Should I drop my second pension?

Prudent

I am looking for some advice please on whether my second pension is giving me enough value for money to make it worthwhile.

I am currently in a teachers pension scheme and have accurred an annual pension of £6000 plus a lump sum of £18,000. I aim to retire in 14 years time age around 60, but am intending to move to part time working at some point so may work a bit longer. The scheme I am in will be changing, although the changes are still be discussed (Scotish scheme). I do not think my lump sum will increase much, but obviously my pension will, though may be impacted by part time hours in future. It will then be linked to state pension age. I am a addicted saver and intend to fund shortfall before my pension with savings. I have already made suffcient savings.

I have a second pension which is a private pension and although not making spectacular returns it is ticking away ok. I got it through an IFA. I am a basic rate tax payer. I have only had this pension since July 2008 and it presently has a fund of £19,000. I went down the pension route with this portion of my monthly savings to benefit from the tax relief. My concern is not so much with the pension itself, but with annuity rates. Looking at the returns which will come from this fund verus the returns from my savings, the savings look a better option. What are the benefits of continuing? I would save this money anyway and now know that I am good at leaving saving untouched long term.

I presently live on an average of £740 a month plus I would need an annual amount of £3000 for car replacement/ home repairs. So the shortfall between my current provison (with adding state pension) and what I need to live on is already small and will be easily covered without extra pension.

CLAPTON

what exactly are you asking

you can't withdraw the money until you are 55 and then you have various options

are you still making contributions?

jem16

Prudent wrote: »

I do not think my lump sum will increase much, but obviously my pension will, though may be impacted by part time hours in future.

Your lump sum is an automatic 3 times your pension so it will increase in the same way as your pension.

I have a second pension which is a private pension and although not making spectacular returns it is ticking away ok. I got it through an IFA. I am a basic rate tax payer. I have only had this pension since July 2008 and it presently has a fund of £19,000. I went down the pension route with this portion of my monthly savings to benefit from the tax relief.

Apart from the 25% tax free lump sum that you can take, you won't benefit too much from the tax relief as you will be paying 20% tax in retirement.

Perhaps a S&S ISA would have been more useful?

My concern is not so much with the pension itself, but with annuity rates. Looking at the returns which will come from this fund verus the returns from my savings, the savings look a better option. What are the benefits of continuing? I would save this money anyway and now know that I am good at leaving saving untouched long term.

You don't have to buy an annuity. You could use income drawdown instead.

Long term, investments are usually better than cash savings. However it will depend on the fund you are using and the risk you are prepared to take.

Prudent

CLAPTON wrote: »

what exactly are you asking

you can't withdraw the money until you are 55 and then you have various options

are you still making contributions?

Thanks for your reply. I am still making contributions. I am sorry about the lack of clarity.

I guess I am really questioning whether this extra pension is worthwhile. If at the end I accrue £100,000 and buy an annuity the returns are quite poor. Would I be better using another savings method and then making my own decision about how to use the £100,000 over my retirement?

Prudent

jem16 wrote: »

Your lump sum is an automatic 3 times your pension so it will increase in the same way as your pension.





You don't have to buy an annuity. You could use income drawdown instead.

Long term, investments are usually better than cash savings. However it will depend on the fund you are using and the risk you are prepared to take.

I don't know much about income drawdown. I had only considered the annuity route which is not looking attractive.

I am not expecting my lump sum to increase in line with future pension payments because it is looking possible that a lump sum may not be part of the new changes to the pension. If we follow the English teacher's scheme, I think that my lump sum may not increase from the amount accured by 2015?

jem16

Prudent wrote: »

I am not expecting my lump sum to increase in line with future pension payments because it is looking possible that a lump sum may not be part of the new changes to the pension. If we follow the English teacher's scheme, I think that my lump sum may not increase from the amount accured by 2015?

Your automatic lump sum will, as you say, finish with the changeover to the career average scheme. The new scheme will still have access to a lump sum if you commute some of the pension. If the accrual rate is 1/60ths (or better) commuting some of your pension to give a lump sum will work out as the same as your current 1/80ths scheme plus automatic lump sum.

Would I be better using another savings method and then making my own decision about how to use the £100,000 over my retirement?

A S&S ISA will give you that flexibility and should give a better return over savings as you seem to be talking around 20 years.

Thrugelmir

jem16 wrote: »

you won't benefit too much from the tax relief as you will be paying 20% tax in retirement.

Retiring at 60. The OP will be able to receive a significant amount tax free before state pension kicks in.

jem16

Thrugelmir wrote: »

Retiring at 60. The OP will be able to receive a significant amount tax free before state pension kicks in.

Yes but my guess is that most of it (if not all of it) will already be taken up with the main scheme.

For example £6k as of end March 11 - March 12 figures haven't come out yet. So another 4 years on current scheme ( assuming full time ) would see another £1710 added - 4/80ths of £34,200. So that's £7710 so far.

10 years in the new scheme on an accrual rate of 1/60ths - 1/57ths is being talked about - so around £570 for each year. 10 years would give £5700 at a rough guide. If taken 6 years early that part could see a reduction of 28% so about £4104pa.

Assuming no commutation of the career average pension that would give a total of £11,814 in today's figures and well over the personal allowance.

Now the OP did mention switching to part time working but also mentioned working longer if that was the case.

From that I can't see the AVC pot not being fully taxed at 20% apart from the lump sum.

Prudent

Thank you so much for some really helpful replies. I do not intend to take a lump sum from the career averaged scheme. I do intend to give up work by 60 if I continue full time. In actual fact the amount of £11,814 is enough for me to live on annually. I am a good budgeter and tend to get competition prizes to cover a lot of the nice extras in life. I have paid off my mortgage and have no other debts.

I am now wondering though about the wisdom of taking my teaching pension so early - that is a lot to lose. I have very good savings which could take me through that period if I were to work until 60.

Prudent

jem I am just wondering what happens to the amount I have so far accurred in my teaching pension. Can I take that portion at 60 and leave the career averaged portion until state retirement age?

jem16

Prudent wrote: »

jem I am just wondering what happens to the amount I have so far accurred in my teaching pension. Can I take that portion at 60 and leave the career averaged portion until state retirement age?

There has been no clear decision on that as yet but it seems unlikely.

I was wondering exactly the same as I will have just one year under the new scheme and will definitely be retiring at age 60. However it seems likely, if we follow what's been proposed for English teachers, that I will have protection as I'm well within my last 10 years.

It's wait and see game I'm afraid. The reduction of 28% is from ( as far as I'm aware) 3%pa to age 65 and then 5%pa from there. What you have got to remember is that you will be getting 6 years of payments from the pension that you wouldn't normally get and overall it's supposed to work out cost neutral. as your pension in payment will be increased each year in line with inflation.