of the state second pension, defined contribution ones do not. My advice would be to stay in, if you can, because for the tiny additional contribution you do get a secure and valuable extra top-up on the state pension, but it's up to you. You will benefit from the contribution - don't believe the doom and gloom mongers.

I totally agree with you, do you ever see a government making it compulsory for citizens in employment to contribute to a pension?

jh2009

miss_independent wrote: »

First things first, I must apologise as I really didn't mean to hijack the OP's thread and I realise I have done that, so sorry OP! Hopefully we have both got some useful information from the replies!

Second, in reference to jh2009's post above. Thanks for the advice, I do think it is better to put a little aside now no matter how small as it is better than doing nothing and, like you say, gets me into the habit of saving now. I don't know what exactly my ISA money is for right now but I am concerned that I may want to access it one day and do not want to lock it away long term i.e in a pension fund. I see it as my "dream fund" (cheesy, I know ), and its nice to know that its there if I need it and I can access it instantly. I am going to speak to an IFA and see what I can do on £25 or £35 a month in some sort of pension fund and one day, when I am earning more money, I can contribute more to it. My mum gave up work to become a housewife when she had me and became totally dependent on my dad financially which she hated and I have always known that I wouldn't want to be like that; she just has her state pension whilst my dad has state pension, NHS pension and a private pension and he calls all the shots financially. Like my username says I like to be independent lol! As it is, my dad will not advise me on a pension or savings or anything else like that so that is why I am asking my questions here and I am grateful for all the advice. The way my Dad sees it is that he has provided for me and I am set to inherit quite a bit in terms of property so I will never need to buy my own home and hopefully I will have a nice husband to "take care of me" as well so why do I need to worry? The way I see it is, although I know I am very lucky (and grateful) to be in that position, it isn't my hard work that has earned it and I don't feel it is fair to expect anyone to provide for me financially. It does nothing for the self-esteem!

With regards to the last comment, I'm not offended at all ! I agree wholeheartedly, I just haven't found a young man who is an equally good catch yet :rotfl:!

And totally agree.....

Im 32 and I/my family are almost exactly in the same position as you. Whatever ive saved self sufficiency is a good target.

Ive got a combination of pension/isa saving, which i thinks the best way rather than concentrating on both. If i have good luck on the way thats a different issue but im a big believer that doing things like this help you make your own luck!

Im not sure if its any help but the below link is a pensions calculator. It gives you an idea based on tax relief/age/contributions/existing funds of what sort of pension you might expect to recieve.

The calculators free to use but obviously is based on assumptions about future growth/annuity rates, etc that arent guaranteed.

Theres other calculators out there so using that isnt me recommending h-l.

http://www.h-l.co.uk/pensions/interactive-calculators

" With regards to the last comment, I'm not offended at all ! I agree wholeheartedly, I just haven't found a young man who is an equally good catch yet :rotfl:![/QUOTE]"

Im glad you didnt tell me off for that last comment on my previous post, and im sure you will and he wIll be a lucky guy.

jh2009

mintedmatty wrote: »

I totally agree with you, do you ever see a government making it compulsory for citizens in employment to contribute to a pension?

Well NEST is coming in two years.

This involves everyone not in a scheme who is working being opted in each 3 years to a form of pension scheme where they will contribute and their employer will have to contribute.

You will be able to opt out, but each 3 years you will have to opt out again.

Exemptions include the very very low paid, and those in private schemes that meet a minimum standard.

Something to look out for............