Advice for first time pension planner

dunstonh

jem16 wrote: »

You must have missed this - or not read the link as you usually don't.

page 8:
On average older pensioners have lower incomes. In 2008-09 pensioner couples where the head was aged 75 or over had an average net income of £377 a week after housing costs per week, compared with £454 for those aged under 75.

£454x52 = £23,608.

also on page 8
The average net income after housing costs of all pensioner units grew by 68% in real terms between 1979 and 1996-97. Average earnings in the whole economy grew by 36% in real terms over the same period.

Pensioners’ average income has grown faster than earnings over the last ten years. Net income after housing costs for pensioner units has grown by 38% between 1998-99 and 2008-09, whereas average earnings have risen by 12% in real terms over the same period.

Taking those in isolation suggests that those retiring in recent years have been doing better than expected.

jdobrowski

Phew, that was a long read..

I'll leave you guys to debate the benefits (or not) of a pension in the general case as it's going a touch over my head I'll keep reading though, as I'm finding it very interesting indeed.

After making my way through it all however, and doing some further research, I think I'm going to go down the following route (any feedback would be most welcome):

I'm currently earning £45,000 per annum. My understanding is that for this tax year I therefore have £10,000 where I'm paying 40% tax.

After casting an eye over my balance sheets I feel I can comfortably save £10,000 per year. I'm going to continue to max out my cash ISA, at least until saving for my house deposit is complete, and will put the remaining money into a pension pot. As I can claim back 40% on all of this pension money, it appears to be winning deal whether or not you agree on the merits of pensions for a basic rate tax payer.

On top of the above, I also recieve a performance related bonus each quarter (totalling up to a maximum of £4500 per year). To spread my eggs across baskets, and continue the house saving push, I'll be sticking any money I make from this into a S+S ISA.

In other words, I'll be sticking approximately a third of my savings into a cash ISA, a third into a S+S ISA, and a third into a pension. I'll then re-assess my plan once I've managed to secure a mortgage.

In terms of pensions, unless my company pulls something interesting out of the bag, I'm thinking of going with a general provider like Aviva through a broker like Cavendish Online (for the discounts).

Once again thankyou to everyone for opinions and feedback.

jem16

jdobrowski wrote: »

I'm currently earning £45,000 per annum. My understanding is that for this tax year I therefore have £10,000 where I'm paying 40% tax.

Sorry you got lost in all of this.

For this tax year you only have £1125 where you are paying higher rate tax. Higher rate tax starts at £6475 + £37,400 so ££43,475.

For the tax year about to start on Wednesday you need to earn in excess of £42,475 so £2125 at higher rate.

dunstonh

bilbo51 wrote: »

So if that is true, what point are you making? To me, it says that people need to save more - a lot more - towards their retirement. What does it say to you?

The premium required to hit £30,000 a year fund for someone who started in 1988 and retiring this year after exactly 23 years means they have saved an average of £51.54pm. gross (using 6% p.a. growth)

So, you are right. It means they need to save more.

It means that many people have been paying less into their pension than they are paying on their mobile phone bill or their skytv. Does anyone who has been paying £51pm for 23 years really think they should be getting £1000s of pounds per month.

jdobrowski

jem16 wrote: »

Sorry you got lost in all of this.

For this tax year you only have £1125 where you are paying higher rate tax. Higher rate tax starts at £6475 + £37,400 so ££43,475.

For the tax year about to start on Wednesday you need to earn in excess of £42,475 so £2125 at higher rate.

Ah, I was mis-reading the tax bands. I figured that the £37,401-£150,000 figure quoted as the 40% tax band took the personal allowance into account (i.e. anything earned over £37,401 was higher rate tax).

Also, am I right in saying that for this upcoming tax year, the bands are changing so that personal allowance is £7,475 and the higher rate tax band is £35,001-£150,000?

Ta

jdobrowski

jem16 wrote: »

Sorry you got lost in all of this.

For this tax year you only have £1125 where you are paying higher rate tax. Higher rate tax starts at £6475 + £37,400 so ££43,475.

For the tax year about to start on Wednesday you need to earn in excess of £42,475 so £2125 at higher rate.

Beat me to it

jdobrowski

Thinking a little more on this..

If I do earn my full potential salary of £49,500 per year, I end up with £6,625 at the higher rate. If I follow my above plan of placing around £5k a year into a pension pot it's therefore still likely that I'll be able to claim back 40% on all of it.

jem16

jdobrowski wrote: »

Thinking a little more on this..

If I do earn my full potential salary of £49,500 per year, I end up with £6,625 at the higher rate. If I follow my above plan of placing around £5k a year into a pension pot it's therefore still likely that I'll be able to claim back 40% on all of it.

Yes that's correct.

With a £5kpa contribution and your age you might be better off seeing an IFA who would probably be able to organise you a better pension at a lower cost than Cavendish.

mickflynn39

With a £5kpa contribution and your age you might be better off seeing an IFA who would probably be able to organise you a better pension at a lower cost than Cavendish.

I would advise steering well clear of on IFA. He is going to be motivated by commission and your pension fund is going to get off to a bad start once he's taken his considerable cut. Start a SIPP and invest in a low cost index tracker. They beat managed funds 80% of the time over the long term.

Lokolo

mickflynn39 wrote: »

I would advise steering well clear of on IFA. He is going to be motivated by commission and your pension fund is going to get off to a bad start once he's taken his considerable cut. Start a SIPP and invest in a low cost index tracker. They beat managed funds 80% of the time over the long term.

It's already been proven this is incorrect.