Pension at 40 ???

Paulie29

Hi

I'm forty years old and have no pension in place.

I'm about to inherit £20k and am wondering weather it is wise to put this into a pension.

Don't know if anybody could give me a idea of what monthly return I would get when I retire if i just put the £20k into pension without adding to it at all.

Also what would I need to pay in per month on top of the £20k to give me a reasonable pension. I currently earn £18k per year so not really expecting to live a flamboyant retirement.

Last question, would I still be entitled to a government pension ? I have worked from the age of sixteen and had a ten year period of being self employed in that time.
I opted out of SERPS when I was eighteen but think I'm back in now if that makes sense.

Hope you can give me some answers, if you require any further info please let me know.

Cheers

Paulie.

Jack_Griffin

Can't tell you anything about the wisdom of where you should invest your inheiritance.

I entered the details you provided into an online pension calculator here http://pluto.moneyadviceservice.org.uk/annuities but I had to make some assumptions which may not apply to you.

According to the assumptions I entered a 20K private pension fund would pay up to £100/month today if not index linked or £62/month if increasing by RPI (inflation). The IFA's on here suggest they should be able to get a better deal by 10% to 15% for their fee (no idea what that might be).

Have a play with your own details, see what comes out, it is dead simple! N.B. This tool isn't perfect, but it is a decent starting point & an independant service not tied to any company.

I think you can assume a well invested pension fund will keep pace with inflation at worst, so £62 today will be a realistic spending power by the time you are ready to take your pension.

SERPS is being killed, it is unlikely any entitlement you have already built up will be worth anything by the time you collect the OAP in 27 years at age 67 (as things stand today).

You can't transfer it anywhere, hard luck you missed the boat!

Basically, provided you get 35 years NI contributions you'll get the basic state pension which will be rated at £144/week (that is this years value, it is indexed with inflation). If you only make 30 years working then it will be 30/35*144 = £123/week. If you've worked from 16 then you should have 24 years already, in fact I think the 3 years from ages 16 to 19 are credited regardless of you being in work at that time.

Finally, 27 years is a long time, a lot could change in that time, so always keep an eye on the situation.

kidmugsy

Have you got access to a pension where your contributions would bring an employer's contributions with them? If you do, trickling in your money so that you benefit from the employer's contributions might be a good idea. If you don't, there's a case for waiting until you do.

Meantime, why not open a Cash ISA and a Stocks and Shares ISA in this tax year and again in next tax year (i.e. on or after 6/4/13)?

atush

I would also use it to pay off any debt

Paulie29

Hi.

We don't have a workplace pension scheme at work and it will be a while till the new government one comes into work as I only work for a small company.

As regards to ISA,S I have used my allowance for this year and previous years. I have been trying to save this money for retirement, but not sure if that's a good idea.
I'm also debt free apart from a small mortgage so would like to start pension although don't have much spare money at the end of the month.

Any further advise is welcomed

Cheers

Marine_life

I would tend to think first about whether or not you have a buffer fund i.e. do you have enough money to see you through if you lose your job?

Remember if you park the money in a pension its gone until retirement.

Paulie29

Yeah I've a little bit of rainy day money saved.
But I'm conscious that if I was to lose my job I would be penalised for having savings in my ISA.
This happened to me when I lost my job last year.

kidmugsy

Paulie29 wrote: »

I currently earn £18k per year

If you want to, you could pay £18k into a pension per annum: any more and you won't get the tax advantages on the extra money. Perhaps it would be wiser to spread the contributions over a few years, giving you time to consider alternatives for at least part of the money. If you decide to make a contribution this tax year (ends on the 5th of April) then, in your shoes, I'd wait for the budget (21st of March), in case the Chancellor announces any changes for next tax year that might sway your decision.

