Starting a pension later in life

sharronej

Hi,

So I think I have left it too late really for a pension (47), I have had a forecast done by a company called Aegon which if I pay in (index linked) £5120 per year is showing a low return of £2240 medium o f £4480 and high of £8560 but they charge £87.50 pcm to manage the account which will take at least 15k out of my pension pot. I'm not a risk taker but I clearly will have to take some risk here in order to be able to buy more than a pint of milk with my pension! Can anyone recommend a different company to contact as the fees do seem quite high .....or is this normal?

Thank you, any advice greatly welcome and appreciated as it's all double dutch to me at the moment.

TheTracker

Imagine paying £5,120/12=£467 into a pension each month until you are 67.

Should your investments return 2, 4, or 6% above inflation for that period (choose your level of optimism, but these are such estimates) you'd end up with 126k, 158k, 200k at age 67, before adjusting for inflation.

Most people advocate taking between 2 and 4% pa in drawdown after retirement. 2% of 126k is about £2.5k, 3% of 158k is about £4.5k, and 4% of 200k is about £8k. Look, its the same as Aegon experts forecast! Magic.

By the way, that £87.50/month isn't just £15k, its the lack of any growth of it, at 3% growth its more like £30k, so you can see that such fees are taking between and 1/7 and 1/4 of your pension by the time you take it. Ouch. That shouldn't be a surprise: They're asking you to pay £1k per year to manage contributions of £5k per year. Wowza.

Seriously, its never too late to contribute. Just make sure you contribute to the right things using the right advice.

dunstonh

So I think I have left it too late really for a pension (47)

Not at all.

I have had a forecast done by a company called Aegon which if I pay in (index linked) £5120 per year is showing a low return of £2240 medium o f £4480 and high of £8560 but they charge £87.50 pcm to manage the account which will take at least 15k out of my pension pot.

it is not a forecast. It is a projection. A projection uses a range of assumptions. The assumptions assume pretty much worse case scenarios nowadays. It also assumes annuity purchase using lower than commercially available rates with an index linked annuity (which most do not buy) and usually 100% spouse. Most people are not buying annuities at all now. The figures are also shown in todays terms with inflation at 2.5% assumed.

I'm not a risk taker but I clearly will have to take some risk here in order to be able to buy more than a pint of milk with my pension!

Depends on what you mean by risks. Someone leaving their retirement planning to age 47 is taking risks. In reality, everything has risks. There is no risk free option.

Can anyone recommend a different company to contact as the fees do seem quite high .....or is this normal?

Going direct to a tied insurer is not normally a good idea. You appear to need a bit of hand holding. Not unsurprising considering this if your first time at retirement planning. You need these things explaining to you so you understand them and don't make incorrect assumptions on the information that could lead to making a mistake. Have you considered a local IFA? Whilst you have to pay the IFA for advice, the products they retail are free of commission which brings the pension costs down. So, you may well find that its cheaper to pay an IFA then go to an insurers direct product that is more expensive.

Fees are inevitable. However, the fees are similar to what you pay on a savings account. The only difference is that with investment products, you are told what you are paying and they are taken after the investment return (known as charging explicitly). Whereas with savings accounts the charge is taken before they set the interest rate (known as charging implicitly).

Think about how much your supermarket earns out of you each time you shop. Then multiply that over 20 years and add a rate of growth to that figure. That figure will seem very high when you think of it like that too.

sharronej

Thank you, glad to know it's not altogether too late although as you say nobody would actually wait this long to start putting something towards retirement out of any real choice - it's my situation though so I will just have to suck it up and do the best I can

I can see I was going the wrong way about finding a suitable pension especially as I don't really understand all the financial jargon and the pit falls etc - I have left my contact number for a local IFA so hopefully he will get back to me soon, in general are IFA's fees in the hundreds? Obviously it would be worth it as The Tracker has said the management fees were double my estimate!

