how big does your pension pot have to be for a decent monthly pension?

helen_vasey

my hubby has a company pension, he pays 4% they pay 8%,(I think) on @ £27k. He has received his yearly statement from friends provident, (voyager)with forecasts for 4% growth and 7%. the amount seems to be growing nicely but even on the 7% projection of a fund total of £230k, the yearly pension is only £4380, which seems tiny, and that is before a lump sum is taken. He will also get an raf pension that is pretty bullet proof, index linked etc. which 10 years ago was worth @£2500 pa. so i would imagine would be more like £5k now, hopefully much more in 20 years when he is 60. In the voyager scheme, you can split your investments, he has 50% in global equity, 25% uk equity and 25% bonds/cash. is this a good split? or is more risk necessary? I am in the lgps, which is good but wont give me much as I only work p-time. thank you for your patience, I am normally good with things financial but pensions confuse me! can someone explain; in simple terms, how much per £100k a pension is worth at todays interest rates. i.e. £2000 per year etc. and does that mean that annuity rates are 2% etc.? tis all mid-bending!:eek:

MrChips

Looking at the figures you have posted, it seems that the projection of £4,380 has been converted into "today's terms", i.e. has been adjusted either for expected future earnings or price inflation. This is to make a figure that is more comparable with your husbands current salary, or current prices. So you may find that the actual pension bought with a fund of £230,000 is about £9,000 or £10,000 - but this won't go so far in 20 years time!

To answer your question in the post title - how much money do you consider a decent pension? As a rule of thumb, 2/3 of final salary is considered a good pension (because it will be suplemented by state benefits and because spending habits tend to be lower after retirement - no mortgage, no commuting costs, no pension contributions etc) but it is only a rough guide and will need to be higher for low earners, and lower for high earners.

Typical pension conversion rates (from pot value to annual pension) tend to be in the range of 20-25 (i.e. 4-5%) but can vary a lot depending on age of retirement, interest rates at date of conversion, chosen options (eg level of pension increases, attached spouses pension on death).

Hope this helps, but ask more questions if you are still confused!

EdInvestor

To buy the basic state pension (4,420) which is index-linked to cover inflation you would need around 90-105k at current annuity rates higher for the woman as she lives longer.So making sure your contributions for the two state pensions are up to date is important as these are valuable benefits.

Go to https://www.fsa.gov.uk/tables for a rough idea of how much a pension pot will buy you in income.Annuity rates vary with age - the older the higher - and also with how many "extras" you buy with your fund ( eg spouse's pension, guarantees, index linking etc. You can get more if you have poor health and also if you put the fund in "income drawdown" - that is, you leave the fund invested and take an income.Of courser this is not risk free.

. He will also get an raf pension that is pretty bullet proof, index linked etc. which 10 years ago was worth @£2500 pa. so i would imagine would be more like £5k now, hopefully much more in 20 years when he is 60.

If this is a frozen final salary pension it will only go up with inflation, which is quite low these days.However these pensions have lots of bells and whistles.Worth checking that amount.

In the voyager scheme, you can split your investments, he has 50% in global equity, 25% uk equity and 25% bonds/cash. is this a good split? or is more risk necessary?

Suggest you switch the bonds and cash into the property fund if available as bit more risk would be useful at 40. I would also check the performance of the other funds: some of these global equity funds are pretty naff, and you're exposed to currency risk. UK funds can be better.