Starting company pension at 59 years old

chucknorris

andyb2002 wrote: »

I have been enrolled in the company pension scheme and I am now contributing £155 a month of my salary plus £155 from the company. using one of many pension calculators on the web I get figures which suggest I can get a tax free lump sum of just over £5000 and a monthly pension of £39.

I would need to live around 40 years after retiring to get back just what I put in at that rate. Why on earth would any one in their right mind pay £310 a month to get back a miserly sum of £39 a month. To me it does not make sense. Surely I would be better putting this money into an ISA at least all the money would be mine and when I die any money left over would go to my family unlike the pension scheme.

The gov has forced us all into this so why are they not making the insurance companies improve the returns!!

How do you arrive at this conclusion?

6 years pension at a total (you and employer's) contribution of £310 per month = £22,320 (this is assuming NO growth, very unlikely). £22,320 x 25% = £5,580 tax free lump sum.
That leaves £16,740 to buy an annuity, with RPI inflation say at a rate of 4.2% = monthly pension payment of £58.59.

6 years to retirement, £155 month for your actual contribution (assume tax relief at basic rate and on pension income) = 72 month x £124 (£155 x 80%) = £8,928 less lump sum £5,580 = £3,348 net amount paid in.

£3,348/£46.87 (£58.59 x 80%) per month = 71.4 months = 6 years, when you are aged 71. Where on earth did you get 40 years from?

Depending on your circumstances you might not even pay basic rate tax on some or all of the pension, if that was your only income on top of say £7,000 state pension it would probably be tax free. Which would make the return even better, ditto if you happen to be a higher rate tax payer (although from the figures provided that is unlikely).