P.S. The £18k contribution would be a "gross" figure - you would write a cheque for £18k x 0.8 = £14.4k, and the pension company would claim the £3.6k (being £18k - £14.4k) back from the tax man. In other words you pay in £14.4k and the fund receives a total of £18k.

mania112

It's hard to tell someone not to put money into a pension - but i'm not sure it suits your circumstances at this time.

Perhaps look to cut back on expenditure to allow some wiggle-room for pension contributions?

You can only put 100% of salary into a pension in any year (so £18k), but if you have an existing scheme in place, even if you've not contributed to it for years, you can put the whole £20k in.

atush

40 yrs old, but no pension (and haven't asked company when your company's will start (soon).


I would, given you have said you have cash ISas full for both you and spouse, say part pension part S&S isa.

unless your current job is wobbly and you might get redundant and caught out by savings rules again as you were recently.

I am in the standing on my own two feet category. But not for you adding extra extra cash savings of you feel you aren't secure in your current employment- pension would be better.

jamesd

Paulie29 wrote: »

I'm forty years old and have no pension in place. I have worked from the age of sixteen and had a ten year period of being self employed in that time. I opted out of SERPS when I was eighteen but think I'm back in now if that makes sense.

You wrote that you opted out of SERPS and that would have to have been into a pension of some sort, either one just for you or a final salary or similar employer scheme. So it's effectively certain that you do have a pension, the only problem is to find it. Two steps you can take to do that:

1. First, phone the HMRC Contracted Out Pensions Helpline. Be ready to take notes. They will be able to tell you which firms were getting your contracted out money for each year that you were contracted out.

2. Provide that information to the Pensions Tracing Service. They will look for updated contact details for all of the pensions involved. Be sure you use that legitimate government site, there are commercial sites using similar names that don't add anything useful to the official service.

Once you have the current contact details you can get in touch with each pension place, tell them your current address and ask them to tell you more about the pension you have with them.

Paulie29 wrote: »

I'm about to inherit £20k and am wondering weather it is wise to put this into a pension.

Investing in a pension or in a stocks and shares ISA is very similar. The pension offers a small advantage in income, at the cost of reduced flexibility. The pension is also protected if you become bankrupt, say if you hurt someone in a car crash and it wasn't covered by insurance, or if some other really bad luck affected you. The pension is also protected from means tests until you're at least 55 years old, possibly older. So perhaps keep some for an emergency fund but for retirement income, the pension choice is a good one.

Paulie29 wrote: »

Last question, would I still be entitled to a government pension ?

Yes, you're still entitled to a government pension. You're likely to get the full flat rate pension plus any pension that you can buy with the money in the pension(s) from when you were contracted out.

Under current rules there are two main parts to the state pensions:
1. The Basic State Pension, currently a maximum of £107.45 a week. You get this maximum if you have been working and paying NI for 30 years by the time you reach state pension age. It's completely unaffected by whether you contracted out of SERPS or its replacement, S2P.
2. The Additional State Pension. The can pay as much as £150 or so on top of the Basic State Pension for someone who's been a high earner for a long time but for you it's more likely to add perhaps £60 or so if you were not contracted out at all. Contracting out prevents you from getting more added to this amount for each year that you were contracted out. Instead, you got a rebate paid into a pension scheme of your own and will be able to take an income from that instead.

You can find out how much you're currently entitled to for each of those parts of the state pensions by asking for a State Pension Statement. It's a good idea to do that now.

The proposed flat rate cut to pensions for employees will affect you. Because of the combination of being self employed and opting out of SERPS/S2P it's quite likely that you will be one of the winners from this change. It could still be modified but here's roughly how it'll affect you under current rules:
1. You'll get some years counting towards the flat rate pension and will have more added until you get to a total of 35 and are entitled to the full flat rate pension. You'll need more total years than someone who didn't contract out but you still have plenty of time to get to 35 and should end up with the maximum.
2. You will also get any pension that you bought privately with the contracted out rebate money.
The flat rate replaces both the Basic State Pension and Additional State Pension.