pension question with a twist.

grumpyeggman

hello moneysavers,
pension question with a difference.
i'm a relatively poorly paid paye tradesman...18k basic.
i'm 45,debt free council tenant,family,and in a final salary pension scheme to which i contribute 4% of pretax salary.
been in scheme 8 years,had to contribute last 5 years.

now,poor pay basically equals poor pension.
would i be better opting out of the pension and having £60 a month extra to spend now.
starting to feel we could do with the money as we are really noticing falling further behind as far as disposable income is concerned.

should we opt out and be better off now and let the state look after us if,god willing we live that long,to retire.
with a private pension that is only,at best,only going to be very average you are bound to be penalised in old age and end up paying full whack for everything.
no help with rent,council tax etc.
and still living on the breadline.
essentially paying twice.
i don't want to get to retirement and feel i've been conned.

my mother and father are in this position,but,importantly my fathers pension was non-contributory.

thanks for sticking with this,any comments appreciated.

dunstonh

would i be better opting out of the pension and having £60 a month extra to spend now.

Absolutly not.

should we opt out and be better off now and let the state look after us if,god willing we live that long,to retire.

If you cant cope on 18k now then how do you expect to cope on around £9000 in retirement. That is what you will have under current benefits and there is pressure on the Govt to reduce those as it is costing a fortune.

Andy_L

Your employers contribution is woth ~10-15% of your salary. You would be throwing that away if you left the scheme.

chesky369

In fact you're exactly the sort of person that a final salary scheme would help most. Let's fact it, you have no property to fall back on, no other savings and probably won't inherit thousands. So you really will need as much as you can get from a pension.

EdInvestor

grumpyeggman wrote:

i'm 45,debt free council tenant,family,and in a final salary pension scheme to which i contribute 4% of pretax salary.been in scheme 8 years,had to contribute last 5 years.Now,poor pay basically equals poor pension.

This may or may not be so.So step one is to find out how much you can expect in pension when you retire. Go see the pensions department and get some basic facts and figures. Apart from basic pension amount, important aspects include
#is the pension inflation-protected, and
#is there a spouse's pension and how much
#what death benefit would be paid to your spouse if you died before retirement

You need to know what you'd be giving up.

Step 2 is for both you and your wife to get a state pension forecast to see what you are due for there as well.There are two state pensions and you may find you will get somewhat more than you thought.

you are bound to be penalised in old age and end up paying full whack for everything.no help with rent,council tax etc.and still living on the breadline.essentially paying twice. i don't want to get to retirement and feel i've been conned.

This is a legitimate query,because the combination of pension credit, housing benefit and council tax benefit can adds up to something like around 10,000 quid a year, and it is effectively index linked.

To buy an income worth this much with spouse's benefit as well on the open market is going to cost you in and around 200-300k. That's a lot of money, which no way can people on a low salary usually save in a money purchase type plan..But a final salary scheme with a good emplyer's contribution may well be able to beat that easily.

You may find that the state pensions are going to push you beyond the pension credit level anyway, before you start counting the value of the company pension. It would be a good idea to pop into your local CAB to get an estimate of what income you need to be well clear of the "benefits trap" you mention, where small savings are wasted because they just replace income you would otherwise have got from the state.

So, grumpy eggman, I suggest you go away and find out how much you and your wife are due from your state pensions and the company one, and what income you need to be sure you won't be "conned".

Then come back here and we can check the result.

Andy_L

EdInvestor wrote:

Step 2 is for both you and your wife to get a state pension forecast to see what you are due for there as well.There are two state pensions and you may find you will get somewhat more than you thought.

Although with a final salary scheme the OP may well be contracted out of SERPS.

grumpyeggman

thanks for replys...
my employer contributes 14%.
the pension statements we get annually point to a pension of about a third to approaching a half of your final salary.
my wife has a small frozen pension.
she would get a death benefit.
i've applied for the pension forecasts.

Let's fact it, you have no property to fall back on, no other savings and probably won't inherit thousands. So you really will need as much as you can get from a pension.[/QUOTE]

we do have some savings,we are good with money.we have to be.notice i said no debt...nothing owing anywhere.
if life follows its natural course we will get a sizeable inheritance one day.
i know plenty of self employed types,they may have property but they have no pensions.or they have stopped paying into one.who'se going to support the army of self employed?
i'm straying here,enough waffle.

thanks again.

dunstonh

i know plenty of self employed types,they may have property but they have no pensions.or they have stopped paying into one.who'se going to support the army of self employed.

I know plenty that have and I know a minority that dont. Anyone that does not plan to look after themselves in retirement by one means or another is looking at an income just less than £10,000 a year.

Many of those that are not saving for their retirement are going to be in for a big shock when their lifestyle has to change. Just because some are foolish to act in that way, doesnt mean you have to. £60pm is nothing nowadays. Look at some of the other things you pay. Do you have Sky/Cable? Do you smoke? Do you drink? Do you have hobbies that cost? Do you have at least one holiday a year?

seven-day-weekend

dunstonh wrote:

Absolutly not.



If you cant cope on 18k now then how do you expect to cope on around £9000 in retirement. That is what you will have under current benefits and there is pressure on the Govt to reduce those as it is costing a fortune.

How does State Pension work out at £9000 a year? I will be getting £4490 State Pension and £2177 LA Pension (on today's rates). = £6667

Am I missing out on anything?

dunstonh

Currently there is the pension credit which replaced the minimum income guarantee for all 60 year olds and above. It works on a household income basis and ensures a household doesnt get below a certain amount. For single people, the amount is £5930 p.a. and for married (or civil partner) it is £9050.

Once your income is above that level you get nothing. If you have savings over £6000 the amount of pension credit you get reduces down on a sliding scale to zero. £500 is classed as £1 p.w. income. So, if you have £10,000 in the bank, it is classed as £20pm or £240 a year.

It is not the state pension which remains at £4381 for a single person basic pension. It is a benefit for low earners.

I will be getting £4490 State Pension and £2177 LA Pension (on today's rates). = £6667

Am I missing out on anything?

If you are single, then you are over the £5930 minimum income level and not entitled to any extra unless you have attendance allowance, disability living allowance, housing benefit or council tax benefit.

grumpyeggman

dunstonh,when you earn just under £18k basic how much do you think you are left with take home.not that much more than £10k.
we live a frugal lifestyle with great prudence.
don't drink,don't smoke.one week away on the south coast if you're lucky.
simple but happy.make do and mend lifestyle.
and thats before retirement.

so whats the point of a private pension that after you've paid full whack for everything leaves you,probably,no better off than someone with no private pension?

we live the retirement lifestyle already and have to work 40 hours a week for it?

i've advised my oldest son to avoid manual work at all costs,it's an academic world.:D