Starting a new pension at 60

jem16

fairleads wrote: »

After all the timeframe is way too short to invest in equities

Don't use equities then.

and we haven't even factored in those ever present costs. Which in this particular instance would probably make any pension contribution from any income source practically worthless.

The OP would have paid in £1872 over the 3 years. Lets' say a normal savings account at 3% so after tax is 2.6%. That would give £1942 after 3 years. You could possibly get more by using some of the Regular Savers if you're prepared to swap and change each year as they are usually limited. However let's say the top Regular which is First Direct at 8% so 6.4% after tax. That would give £2063.

Using employer's contributions and tax relief the OP would get £4680 paid into the pension. To get down to the Savings acoounts would see a drop of 55% or 58% depending on which savings account was used. Even allowing for 20% tax on the income after the 25% tax relief would still see require a large drop.

Would charges alone account for that drop? Even assuming losses rather than gains would it drop that much?

gadgetmind

fairleads wrote: »

in this particular instance would probably make any pension contribution from any income source practically worthless.

Please show your working.

If it helps, for such a short term, an index linked gilt/bond fund in the pension will probably be best, or one of the other funds designed for end-game value protection, and my pension provider will only charge 0.55%pa for these. Others charge less, some more.

gadgetmind

Lokolo wrote: »

Oh, can you only invest in equities inside a pension?

A joke? Anyway, no, lots of choice even with basic pensions.

anabana

Not sure I've understood much of what's been said, but from what I can gather, if I contribute to the pension scheme, when I come to retire I will be able to claim a 25% lump sum and the other 75% will be the pension. As the figures are so low, surely I would only get a tiny tiny amount every month? My instinct is to put the money into a cash Isa. At least I’ll get what I put in.

Here are my calculations:
Joining pension scheme
Salary: £12500 - pension contribution 6.5% = £812.50 + tax relief at 20% = £162.50 = £970 + employers contribution 6.5% = £1782.50 x 3 years = £5347.50 - 25% lump sum £1336.87 = £4010.62 for pension. Can anyone tell me what a pension would be on this amount? Can’t imagine it would be very much!

Don’t join and save £812.50 per annum x 3 years = £2,437.50. I do understand that I won’t get tax relief but as the pension is bound to be very low I think I would prefer a higher cash amount at the end of the period.

I know I’m probably missing something really significant from what you’ve all said and that you’ll probably come back and say my calculations are pants, but if you could advise me it would be great (especially if it is in simple terms that I can understand!).

Thanks again everyone
Kindest Regards
Ana

Lokolo

gadgetmind wrote: »

A joke? Anyway, no, lots of choice even with basic pensions.

Ha yes it was a joke. fairleads was saying it wasn't worth having a pension because equities shouldn't be over such a short period, which isn't exactly a good point given S&S and Pensions are both just tax wrappers and can take a number of different investments other than equities.

Lokolo

anabana wrote: »

Not sure I've understood much of what's been said, but from what I can gather, if I contribute to the pension scheme, when I come to retire I will be able to claim a 25% lump sum and the other 75% will be the pension. As the figures are so low, surely I would only get a tiny tiny amount every month? My instinct is to put the money into a cash Isa. At least I’ll get what I put in.

Here are my calculations:
Joining pension scheme
Salary: £12500 - pension contribution 6.5% = £812.50 + tax relief at 20% = £162.50 = £970 + employers contribution 6.5% = £1782.50 x 3 years = £5347.50 - 25% lump sum £1336.87 = £4010.62 for pension. Can anyone tell me what a pension would be on this amount? Can’t imagine it would be very much!

Don’t join and save £812.50 per annum x 3 years = £2,437.50. I do understand that I won’t get tax relief but as the pension is bound to be very low I think I would prefer a higher cash amount at the end of the period.

I know I’m probably missing something really significant from what you’ve all said and that you’ll probably come back and say my calculations are pants, but if you could advise me it would be great (especially if it is in simple terms that I can understand!).

Thanks again everyone
Kindest Regards
Ana

Yes you calculations are about right (I haven't checked in great detail) but a single life Annuity from 65 (normal, no smoking) would bring £277.78 a year approximately.

So your break even point would be 4 years. (Difference between savings and pension after tax free lump sum divided by annuity rate)

But obviously these are estimations, annuity rates could change etc.

fairleads

anabana wrote: »

Not sure I've understood much of what's been said, but from what I can gather, if I contribute to the pension scheme, when I come to retire I will be able to claim a 25% lump sum and the other 75% will be the pension. As the figures are so low, surely I would only get a tiny tiny amount every month? My instinct is to put the money into a cash Isa. At least I’ll get what I put in.