Thanks again.

ex-pat_scot

sharronej wrote: »

Thank you, glad to know it's not altogether too late although as you say nobody would actually wait this long to start putting something towards retirement out of any real choice - it's my situation though so I will just have to suck it up and do the best I can

.

To paraphrase:
"the best time to start a pension was 30 years ago.
The second best time to start one is today".


You have 20 productive pension-contributing years ahead of you before hitting State Pension Age. (sorry if that sounds sobering).
That's a long time in which you can build up a decent pot.
Remember that it will hopefully have to last you another 25 odd years in retirement - even with decent investment returns, you will need to be realistic about the amount of money you put away each year for 20 years, in order to then withdraw over 25 years.


A final thought: 47 is REALLY NOT "later life". I'm 47, and I hope I'm only just hitting the halfway mark!

cns06

I left Aegon last year FWIW as their fees were getting stupid. Shop around.

dunstonh

cns06 wrote: »

I left Aegon last year FWIW as their fees were getting stupid. Shop around.

Depends on which version of their product you are talking about and which distribution channel it was bought via.

That said, I believe their DIY product, from the other recent thread, is quite expensive.

maximumgardener

Its good that you are looking at this now. Its not too late to start.
also suggest good to see a couple local IFA's and look at you options further before deciding.
I'd probably be thinking in terms of circa 20- 25% of your nett into a private pension?
don't forget to consider putting something into ISA's each tax year .....it all helps
As already indicated you can probably do much better than your current set up.
A fund supermarket will have lower costs and an IFA will assist you here (for a fee), typically 0.4 to 1%
good luck

ex-pat_scot

maximumgardener wrote: »

I'd probably be thinking in terms of circa 20- 25% of your nett into a private pension?

There is a very broad truism - to contribute, as a percentage, half of your age at the time you start your pension.


Ie if you had started at age 20, then you would try and get 10% of your gross each year into pension.
At 47, this would translate into 23.5% of your gross.


I would take any such generality with a huge pinch of scepticism, but nevertheless gives a broad indication of what might be appropriate.




Obviously some other factors will have a material impact, such as:
- costs (be ruthless at minimising these!)
- salary sacrifice (you benefit from employees' NI, and possibly also from employers; NI if they are feeling benevolent)
- choice of investment vehicle & attitude to risk

sharronej

Thanks,

I'm self employed and prior to that I worked part time whilst raising my family and looking after my terminally ill Mum and unfortunately time passed me by and suddenly I'm 47! I have rethought figures and think I can up my starting payment to £500 (this is generally around the 20 -25% mark). I really don't like risk but think I'll have to take a reasonable amount in order to stand a chance.

I've just spoken to an IFA who said I would pay a one off consultation fee (undisclosed although I did ask) and then a 0.5% fee which he said would be around £30 per annum (to begin with I guess) - I'm wondering if I can pay this fee separately rather than it come out of my pension pot?

I really appreciate the help - thank you.

AnotherJoe

sharronej wrote: »

Thanks,

I'm self employed and prior to that I worked part time whilst raising my family and looking after my terminally ill Mum and unfortunately time passed me by and suddenly I'm 47! I have rethought figures and think I can up my starting payment to £500 (this is generally around the 20 -25% mark). I really don't like risk but think I'll have to take a reasonable amount in order to stand a chance.

I've just spoken to an IFA who said I would pay a one off consultation fee (undisclosed although I did ask) and then a 0.5% fee which he said would be around £30 per annum (to begin with I guess) - I'm wondering if I can pay this fee separately rather than it come out of my pension pot?

I really appreciate the help - thank you.

With an IFA it will have to come directly anyway I'd have thought?
I'm sure someone will correct if not.

Presumably you are thinking you dont want your pension diminished, but actually its best for you if it comes out of your pension.
Your way, the fee is £30. IFA sends you a bill, you send him £30.

OTOH, you put that £30 into your pension instead. That is bumped up to £37.50 by the government. IFA takes his £30, hey presto you have £7.50 left extra in your pension for free.