Best place to figure out pension system!

jellyspots

I'm really confused about pensions,
My husband is 50 this year and we want to sort out our pensions as haven't out anything in for the last couple of years as changed jobs and just forgot really. Morthage free this year so planning on sorting pensions now.

Statement of pension letter says:
Retirement date 2020 which it isn't going to be (more like 65) but this is what it says
Your pension at 55 - £956 a year
In addition, a former protected rights pension at 55 - £2,020

Accumulated managed 3/4 AP units 281.22 £27,579.24
Capital managed 3/4 AP. 353.24. £7,648.70
Total current value £35,227.94

Basically my hubby wants to have 30k a year when he retires yearly so how do we sort this out to make it up

Any ideas would be great.

My pension is rubbish as been self employed a lot and changed jobs so will have to dig out what I have but I know its not much,

quotememiserable

£30k sounds like a tall order. If I get you right, he's got 10 years to save enough for that. You'd need around £500 I would think, so think about putting away £50k per annum.

xylophone

Your husband is currently employed?

His employer provides a pension scheme? If not, this will soon be required. https://www.gov.uk/workplacepensions?gclid=COnbspTm-MMCFaOx2wodRTgA0g
Re state pension https://www.gov.uk/new-state-pension/overview

See an IFA https://www.unbiased.co.uk/find-an-adviser?gclid=CPW25ODl-MMCFdPMtAodvBAAPQ to sort out both your pensions.

princeofpounds

Hi there.

How old are you both?

When exactly do you aim to retire? Do you have any flexibility about this, even in part time work?

When you say target earnings are 30k, is this for you both, and is it including or excluding state pension? Is that the figure you want, or the figure you think you need?

What is your husband's income and how much does he think he can save each year from it?

drumtochty

I have done some very rough numbers.
You say he is 50, he will gets his state pension at 67.

Assume he works until then, the £30k you mention will inflate to £50k per year.

I assume he will get the full flat rate pension and that his existing pensions will increase with inflation or the pots by 4%.

If he gets a full state pension at 67 he has to save £27,500 this year and that has to increase by 5% of the next 17 years.

If you are still together and you both get a full flat rate pension and £30k a year plus inflation will cover both of you then you can reduce this saving figure to £16,000 a year increasing by 5% every year.

I hope you can afford to save this much.

jellyspots

quotememiserable wrote: »

£30k sounds like a tall order. If I get you right, he's got 10 years to save enough for that. You'd need around £500 I would think, so think about putting away £50k per annum.

He's 50 now so he's got 15 yrs to start putting away some money.

We could afford £1000 a month so not sure what this would give us at the end.

jellyspots

princeofpounds wrote: »

Hi there.

How old are you both?

When exactly do you aim to retire? Do you have any flexibility about this, even in part time work?

When you say target earnings are 30k, is this for you both, and is it including or excluding state pension? Is that the figure you want, or the figure you think you need?

Yes we would like to have 30k between us.

What is your husband's income and how much does he think he can save each year from it?

£50k a year and could save £1000 a month as we won't have a mortgage as wanted to get this out if the way first. Hope that was a good idea!

kangoora

I thought you'd have an 'ouch' moment when I first looked at the figures, I had exactly the same 'ouch' about 2 years ago when I was at your husbands age. My saving grace was a much larger deferred pension due at 60 and also much larger pot.

I mentally had you down for around £31k/year needing to be saved but Drumtochty did a good analysis on the numbers. You do have a number of options that can help you along the way.

As a rough rule, plan on drawing 4% of any capital and your pension pot shouldn't go down over time - this is where the £27.5k and £16k figures come from. It's to build up a big enough pot to be able to draw down the surplus to be added to your SP to give you your spending money whilst retaining your capital.

If you 'only' need £16k/year pension savings you should be OK if you can contribute £12k/year and may be able to bring his retirement forward a bit, it all depends on how serious you are going to be about diverting spare cash to savings!

1. Obviously adding in your SP brings the number to be saved down to much more manageable proportions. Hopefully you will qualify, you need to get a State Pension statement for each of you to confirm this.

2. £16k a year to be saved will include tax relief and can also include employer contributions. If he puts £1k/month (£12k/year) into a pension then that will be grossed up for tax relief to £15k/year - almost there if the lower sum!

3. If he is a higher rate tax-payer he can also claim back another 20% on some or all of that (depending how far he is into the HRT band) by ringing HMRC and notifying them of your payments (he may need to provide proof).

4. If he can get employer pension contributions to match some of his pension savings that will also help - even if only a 1:1 ratio up to 5% for example. If not in a scheme now, then auto-enrolment will climb to 4%/4% in a few years which will be a welcome 4% boost (see the post from Xylophone).

5. You may have the option of down-sizing your home later, any gains made from the sale of your main home are tax free - work on 4% of any 'profit' you make to be added to your income.

