10% if starting at 20, 15% at 30, etc. - still applicable?

DreamerV

jamesd wrote: »

Overpaying on a mortgage won't make up for missed pension contributions. Investment growth rates are significantly higher on average than mortgage interest rates so if you're willing to invest, making mortgage capital payments is expected to make you worse off.

It's worth considering S&S ISA investing as well as or instead of some pension investing. The advantage here is that this money can be used to fund retirement before pension money can be taken or to top up available income above those allowed from a pension pot. That topping up is good if you retire between the first age you can take pension income, currently 55, and state pension age.

This is definitely worth considering. Considering I want to work max till 60 (to build up 35yrs NICs), and I'll be 65 before being able to draw on £3100 a yr, and 67 or 68 until I can draw state pension if I'm eligible then (I'm thinking by then it will have to be means tested)...S&S seem perhaps the most sensible solution to fill the gaps.

I don't quite know how to go about picking one, but I'm sure 10 weeks free in summer is plenty of time to read up on it and get some good advice.

ozzage

HappyMJ wrote: »

It's not overpaying...it's buying the biggest property that you can stretch to...even overstretching so that you have no spare income

And here's HappyMJ, described in his yearbook as "most likely to enter bankruptcy if he loses his job".

Sure this will work for some, but if you need/want to move, and house prices are down, and you can't remortgage because banks have tightened lending criteria... or if you have financial issues and need to sell...

As if any of THAT would happen hey??

FatherAbraham

DreamerV wrote: »

For you, what if house values stay fairly depressed? Do you make any contingent plans? I've seen a fair few people on these boards saying similar to you. With projected rates down (and I think they are unlikely to even 3.5 let alone 5%), I can see why some are disillusioned with pensions.

But what's the rate of return (on equity-funds, presumably, you haven't said precisely what this refers to) got to do with "pensions"?

A pension is a tax-deferral wrapper around investments. Which asset class you allocate the investment to is, within reason, up to you. If you think that real estate is likely to outperform, you can tell the pension-fund provider to put your contributions into that fund. The same would be true for ISAs.

The pension-ness of the fund has relatively little to do with the return on the assets within it. People who complain that pension saren't worth having because projected pension-fund returns are so low really don't know what they're talking about, believe me.

Warmest regards,
FA

DreamerV

FatherAbraham wrote: »

But what's the rate of return (on equity-funds, presumably, you haven't said precisely what this refers to) got to do with "pensions"?

Ah, I was talking about stories like this http://www.telegraph.co.uk/finance/personalfinance/pensions/9649614/Pension-pots-to-plunge-under-new-rules.html (of which I've read many).

I'm no doubt one of the many who don't know much, but I'm still more clued up than most of my friends (who have no pension savings nor worry about building any - they are all between 25 and 36). I find it scary - seeing as I worry that if I want to do anything with my friends, I'll end up having to fund it! I've never managed to meet friends who like to save, or think about their future (nor do I know where to find such friends in real life!). I've even been told my other half similar - that if I want to do the kind of things in later life that I plan (e.g. travel), I'll need to fund them myself for us both - this whilst my partner spent £2k a year on booze, and £60+ a week on groceries for 1, whilst I spend £15-£20/wk on groceries, and £100/yr on booze).

Neverland

DreamerV wrote: »

Ah, I was talking about stories like this http://www.telegraph.co.uk/finance/personalfinance/pensions/9649614/Pension-pots-to-plunge-under-new-rules.html (of which I've read many).

I'm no doubt one of the many who don't know much, but I'm still more clued up than most of my friends (who have no pension savings nor worry about building any - they are all between 25 and 36). I find it scary - seeing as I worry that if I want to do anything with my friends, I'll end up having to fund it! I've never managed to meet friends who like to save, or think about their future (nor do I know where to find such friends in real life!). I've even been told my other half similar - that if I want to do the kind of things in later life that I plan (e.g. travel), I'll need to fund them myself for us both - this whilst my partner spent £2k a year on booze, and £60+ a week on groceries for 1, whilst I spend £15-£20/wk on groceries, and £100/yr on booze).

I did some sums the other day for myself and I think (roughly changing my maths) you need to make a regular contribution of about £500 a month (including your employers contribution) to get a pension fundworth £0.5m in today's money after 25 years

That would be about three times the average private sector pension fund and should give you an okay standard of living - it might buy you a pension worth maybe as much as £1500 a month before tax on the optimistic side (not at current rates)

You say you (and your company) is putting in 18% now - so assuming you are on the average UK wage of £24k, that would make £360 per month you are putting in too little to tretire at 60 - unless your salary is going to grow a lot forget 60, think 70

What would really help is if your boyfriend/husband (I'm guessing?) was singing off the same hymn sheet as you and he obviously isn't

I would suggest that if you want the life you plan, you need to change that one way or the other

DreamerV

Neverland wrote: »

I did some sums the other day for myself and I think (roughly changing my maths) you need to make a regular contribution of about £500 a month (including your employers contribution) to get a pension fundworth £0.5m in today's money after 25 years

That would be about three times the average private sector pension fund and should give you an okay standard of living - it might buy you a pension worth maybe as much as £1500 a month before tax on the optimistic side (not at current rates)

You say you (and your company) is putting in 18% now - so assuming you are on the average UK wage of £24k, that would make £360 per month you are putting in too little to tretire at 60 - unless your salary is going to grow a lot forget 60, think 70

What would really help is if your boyfriend/husband (I'm guessing?) was singing off the same hymn sheet as you and he obviously isn't

I would suggest that if you want the life you plan, you need to change that one way or the other

I'm looking for a pension of 18.5k to 20k per yr (after tax deductions) to live comfortably (nearly new car every 6-8 years, cheap holiday abroad every year or at least ever 2 out of 3 years).

