Saving for retirement

iwblue

very soon I'll be lucky enough not to have a mortgage and want to save £500 approx per month towards retirement. I won't have any debt, but I haven't any savings so I know I should save initially for that rainy day.

I do have a Final salary pension, and will have approx 26/80 of final pay at 60. I also have a PP with approx £30000 invested.

After the rainy day fund, has been collected , so should I invest the 500, in a new PP. Mine has higher charges then the new ones, but is not worth moving at the moment with charges etc.

Or save via an ISA in shares or split shares and cash. I'm not totally thick, I don;t think, but its a mine field out there. Any suggestions would be gratefully accepted.

Thanks

bowlhead99

You need a rainy day fund in cash.

You also likely have goals for buying things over the next 5-10 years which should also be being saved in cash or very low risk investments. Things like cars and holidays and home improvements should come out of a cash savings fund rather than a rainy day fund, because they aren't exactly unknowns. Save for these things in the highest rate accounts you can (which are unlikely to be ISAs)

Then the longer term stuff can be a mixture of S&S ISAs and pension. Makes sense to have a bit of both, because ISAs can be taken earlier while pensions are locked up. The advantage of pensions is tax relief if you can save 20% or 40% tax now and then later take a lump sum tax free before paying 20% or 0% at age 55+. Whether you get to that 0% rate depends on how big you other pensions are (plus the state pension). So to some, pension is much more valuable than to others who would prefer to pay the income tax now and get more flexible tax free income from S&S ISAs instead.

Once you have a good emergency fund sorted, I would split the £500pm into £150 cash savings, £150 S&S savings, £200 pension. However, I am not you, and have no idea what you earn, how old you are, or any of your personal circumstances that would lead me to favour one route or the other. If the whole £500 is really for retirement and your other ongoing savings goals are being taken care of, then it can just get split between S&S and pension.

You mention your existing personal pension has higher charges than new ones but is not worth moving it. If it has higher charges than new ones it sounds to me like it is worth moving it. Those charges add up over time.

Getting 5% net growth a year instead of 4.5% growth because of lower charges will give you 10% more money in a couple of decades time. Given your £30k will hopefully turn into £80k in 20 years at that rate, these are not inconsiderable sums of money. So, especially if you are starting to contribute new money and are going to take the opportunity to shop around. there is no point having money stuck in an old expensive scheme.

atush

I agree with all above.

Get your emergency savings up and going. And one you have a few K open the PP and save half to each. Or one third to each is you add S&S isas as above. One emergency savings is where it should be, carry on saving the cash part for the known upcoming expenses. Use high paying current accounts and regular savers.

Investigate your current PP as regards charges and fees to switch. See when your 'break even point' would be if you transferred it. 26/80ths is not bad, but investigate if you can buy added years or added pension in your DB scheme?

enthusiasticsaver

It might be worth investigating paying extra into your final salary pension with your employer by way of avcs. Check out difference in charges between that and and your personal pension and also if your employer will add to their contribution if you up your payments. That way you might be able to increase the 26/80 on your company pension. You are very lucky to still have a db pension so I would imagine that would be a good place to put extra contributions.


You could also pay some into a stocks and shares isa which can be taken earlier than your pension especially if you already have a rainy day fund.

iwblue

Firstly thank you for you advice and suggestions, it just gives me a starting point to think about which way to go. I'm 51 this year and earn£30k. I do already buy additional years, which you can't anymore through the company. Though there is added pension. I think I'd like some flexibility and rather not tie everything up with my works pension. I got an IFA to look at my PP a few years ago and his advice at the time was to leave it where it was, as the charges outweighed the benefits. I haven't been paying into it since I moved into the company pension scheme. So maybe if I;m starting to actively invest in a PP maybe it would tip the advice the other way.

I would like to save approx £500 purely for retirement and save for holidays, car etc separately.

iwblue

I forgot to add I'd like to try and retire at 60, hopefully, if not its part time for a few years I think.

kidmugsy

[QUOTE=iwblue;67846028.__I_got_an_IFA_to_look_at_my_PP_a_few_years_ago_and_his_advice_at_the_time_was_to_leave_it_where_it_was,_as_the_charges_outweighed_the_benefits..[/QUOTE]

AJBellYouinvest offer a capped rebate of the exit charges incurred in transferring a pension into their SIPP.
https://www.youinvest.co.uk/landingpage/transferinoffer

They seem to have a decent reputation. I'm tempted, anyhow.

DiggerUK

Being in the comfortable position you are, especially with no debts and a final salary pension, is one I recognise.
You don't make any indication that you have considered gold in your retirement plans.....why.

For us at Digger Mansions it was viewed as a no risk decision; is it something you reject out of hand, or just don't know much about.
..._

princeofpounds

I think you might be better off asking this question on the pensions board.

Because this is primarily a choice of which savings vehicle to use rather than which investments to put in it.

And your target of £500 is rather arbitrary and should be related to your retirement goals instead.

Given your age and status as a taxpayer it is quite possible that saving into a pension is the best initial idea.

Certainly anything outside of your pension should be in ISAs.

Your final salary pension at least means you aren't in a terrible position.

'Tying up' your savings in your work pension is not necessarily a bad thing to do. It's possible that additional contributions, if permitted, are the best investment you could make.

Plus when we talk about diversifying investments, it primarily means holding a variety of investments, not necessarily a variety of accounts that hold investments.

Yes, there is some counterparty risk, but it is vanishingly low given pensions often have segregated funds, pension protection fund backing etc.

atush

For us at Digger Mansions it was viewed as a no risk decision;

Surely it was a risk when the price dropped from it's peak? Aren't you well down on your pot of gold by now lol?

lalman

What money income do you want to have when you retire at 60ish?


We could reverse engineer the figures to see whether your likely to hit your standard of living that you want too....