6. A more drastic option, relocate to a cheaper area of the country to realise more cash from down-sizing.

7. You don't mention if you want to leave any inheritance, if you are happy not to leave anything you could have a smaller pot but this is a bit risky as no-one can predict when they will die - well, usually anyway.

8. There's also the final option of equity release when the time comes of your property value.

9. Do a thorough cleanse of all bills, be ruthless on spending and keep a diary to identify what is just 'wasted' spending, cutting out posh coffees, moving to a water meter, cheaper utilities incl. phone, double-check all insurances. Maximise high interest current accounts. We think that by doing all this we realised almost £800/year extra by doing the lot.

It's time to do some serious saving

We've personally taken all the money we were paying on mortgage, endowment and cleared debts and are applying it to retirement savings. Same disposable income per month (bit less actually as we are very serious about ramping up our savings) but instead of paying off debts it is now all being saved towards early retirement.

Hope this helps a bit

atush

jellyspots wrote: »

£50k a year and could save £1000 a month as we won't have a mortgage as wanted to get this out if the way first. Hope that was a good idea!

So sorry to deliver bad news, but this wasn't probably the best idea esp int he last 5 years with ow rates. As you could have used the compounded interest returns on the pension to help cover your shortfall.

http://monevator.com/compound-interest/

In the meantime, I'd revisit your budget and trim all fat. And up that 1K per month.

You can stretch your pension budget if you or he worked PT between retiring and getting your state pension.

Triumph13

On a slightly less doom and gloom note and expressing all numbers in today's prices...
Assuming:
1. The £30k is a combined income for the pair of you;
2. You both keep working (or paying voluntary or self employed stamp) so each end up with a state pension of about £7.5k each
3 You get 20% tax relief on the £1k a month to bring it up to £15k a year
4. 3% above inflation investment growth and a 4% drawdown rate


Then at 67 you'd have a pot of £390k from which you could expect to draw £15k pa. Add the £15k of state pensions and £3k of pension per his statement gives you £33k. That should give you your £30k pa after tax.


In reality you'd hope for a little more tax relief as hubby should have some HRT band to exploit. Make sure though that you contribute at least the £3,600 pa minimum that you are allowed to even if not earning in your name as you need to make sure you use up your personal allowance in retirement. Order of priority should be his 40% band then your 20% band then his 20% band.


You should also have some employer contributions to factor in - if he isn't enrolled in his firm's pension he needs to do so asap.


It's a shame you didn't focus more on pensions and less on the mortgage in the last few years to at least use up his 40% band, but the bottom line is that no, you haven't left it too late and that £1k per month, increased with inflation each year, should get you to where you need to be.

jamesd

For a person who is 50 with a state pension age of 67 use a regular savings calculator and put in 1250 as the monthly payment to allow for basic rate tax relief on £1000 net, 17 as the number of years and 4.5 as the interest rate, the after inflation long term UK market growth minus about 0.5% for charges. Assuming you also increase the payments with inflation this could produce a pot worth £381,973.

There is a rule of thumb that you can take 4% of a pot as income, increasing each year with inflation, and not have a too high chance of having to greatly reduce income later. The pot size here could produce an income of around £15,278.

A state pension for this sort of age would pay around £8,000, available for each person if each has a good NI contribution record or buys years to get one. This would take him to £23,278 and you to £8,000. Plus the value of existing pensions.

The existing pension projections are pretty much completely useless except for the state pension ones. They use rigged low investment growth and assume you're so insane that you'd buy an inflation-linked annuity instead of getting twice as much income by deferring the state pension instead, or using drawdown for income. Great tool to try to discourage people from using pensions or to try to scare them into paying in too much to increase pension firm profits but that's about all.

Instead, taking the current pot value of £35,227.94 and increasing that by the long term growth minus 0.5% - the same 4.5% as before - gets to a value in today's money of £74,449. The 4% rule of thumb says that could produce an income of £2,977 a year. That'd take him to £26,255 income. This is a shortfall of £3.744 on his £30k target. To get there would take increasing the gross pension contribution by 2977 / 15278 * 1250 = £243 per month gross, say 250 to get to a round £1500 gross per month.

He should change the retirement date given in the current scheme. It is common for schemes to shift people to low growth investments five years before the specified retirement date and some do it even as much as fifteen years in advance. So they may already be shifting him into low growth options if lifestyling is turned on. he should also look at the investments he's using. If he hasn't changed things he'd probably be in a balanced managed fund with growth around 1% lower than the rate I've used here. A switch to a global tracker would get to the level I've used.

As atush suggested, you two have seriously harmed your financial futures by using low interest mortgage cutting instead of substantially higher growth investing, losing you lots of compounded investment growth. Really short-sighted move.