The most fluid pension option?

darkman

Hello all!

At 35 I have not even thought my pension options. But with house prices so inflated and savings so low, I am starting to get concerned!

My situation is this:

1.35yrs old currently saving about 15K a year after tax and expenses.
2.No work pension scheme to date, and patchy state pension payments.
3.Possibility of emigration to America in distant future.
4.I tend to job hop every few years.
5.I do not own property and pay a low rent.

What are the best options for me? I stated "fluid" pension because I may emigrate in the future and I tend to job hop. I'm not sure whether work pensions can be taken abroad easily, and by job hopping things could get too complex?
Are there bonds or schemes I could pay into that aren't affected by current jobs or the country you live in at the time?

Pensions really are a grey area for me. I'm not sure how much I should be paying in either. Any suggestions?

dunstonh

Forget pension. Go with ISA then unit trusts or investment trusts. They have no tie in and can be encashed at market value when you decide to it.

Pension transfers between countries can be messy and leaves you with limited options. Having invesmtents that can be realised into cash would be so much easier.

darkman

Thanks for that. I did suspect emigration could create difficulties. Employer-related pensions seem very tied down. Great for people who have a job for life, not so great for others.

House prices and the thought of emigration make house buying as an investment unfeasible.

If an ISA and/or trusts will pay out comparably to a pension scheme, then those sound the better option for me. At 35 I wonder how much I "should" have by now. I realise having none at all is not ideal! I suppose I may be unable to retire before 68yrs of age.....

dunstonh

If an ISA and/or trusts will pay out comparably to a pension scheme, then those sound the better option for me.

The same funds in a pension or ISA will grow identically. The pension will be higher only due to tax relief but the tie in to a pension can be an inconvenience you dont need.

At 35 I wonder how much I "should" have by now.

£20,000 to £30,000 ish.

djbd1973

Quote:
At 35 I wonder how much I "should" have by now.
£20,000 to £30,000 ish.

That is a really good question you asked there darkman, and the answer by dunstonh is very helpful to me as I am 34, and have had concerns about pension values and where mine should be.

Thanks

darkman

Glad it was helpful, but it's also scary. Putting 25K into a fund now would wipe out my savings for a house deposit completely! :eek:

And from then on, should I put in about 2k annually?

dunstonh

Its a difficult figure to give as it really depends on what you want to be paid in retirement.

If you work on the 5% rule (i.e. 5% of the fund value will be the income) then in todays terms you need £400,000 at retirement to pay £20k a year.

So, if you know what you need at the end, you can get a rough idea of how much it is going to cost you to get you there.

If you were looking at a 30 year term (say age 35 to finish at 65) and had nothing to begin with, then to get £400k using 5% return (allowing a bit for inflation there) then you should be putting aside £488pm (gross if it is pension).

If you were aged 25 and looking at a 40 year term then the same target is £268pm
Aged 20 looking at 45 years would be £203.
Starting at 18 and going to state retirement age of 68 would be £155pm.

So, you can see the benefits of starting early and the pain of starting late.

djbd1973

dunstonh wrote: »

If you were looking at a 30 year term (say age 35 to finish at 65) and had nothing to begin with, then to get £400k using 5% return (allowing a bit for inflation there) then you should be putting aside £488pm (gross if it is pension).

If you were aged 25 and looking at a 40 year term then the same target is £268pm
Aged 20 looking at 45 years would be £203.
Starting at 18 and going to state retirement age of 68 would be £155pm.

So, you can see the benefits of starting early and the pain of starting late.

What is scary, is the amount of money at 18 needed as a rough starting point. I started a pension at 18 but I was an apprentice at the time so started with the minimum, and my wage did not really increase till my training finished at 24 and I changed jobs, when a house followed at 25, then marriage and hopefully soon children. My monthly pension instalments haven't gone up as much as they should have. I suppose choosing a career that pays better than average has a lot to do with it as well especially if you aspire to be able to retire to a certain level of comfort.

EdInvestor

Don't forget the two state pensions.After 2010 you will only need 30 years of NICs to qualify for the full basic: and those with a full employment record and an average salary should be able to double that with S2P.So that's a decent basic inflation-proofed income to look forward to.

You would have to save the equivalent of around 300,000 pounds in a pension to get 10k p.a. income through an annuity.

dunstonh

Don't forget the two state pensions.After 2010 you will only need 30 years of NICs to qualify for the full basic: and those with a full employment record and an average salary should be able to double that with S2P.So that's a decent basic inflation-proofed income to look forward to.

Basic state pension is just £4500 and the second state pension isnt guaranteed and self employed dont qualify for it anyway. Going forward (if you were starting now) the second state pension can only qualify you for £3500 a year if you get maximum. S2P/serps has been reduced 3 times since it was launched so rely on that at your peril.

Basic state pension is almost certainly going to be reliable but S2P is a different matter.

EdInvestor

dunstonh wrote: »

. Going forward (if you were starting now) the second state pension can only qualify you for £3500 a year if you get maximum. Basic state pension is almost certainly going to be reliable but S2P is a different matter.

Of course BSP is scheduled to start rising in line with earnings instead of CPI as of 2012, so that is likely to compensate for the lower level of S2P that higher earners will get.Those on average or lower salaries will get more S2P under the new rules than they get now.