couple of pension questions

panny300

my 24 year old son has been offered a pension where the employer matches what he puts in.
1] how do you work out how much he would have to put in to get an average pension?

2] if let's say he had a pot of 100,000 and he died a couple a years after he retires,what happens to the pot of money?

Lokolo

1) What is an average pension?? The more he puts in, the more he gets out.

http://www.hl.co.uk/pensions/interactive-calculators/pension-calculator

There is a tool you can play around with here. This is not a guarentee and is based on a number of assumptions (growth rates, inflation etc.)

But the basis is, the more you put in, the more you get out. At 24, I am putting in 20% and will be rising this 1% each year for the next 5 years. But I am putting in a lot, I want to retire early.

2) Depends how he took the pension. When you want to retire you can choose to do different things with your pension money. The standard thing is to buy an annuity, which will pay you an amount each month in return for the pension money. With annuities you can purchase spouse cover (so if you die, some of your pension goes to your partner) etc.

But if you purchase an annuity and die the next day, the money is gone. But, if you purchase an annuity and live for 40 more years, you have done well (for example, if an annuity gives £1k a month on £100k, that means after 8 years and 4 months, any money he gets has been more than the £100k he gave to the annuity provider).

dunstonh

1] how do you work out how much he would have to put in to get an average pension?

A really dirty and unreliable way is to half his age and that should be the contribution. If he wants earlier than state pension or lower risk investments then he would need more.

2] if let's say he had a pot of 100,000 and he died a couple a years after he retires,what happens to the pot of money?

It would be a shame if a 24 year old only ended up with £100k in the pension.

Death after retirement would depend on what options he has selected in respect of death benefits. As his retirement is going to be over 40 years away, i wouldnt be too concerned with the current options as they change over decade (mostly improve each time). However, todays options would allow an income for spouse, return of capital that hasnt been used to supply income, return of fund value, a guarantee period etc.

kidmugsy

panny300 wrote: »

2] if let's say he had a pot of 100,000 and he died a couple a years after he retires,what happens to the pot of money?

i) If he bought a spouse's pension, it trundles on.
ii) If he bought a "guaranteed" pension, then 5 (say) years worth of contributions are paid to his estate.
iii) But if he bought a pension that dies with him, the rest of his money goes to subsidise the pensions of those who outlive him.

That's the mutual insurance aspect of annuities - those who are dead, who no longer need an income, subsidise those who are alive, who do. Some you win, some you lose.

somethingcorporate

kidmugsy wrote: »

iii) But if he bought a pension that dies with him, the rest of his money goes to subsidise the pensions of those who outlive him.

Conversely, if he lives longer than average age, those that die before him and did not collect their full pension would be subsidising him!

jamesd

panny300 wrote: »

my 24 year old son has been offered a pension where the employer matches what he puts in.

With no limit? If so, that's very generous of them and he should try to exploit it to the maximum extent possible. It'll be hard to find a similarly good deal elsewhere.

panny300 wrote: »

2] if let's say he had a pot of 100,000 and he died a couple a years after he retires,what happens to the pot of money?

Before retiring: it goes to whoever he has named with an associated expression of wishes form, which works like a will. It is not part of his estate, though if there is no expression of wishes form it is quite likely that the pension trustees will distribute the money in accordance with a will or the intestacy rules, unless there are things like a spouse or children not provided for.

After retiring: it depends on how he generates retirement income. If he was to use income drawdown it would be inheritable 100% by his spouse into a pension pot of their own or with 55% tax charge to anyone outside a pension pot. Same expression of wishes form use to say where he wants it to go. If he bought an annuity it would depend on the nature of the annuities he chose to buy. A single life one with no guarantee would vanish. With a five year guarantee it would pay out for at least five years from purchase. With spousal benefit it would pay less to him while alive but some ongoing income to a spouse after his death.

panny300

thanks for your replys, so how would someone know if the amount they put in monthly is enough to get a decent pension?
the may put money in for 40yrs and end up with a 40 quid a week pension,i know the normal advice is to put as much as you can afford but what if that amount is a waste of time saving and you may as well as enjoyed spending it for the las 40yrs

dunstonh

thanks for your replys, so how would someone know if the amount they put in monthly is enough to get a decent pension?

Run a set of calculations. If you have an IFA, they can do it for you. If not, there are some online calcs to give you a guide.

the may put money in for 40yrs and end up with a 40 quid a week pension,i know the normal advice is to put as much as you can afford but what if that amount is a waste of time saving and you may as well as enjoyed spending it for the las 40yrs

It is only as good as what you pay in but spending it and living 25-35 years on the breadline because you didnt save for retirement is not a good idea.

Bounderby

OP, what are your own pension expectations? Have you been contributing since 24? What do you hope to achieve on retirement, if you are not there already? Do you have a substantial legacy to leave your son, should he choose not to invest in the pension?

lawriejones1

Lokolo wrote: »

1)

But the basis is, the more you put in, the more you get out. At 24, I am putting in 20% and will be rising this 1% each year for the next 5 years. But I am putting in a lot, I want to retire early.

Seriously? That's pretty scary.

dunstonh

lawriejones1 wrote: »

Seriously? That's pretty scary.

Or perhaps excellent planning for a desired target. Not everyone wants to blow all their money in their 20s-50s. Some people prefer not to blow their money young to allow them to have a better lifestyle later.