Is your pension pot going to be large enough?

Procrastinator333

setmefree2 wrote: »

Only if the stock market is rising - so that's a gamble - and your pension company isn't taking massive fees - also a gamble - since with most company pensions you have no choice over who manages your money. £200 in your pension pot sounds great until you realise how much of it gets taken in fees and how much you (can) lose when your investment goes down. AND you have to pay income tax on that £200 when you take it as a steam of income (pension income ) in your retirement.

Imho there is no point in puting all your eggs in one basket. Save for your retirement and pay off your mortgage. The £80 you pay off your mortgage today isn't just £80 it attracts compound interest for 25 years.

Personally, we put into our pensions as much as our companies will match, then it's Cash ISAs, some Share ISAs, then anything left POTM (pay off the mortgage).

That post makes no sense. You start off telling me I'm wrong. And then at the end you note you are doing exactly what I'm suggesting.

1) Pensions are a tax wrapper. If you don't like stock market investments, put your pension in to cash and guilts (though I think that is a bad idea). You will attract a similar ish, maybe slightly lower rate of interest to that which you save on the mortgage. But as you are getting interest on £200, instead of saving it on £80, you will be better off.

2) I'm not suggesting everything gets put in to one investment or one stock market. But find me a stock market that lost 60% of it's value over a 30 year period?

3) If you hate fees, pick the lower fee bearing investments. Basic cash, guilt and trackers have very low fees if you look around.

4) Tax - 25% tax free lump sum. After that, the first piece of it will be tax free as it is unlikely the state pension will have caught up with the start of the tax band. So a fair chunk of it will be tax free.

The choice of £80 off your mortgage, or £200 in your pension. It is a complete non-choice. Anyone who thinks otherwise is wrong. Not taking a pension and maxing out company matching contributions is nothing but a costly mistake. But then I get to the end of your post and it looks like that is exactly what you are doing anyway? So I'm not even sure if you disagree.

ninky_2

Loughton_Monkey wrote: »

A couple retiring when both were earning £50K would not be able to live on £16K.

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why not? if they'd been using increasing amounts of excess earnings to save rather than increasing current standard of living they may well be able to do this.

me and OH currently earn just shy of 2k a week but we live like people on average wage in order to make up for lost time paying off the mortgage / planning for the future (i don't like the term retirement).

i know everyone says you should start saving for a pension in your 20s but for me (and OH) that just wasn't possible. i was in low paid freelance work with gaps between contracts and expensive london rents to cover. he was an asylum seeker in low pay work trying to legalise himself in a new country.

however now our incomes are improving we can put larger sums away for the future.

hopefully it will work out!

JonnyBravo

chewmylegoff wrote: »

the image you posted refers to "membership" not "service" - which implies that you have to have been a member of the scheme for 5+ years to receive the higher contributions from your employer, the length of service you have may be irrelevent.

not possible to conclude anything just looking at the image, but you may just want to clarify this with your employer.

What he said.

I'll bet with you that you've got 4yrs 11months to go to get into the higher contribution bit. Sorry Joe.

chucknorris

ninky wrote: »

why not? if they'd been using increasing amounts of excess earnings to save rather than increasing current standard of living they may well be able to do this.

me and OH currently earn just shy of 2k a week but we live like people on average wage in order to make up for lost time paying off the mortgage / planning for the future (i don't like the term retirement).

We are in the same position, in fact we have recently given ourselves a bit of a talking to about spending more on ourselves.

The thing is though we have simple tastes and are quite satisified with our lives. For example we don't tend to buy expensive cars, the car I have now is a Vauxhall Zafira which I bought for cash at a car spupermarket when it was one year old and we will keep it until it becomes unreliable (about 10 years old from past experience) then go out and buy another one year old car. Yet most of my friends have cars that cost about 3 times as much and trade them in after a few years.

JonnyBravo

setmefree2 wrote: »

Only if the stock market is rising - so that's a gamble - and your pension company isn't taking massive fees - also a gamble - since with most company pensions you have no choice over who manages your money. £200 in your pension pot sounds great until you realise how much of it gets taken in fees and how much you (can) lose when your investment goes down. AND you have to pay income tax on that £200 when you take it as a steam of income (pension income ) in your retirement.

Imho there is no point in puting all your eggs in one basket. Save for your retirement and pay off your mortgage. The £80 you pay off your mortgage today isn't just £80 it attracts compound interest for 25 years.

Personally, we put into our pensions as much as our companies will match, then it's Cash ISAs, some Share ISAs, then anything left POTM (pay off the mortgage).

Yep similar mixed approach.
Just finished the mortgage.
My pension is DB:j and the Mrs is DC. I've been in 11 years and the Mrs only 8 years.
BTL to be paid off by Sept 2018.
Share ISA's now maxed each year.
Not sure what to do with rest. More shares I guess :cool:

chucknorris

JonnyBravo wrote: »

Yep similar mixed approach.
Just finished the mortgage.
My pension is DB:j and the Mrs is DC. I've been in 11 years and the Mrs only 8 years.
BTL to be paid off by Sept 2018.
Share ISA's now maxed each year.
Not sure what to do with rest. More shares I guess :cool:

I'm considering putting more into shares, they don't have to perform that well to do better than the current savings rates do they, and you can bed and spread to avoid CGT.

I'm not much good at picking individual shares though so I think I would probably stick to FTSE trackers with low fees.

Jonbvn

michaels wrote: »

I worry with pensions that there is nothing stopping the govt changing the rules and moving the goalposts - look at Hungry where they 'nationalised' private pensions - similarly they can change rules on taxation of pensions, tax free lump sums, annuity rules etc at will. already everyone pays a levy out of their pension to cover underfunded schemes, may be at some point the govt will decide it is unfair that some have much bigger pension pots than others and move to 'share' them a bit.

At least if you have the 'cash' there is the opportunity to move it in to different asset classes or even 'hide' it if need be.

Good point. This is the reason you should always max out your ISA.

drc

I don't think we'll have much of a pension other than the state one (if it still exists). We cannot afford to buy a home/pay rent and put aside money for a pension. It's just not feasible for us at this time (after paying rent, bills, food etc we have very little to live on). We do both have life insurance policies though so if either of us carks it we will get some money.

Procrastinator333

Jonbvn wrote: »

Good point. This is the reason you should always max out your ISA.

Not before taking any matched contibutions. Matched contirbutions should be number 1 on the list for everybody in terms of long term saving. After that, there is much more of a debate, fair enough. But matched contributions are so clear cut it is untrue. Chosing any kind of long term savings / mortgage reduction over matched pension contributions is simply nuts.

wymondham

This is very topical. I was talking to my financial advisor a few weeks ago and he said the average pot people have when they come to retire is only 45k! This is well below what you'd need for the op's standard of living. These days you can pay your mortgage, or pay into a pension (unless you are on a good wage) - most people can't do both to the degree needed. I know you should start your pension as soon as possible to enable it to build and compound, but housing tends to be peoples priority! I only paid the mninmum into my pension until I got rid of the mortgage, then was able to divert funds to this instead - not ideal at around 40, but better late then never.....