Shall I keep contributing

Weber

Hello all, its my first post so be gentle. I'm 42 years young, self employed with a limited company, I started my pension late and started contributing just over a year ago.

My limited company contributes £1k per month into my pension, with a retirement age set at 65 I would have contributed £276k.

I have worked out I will prossible pop my clogs by say 80 years old, my pension will give me about £14k per year once I retire (at today's rates) so I'm guessing from 65 - 80 I will draw 15 years worth of £14k = £210k.

So if my sums are right I will ended up paying £76k more than I would probably pull out, and let's face it.

Am I looking at bthid too simplistically?

I also have isa savings and have only 10 years left on my mortgage.

Thanks in advance

Av

jem16

Weber wrote: »

Am I looking at bthid too simplistically?

What happens if you live to 90 or even older?

McKneff

Its all a gamble, you could just as easily pop your clogs at 66

sleepless_saver

Weber wrote: »

I have worked out I will prossible pop my clogs by say 80 years old, my pension will give me about £14k per year once I retire (at today's rates) so I'm guessing from 65 - 80 I will draw 15 years worth of £14k = £210k.

So if my sums are right I will ended up paying £76k more than I would probably pull out, and let's face it.

Am I looking at bthid too simplistically?

Once you get to 65 average life expectancy is a fair bit higher than 80, and is increasing all the time.

Plus you haven't allowed for effects of inflation. Say you retired in 2020 with £14k. After 20 years at 4% inflation you would need nearly £31k a year to have the same buying power.

dunstonh

My limited company contributes £1k per month into my pension, with a retirement age set at 65 I would have contributed £276k.

Good. So you are saving tax and NI doing it that way.

I have worked out I will prossible pop my clogs by say 80 years old, my pension will give me about £14k per year once I retire (at today's rates) so I'm guessing from 65 - 80 I will draw 15 years worth of £14k = £210k.

We dont have the projected fund value to compare it against.

Am I looking at bthid too simplistically?

At the moment yes. What is the current fund value and projected fund value. What is your current tax position and will the business have a saleable value when you finish?

What assumptions are you basing the pension income rate on?
Do you have a spouse/partner or family?

Weber

Thank you for such a positive response. I may live to 90 but don't really see myself going on jet ski holidays spending my lucrative pension.

Here are some more details on my pension (I should have put these up on my first post).

It's an Aegon plan.

My yearly pension in today's prices could be £14,700.00 each year.

My retirement fund value in today's prices could be £348,991.35 (based on my pension growing 7% pa and inflation saying at 2.5%).

My annual report also states the following:

If our investment grows at 5.00% and interest rates when I retire are 1.70% then the retirement fund will be £467k

As above but 7.00% and 3.70% respectively = £613k

As above but 9.00% and 5.7% respectively = £812k

I will have the choice of a tax-free lump sum and yearly pension or pension only (at a higher annual amount).

My ltd company has no assets, I provide consultancy (in IT project management).

My wife also has the same pension but contributed 300 per month into it.

I was thinking about spreading the risk somewhat and looking to reduce the pension and perhaps investing in some bricks and mortar..

dunstonh

As above but 7.00% and 3.70% respectively = £613k

Ok, lets look at that one as its the most likely.

You say you would have contributed £276k at that point but have a fund worth £613k.

If you take 25% of that back you get £153,250. If you take 6% income on the rest then it equates to £27,585 p.a. in future money terms. If you live 10 years then it repays £275,850. You can transfer it to your spouse on death if you use drawdown so lets so you both live 20 years. That means £551,700 is paid out on top of the tax free cash. Then your children, if you have any, can get paid out from the pension (a tax penalty applies but there is no IHT on it. The tax penalty effectively takes back the tax relief).

So, things look at a lot better than you think.

Weber

dunstonh wrote: »

Ok, lets look at that one as its the most likely.

You say you would have contributed £276k at that point but have a fund worth £613k.

If you take 25% of that back you get £153,250. If you take 6% income on the rest then it equates to £27,585 p.a. in future money terms. If you live 10 years then it repays £275,850. You can transfer it to your spouse on death if you use drawdown so lets so you both live 20 years. That means £551,700 is paid out on top of the tax free cash. Then your children, if you have any, can get paid out from the pension (a tax penalty applies but there is no IHT on it. The tax penalty effectively takes back the tax relief).

So, things look at a lot better than you think.

Thank you for putting this over in such an easy way to understand, nothing beats layman's terms..

And the fact that we have just had our first little one it's all the more important.

Loughton_Monkey

If you assume death far earlier than your 'true life expectancy' then investing in a pension will always look bad.

You should look at it far more simply.

1. If you want any form of 'decent' money to live on in retirement, then you must invest a significant proportion of your lifetime earnings. You will reap what you sew.

2. You can invest in Pensions, ISA's, or investments outside an ISA. The latter is brainless (because of no tax relief) unless you have 'filled' the others. ISA's are more flexible, but pensions produce 6.25% more cash in the longer term [that's because of the 25% tax free cash lump sum].

3. Assuming you have chosen pension for the lion's share of retirement investment, then there are [basically] options of annuity or drawdown. Either one is 'equitable' to you. Yes, like anything, you will be providing financial institutions with a profit, whatever you do. The only way of avoiding this is put £notes under the mattress.

4. Once at retirement, unless you have strange requirements, you will want the majority of your invested wealth to provide income for life. If, at the time, you are very unhealthy, then you get an enhanced annuity. But most people are happy to use an annuity because, OK, you 'lose' if you die before expectation, but you 'win' if you are in the other 50% probability of living beyond expectation. Buy joint annuities (to cover the spouse) and what do you care if you 'lose'? Certainly you would care far less than if you had it in ISA, spent the lot by age 85, and were still alive and kicking.

Weber

^^^ Wise words indeed and thanks, it's given me the reassurance that I will certainly keep paying in that £1k per month. I'm also investing in ISA's and will also look at some form of property too.

Thanks for everyone's contribution..

atush

Seems like you are on the right track- gook luck.