Salary is £25.5k - total monthly contribution £382.50 (for 28 out of 30 years). Salary in 3 years will be 36k-40k or so. For the next 2 years however, the total contribution is only £255 monthly. On my spreadsheet, with this invested in pension fund growing at 3%, and ignoring inflation (assuming my salary will rise with it anyhow and that it will be around target 2%), I think I'll have around £350k-360k in my pot. And at a guess I may get around £14000 a year income from this (gross). I have another small revenue pension that says it could pay around £3100 a year gross (defined benefit I think). Plus I need to fill around 5 years aged 60-65 -> 100k in savings (also around 2/3 of how much my parents will probably leave me by way of half their outright-owned house split between 2 siblings).

I think I'll come up short, but I think by 4 to 5k a year. Hopefully when on 40k, I'll be able to put in extra to the pension to cover this.

The partner - I had to get out of that. 3 years of being called stupid and being ridiculed, not being allowed to sit down on the sofa as I messed up the cushions the wrong way apparently, etc, etc., and being expected to organise everything, and pay for trips etc. and beg for half the money back - I couldn't take it anymore. Especially on an income of £11k per yr, more than half it student loans (partner on £28k).

Edited to add: if I have a family/children one day, these plans would be out the window, as I'd want to leave them the same as I've been left, and pay them through their education. I'm in awe of how others manage to raise a family and provide for themselves too in later life!

FatherAbraham

DreamerV wrote: »

Ah, I was talking about stories like this http://www.telegraph.co.uk/finance/personalfinance/pensions/9649614/Pension-pots-to-plunge-under-new-rules.html (of which I've read many).

But that story has to do with the predicted growth rate of investments changing, due to the poor state of the world economy. It's got nothing to do with pensions per se.

It's just that the regulator told pension companies to use a higher rate for illustrations in the past, and has now reduced it -- because the outlook for investments is so grim.

Warmest regards,
FA

DreamerV

Oh, I thought pensions invest in funds, and so when the rate is predicted to be much lower, that is a problem. Have I perhaps got this wrong?

E.g. My pension info booklet asks me to choose between 3 funds (which seem to vary in riskiness).

FatherAbraham

DreamerV wrote: »

Oh, I thought pensions invest in funds, and so when the rate is predicted to be much lower, that is a problem. Have I perhaps got this wrong?

E.g. My pension info booklet asks me to choose between 3 funds (which seem to vary in riskiness).

The article you cite mentions pensions in the headline. However, it's talking about all kinds of (equity) investments, and further down, it says:

As well as pensions, the new rules will also cover the expected growth of financial products including ISAs and endowments. From 2014 all statements about existing investments will use the new lower projection rates.

So, it's not particularly investing into a pension per se which is looking worse; it's investing in general.

However, since pension-fund providers send annual statements containing growth illustrations (whereas ISA providers only give illustrations in key features documents issued at the start of investment), holders of pension funds will be made more aware of the change.

The point is that this change is supposed to make people realize that they need to save/invest more for their retirement; not become scared of "pensions" and invest less. Again, from the article:

Experts said that the lower rate will provide a “dose of cold economic reality” to savers and will give them a more accurate idea of the money they can expect to receive on retirement.

Earlier illustration growth rates are now held to have been optimistic. The "problem", as you call it, is not that projected growth rates have dropped -- this is the solution to the problem that the growth rates used previously were ridiculously optimistic.

Illustration rates seem to have been 7%, with 2.5% inflation (so 4.5% "real" return, that is, after allowing for inflation). I've been using a long-term real growth rate of 2.5% to plan my contribs recently, and this has prompted me to look at increasing my contribs.

Warmest regards,
FA

p00hsticks

HappyMJ wrote: »

It's not overpaying...it's buying the biggest property that you can stretch to...even overstretching so that you have no spare income and you get the benefit of a nice house to live in and when your family has been raised and left home and you need to you can then sell the big house and move into something smaller and then have some money to spend as you please. House prices if they stay depressed will be depressed for the whole market but will always almost match wage inflation...

The mail problem I see with this 'eggs in one basket approach' is that you only need something like an announcement that a high speed rail link is to go past the bottom of your garden, or the neighbours from hell move in next door, or you discover that the previous occupant left bodies buried under the patio, or you find the house subsiding etc and you are left with a blighted property that you struggle to sell..