my dads private pension

jamesd

Shaunyboy, for those who are pensioners today that's one way to handle it. The more interesting issue is people who are ten or thirty or fifty years away from retiring and whether they should have to pay for their own retirement income or should place that burden on their children.

The policy is to have more of the cost paid by those retiring through contributions during their lifetimes, via the NPSS. That in turn reduces the proportion of their income that the children will need to pay to support the larger number of pensioners. It's effectively the principle behind the basic and additional state pensions, except that the payments really will go to the pensions of those who are paying the money.

Adding costs to the baby boomers who haven't yet retired also helps spread the load fairly well because of the comparatively large size of the baby boom generation. That substantially lowers the cost each individual has to pay to deliver a given level of pension.

Shaunyboy

Andy_L wrote: »

In what way? That they can't afford £35/mth or that it won't produce an income of £10k

Hi Andy L,

Both.

Most 18 year olds I know are at school these days and earn nowt so won't be putting anything in any pension.
The few that do work are on peanuts. The minimum wage for 18 year olds is a mind boggling £4.45 an hour or about £150 a week gross.

If one in a hundred does put away £35 a month when on poverty pay and ends up getting £10,000 per year with it unfortunately it is meaningless if they need to pay their rent of £80 a week and council tax of £20 per week especially when their neighbour didn't put anything away and doesn't have to pay £100 a week for rent and council tax. Its a no-brainer.

The bottom line is it is not worth it.

dunstonh

With the retirement age increasing to 68, they can start when they are 21. They can start in their mid 20s with around £50 net. Or maybe in their 30s at 100 net.

The bottom line is it is not worth it.

Not if you want to live on less than 10k a year in retirement. Unfortunatly, it says more about this country when you have people aspiring to live on benefits rather than look after themselves.

Shaunyboy

Hi dunstonh,

Its not really a case of aspiring to live on benefits its more like looking at the real world and the situation millions of low paid workers are in and acting accordingly. It might not be what the pensions industry wants to hear but it is the reality.

Like I said, my Dad invested in a pension for 35 years....no doubt someone in the pensions industry and government told him it was a good idea etc etc etc however, because he was on a low wage it was NOT worth it. He was literally wasting his money. He was throwing money down the drain.

He is no better off than if he had not paid into the pension.

Indeed there are many arguments to suggest that he would have been better off in many different ways if he hadn't paid these thousands of pounds into the pension.

I have learnt from his example.

If you are on a low wage you are throwing your money away putting it in a pension!

dunstonh

Like I said, my Dad invested in a pension for 35 years....no doubt someone in the pensions industry and government told him it was a good idea etc etc etc however, because he was on a low wage it was NOT worth it. He was literally wasting his money. He was throwing money down the drain.

35 years of saving money wouldnt result in a small amount at the end unless you started with a small amount and never updated it to take into account future inflation and pay rises (a common error that does occur).

It should also be noted that things like the pension credit didnt exist until the 90s.

I have learnt from his example.

If you are on a low wage you are throwing your money away putting it in a pension!

What do you class as a low wage?

Shaunyboy

dunstonh wrote: »

35 years of saving money wouldnt result in a small amount at the end unless you started with a small amount and never updated it to take into account future inflation and pay rises (a common error that does occur).

Well, it did in his case.

Mind you it was a poor company he worked for with a very strong anti-union policy and their pay rarely went up at all so I guess the increases were not as they should have been but if he had put even more in he would have been even worse off at the time.

dunstonh wrote: »

What do you class as a low wage?

That is the million and one dollar question.

Maybe, someone can do some maths and tell us the figure when it is worth putting money in a pension. For some reason, these stats are not that easy to get hold of. I can't think why.

jamesd

Shaunyboy, for someone paying 5 a week (20.60 a month before tax, 3.90 a week after 22% tax) starting at 25, retiring at state pension age of 68 (for those retiring from 2044 onwards) and getting 4% above inflation of 3% the pension fund value would be about 30,000. At today's annuity rates for a 65 year old man that's enough to get a pension of 1770 a year or 41 a week that increases by 3% a year throughout retirement to try to cover inflation.

Those are cautious numbers and the pension would probably do better than that, with 72 a week (growing by 6% over inflation while working) quite likely.

There aren't any perfect numbers for will be better off because we don't know what the investments will do over the next 43 years, what the benefits rates will be like then or how the rest of the system will change. Being cautious, something between 5 and 15 a week will be enough to be better off, giving pension of 123 to 216 a week plus the state pensions.

The 4% of salary from the NPSS will be 6 a week (after tax, not before) for someone on 150 a week, the employer and government adding another 4%. If someone started that at 18 and retired at 68 they would have a pension fund of 99600 (4% over inflation) to 198000 (6% over). That's enough for weekly pension of 113 to 225 at age 68.

Add on the basic and additional state pension amounts to get the total gross income. That takes income to well over 200 a week with almost no tax to pay on it once the raise to 9500+ before paying tax happens.

It's not a no-brainer but the NPSS 6 a week that takes weekly income well over 200 a week, possibly over 300 if the investments do fairly well, looks like a pretty decent deal. If you can afford to live without that 6, of course, but that's doable here renting a room in a shared house for 250-350 a month bills included.

All numbers are in today's money and I used 5909 per 100000 as the annuity rate for a 68 year old male, that being 3/5 of the 70 year old and 2/5 of the 65 year old rate given by sharingpensions.

Shaunyboy

Hi JamesD,

So let me try and work out 2 possible scenarios.

1) Pete earns £150 a week and pays the £6 per week NPSS from the age of 18 to the age of 68. So that is an amazing 50 years of paying into a pension scheme on top of all the usual income tax, NIC and day to day expenses.

He ends up with a nice pension pot of £99600 equating to a juicy £113 a week. On top of this Pete gets the £87.30 basic pension and the £10 a week additional pension. This makes a grand total of £210.30 a week. After rent of £60 a week and council tax of £20 a week this leaves him with £130.30 to live on.

2) Terry earns £150 a week and does not pay the £6 per week into NPSS for 50 years. This money is instead spent on the odd day trip here and there, the odd trip to a museum, art exhibition or supporting his local football team, the odd joint of meat or premium sausages instead of the usual value ones etc etc you get the idea.

Terry ends up with the £87.30 basic pension and the £10 a week additional pension making a total of £97.30.
Terry claims Pension Credit and is rather chuffed to discover that he is entitled to another £21.75 making his income £119.05 as well as having all his rent and council tax being paid for.

Was saving £6 per week for 50 years worth an extra £11.25 a week in retirement? YOU DECIDE.

peterg1965

Shaunyboy, you miss the point. The value in compelling people to pay the NPSS is that the state will NOT have to fork out for pension credit, council tax benefit etc in the future. Face it, with an ageing population, IT IS UNACCEPTABLE and UNAFFORDABLE for the State to continue to provide support for people who have not, or will not, make adequate provision for their retirement.

Shaunyboy

peterg1965 wrote: »

Shaunyboy, you miss the point. The value in compelling people to pay the NPSS is that the state will NOT have to fork out for pension credit, council tax benefit etc in the future. Face it, with an ageing population, IT IS UNACCEPTABLE and UNAFFORDABLE for the State to continue to provide support for people who have not, or will not, make adequate provision for their retirement.

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