Here are my calculations:
Joining pension scheme
Salary: £12500 - pension contribution 6.5% = £812.50 + tax relief at 20% = £162.50 = £970 + employers contribution 6.5% = £1782.50 x 3 years = £5347.50 - 25% lump sum £1336.87 = £4010.62 for pension. Can anyone tell me what a pension would be on this amount? Can’t imagine it would be very much!

Don’t join and save £812.50 per annum x 3 years = £2,437.50. I do understand that I won’t get tax relief but as the pension is bound to be very low I think I would prefer a higher cash amount at the end of the period.

I know I’m probably missing something really significant from what you’ve all said and that you’ll probably come back and say my calculations are pants, but if you could advise me it would be great (especially if it is in simple terms that I can understand!).

Thanks again everyone
Kindest Regards
Ana

Ana
Gross monthly contribution 67 +67 + taxrelief = 167.5
invested at 3% for three years gives a pension pot of 6,313 (assume no costs)
25% taxfree = 1578 invested at 3% = 3.9 permonth for life
75% annuity = 4735 x 6.4% annuity rate = 25.25 per month for life
Total income from pension contributions 29.15 permonth for life


67 per month invested into cash isa at 3% interest for 3 years = 2527 x 3% = 6.3 per month for life.
Pension greater by 22.7 per month ( however a lower annuity rate could reduce the difference to less than 20)
The Isa route as you say does give you more cash in the bank.

However, on retirement, what would be your total income?
If its below the income support threshold then you could be eligible for income top ups such as pension credit etc. And if you are indeed in line for supplementary benefits then a pension contribution would be a waste of money.

Example
Income support threshold say 8,000 pa
Your retirement income including this new pension say 7303
income support 8000-7303 = 697
Retirement income sans new pension 7000
income support 8000 - 7000 = 1000
Hence contributing to a new pension gives you a net gain of the 25% lump sum of 1578
Whereas sans pension your cash pot will be 2547
In both cases income support will provide the same net income.
So if this applies to your situation and you contribute to a pension one could say you will be subsidising the DWP to the tune of 303 per year.
Its all a bit of a mine field but hope this is of help
But according to your last post it appears you have already seen some light.
Good luck

jem16

anabana wrote: »

Here are my calculations:
Joining pension scheme
Salary: £12500 - pension contribution 6.5% = £812.50 + tax relief at 20% = £162.50 = £970 + employers contribution 6.5% = £1782.50 x 3 years = £5347.50 - 25% lump sum £1336.87 = £4010.62 for pension. Can anyone tell me what a pension would be on this amount? Can’t imagine it would be very much!

Don’t join and save £812.50 per annum x 3 years = £2,437.50. I do understand that I won’t get tax relief but as the pension is bound to be very low I think I would prefer a higher cash amount at the end of the period.

Your figures are a wee bit out.

The 6.5% contribution is normally the gross contribution so that is £812.50 from you and £812.50 from the employer making £1625 each year. Out of that £812.50 you only pay £650. Total after 3 years would be £4875 in the pension. In the savings account you would have £650 x 3 making £1950. So ignoring growth, you would need to decide between a 25% tax free lump sum of £1218.75 plus a small annuity ( probably around £146pa after 20% tax) or a £1950 lump sum. After 5 years your pension payments are worth more than the savings route.

Your total income will be your state pension plus your £6k that you already have. Assuming you qualify for the full basic state pension that would give you at least £11k income and possibly more if you have SERPS/S2P so it seems unlikely that you would qualify for Income Support.

jamesd

The pension over three years is roughly equivalent to getting 36% interest a year on your money. Even if you just left it sitting in cash inside the pension pot.

If you put the money in the pension you would be putting in £1950 over three years. You could take out 25% of the pension pot value, £1218.75, getting back that much of the £1950 leaving you only £731.25 lower in cash in the bank. After five years of £146 annuity you get that remaining £731.25 back and from then on you're into pure profit for the rest of your life.

Did you know that your state pension increases by 10.1% for each year that you delay taking it? If you're still working it's worth considering delaying for three to five years if you're in good health and don't need the money. That's the range of years where a person in good health can expect to make a profit on the deal. So delaying until you're 65 and stop work is probably good if your health is OK.

Congratulations on the new job!

anabana

Hi everyone - thanks so much for your advice. I think I'm going to join the pension scheme. I am in good health and will probably keep working so it sounds like I could benefit from doing so. I can't imagine not working truth be told.

Thank you to you all - a more marvellous bunch of people I've to meet.

Kindest, warmest regards forever
Ana

PS James thanks for your congratulations. I am so delighted I can't stop smiling:):):):):):):):):):):):):):)