Pension pot target

grayman01

Hi all, I'm new to this site so here goes with my first post.

I'm 40 years old and have an Aviva (risk level 3) pension with a current pot of £42k. I'm sensible enough to know that pensions are not what they were and have lowered my expectations accordingly. I'll receive my state pension at the age of 67 - roughly £8100pa. I'm aiming for a retirement income of £20-22K total, including the state pension, so I am aiming for £12-14k from my Aviva pension.

Just wondered if anyone has any advice on what my target pot would be and how to achieve it? I am presently blessed with a fairly well paid job so I can make quite significant deposits into the scheme in the near future. Also, I would like if possible to semi-retire (possibly making no more pension contributions) at 55.

Any advice/tips would be much appreciated. Thanks in advance.

dunstonh

I'm sensible enough to know that pensions are not what they were and have lowered my expectations accordingly.

Why do you think that?
Money purchase pensions have never been better. The product offers are cheaper, more flexible and offer more investment options than at any time in their history. The retirement options have been significantly improved and options that were previously only really available to the wealthy are now available to all.

Just wondered if anyone has any advice on what my target pot would be and how to achieve it?

About £400,000 in todays terms if you want fund sustainability or around £300,000 if you dont mind chance of fund that may well fall in retirement (But not likely run out).

Also, I would like if possible to semi-retire (possibly making no more pension contributions) at 55.

You are behind on your current planning if you want that. You can still do it if you start making decent contributions.

Linton

Quickly putting together a spreadsheet to give you some idea of the numbers involved:

Assumptions:
Inflation 2%
Gross income required: 55-66: £22000, 67-94:£14000 rising with inflation
Run out of money at 95
Start paying contribution at 40 continue until 55th birthday
Total of all current pensions:£42K

Investment Return 5% (3% real)
Contribution 41-54: £19000/year increasing with inflation
Pension pot at 55:£547K

Investment Return 6% (4% real)
Contribution 41-54: £16000/year increasing with inflation
Pension pot at end of 54:£489K

In real life you wouldnt want to have a plan as tight as this.

Advice for OP: you need to put a lot into your pension
Advice for anyone else: You should have a lot more than £42K in your pension pot by 40.

kidmugsy

grayman01 wrote: »

I am presently blessed with a fairly well paid job

At least aim to contribute enough to a pension to avoid higher rate tax.

After that you need to tell us more.

grayman01

Thanks for the info. Just for clarity even though I mentioned the possibility of no contributions after 55 I would not actually claim the pension until 67. I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average. Also, many of my colleagues of a similar age have got less than me in their pots! According to AVIVA the average 45 year old has only got £53K! I think thats the pension black hole everyone is talking about.

My understanding is that I would need a pot of £350k-£400k to get my target income of £12k pa (in todays money) at the age of 67. Question: If I pay in £1200/month how long will it take me to be more or less assured of hitting this target?

dunstonh

I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average.

You are coming from a position that puts you behind and you have a high target requirement.

According to the FSA the average 45 year old has only got £53K!

Data needs to be read carefully. The FSA, as it was, would not have had access to data on occupational pensions. Plus, it would have no way of matching plans with people with multiple pension schemes. However, it was not FSA that ran the study. It was Aviva (who also dont have access to that data). It was based on plans that they have on their books. Anyone that knows aviva will know that frequently people with Aviva plans have multiple plan versions. Plus, most people have multiple pensions with different providers So, data and assumptions always has flaws or quirks.

However, does it matter what others have. You have an objective. Do you want to meet it or not?

Question: If I pay in £1200/month how long will it take me roughly to hit this target?

Is that £1200 net or gross? What level of investment risk are you taking?

grayman01

It's all done on salary sacrifice so I believe its NET - it's £1200 actually going into the fund every month. Its a level 3 out of 5 risk.

BTW when I talked about the "average", I meant the monthly payment, not the pot.

Cheer's

bmm78

A couple of points to consider:

- The government stated in the Freedom and Choice consultation in 2014 that they intended to link the minimum age at which private pensions can be accessed to 10 years below State Pension age. This has not been legislated for yet, but appears likely to be introduced by 2028.

As always this is subject to change, but it is important to factor in that the age private pensions can (normally) be accessed is likely to rise from 55 in the future.


- Although your state pension age is currently 67, the rise to 68 and possibly beyond is likely to be accelerated in the future. The current cut-off for 67+ is April 1977, so it would only take a slight adjustment to impact on your state pension age.



There are a huge amount of variables to consider, but ultimately the most important factor at this point is having a realistic plan and putting away some proper contributions (which you seem to be doing now). It's best to ignore what other people are doing or what the "average person" has, as the average person of this generation is likely to have a less-than-average retirement in comparison to their expectations.

bmm78

http://www.invidion.co.uk/pencalc/index.php?linker=http://www.invidion.co.uk/css/tools.css

This is a useful calculator for playing around with contributions, investment growth, inflation etc.

Linton

grayman01 wrote: »

Thanks for the info. Just for clarity even though I mentioned the possibility of no contributions after 55 I would not actually claim the pension until 67. I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average. Also, many of my colleagues of a similar age have got less than me in their pots! According to AVIVA the average 45 year old has only got £53K! I think thats the pension black hole everyone is talking about.

My understanding is that I would need a pot of £350k-£400k to get my target income of £12k pa (in todays money) at the age of 67. Question: If I pay in £1200/month how long will it take me to be more or less assured of hitting this target?

The comments on low contributions dont apply to what you are putting in now, rather what you were putting in the the previous 15-20 years.

However contributing £1200/month increasing with inflation and stopping at the end of your 48th year is enough to meet your objectives, assuming 5% investment return and 2% inflation. Your money could increase by about 70% in real terms between 48 and 67 even without any further contributions.

On the same return and inflation assumptions, were you to carry on paying £1200/month, inflation adjusted, until you were 55 you could be able to live entirely off your pension from 60.

wolvoman

grayman01 wrote: »

Thanks for the info. Just for clarity even though I mentioned the possibility of no contributions after 55 I would not actually claim the pension until 67. I've only had this pension for two and a half years and at the moment I'm paying in £1200/month - I can't imagine for a minute that that is below average. Also, many of my colleagues of a similar age have got less than me in their pots! According to AVIVA the average 45 year old has only got £53K! I think thats the pension black hole everyone is talking about.

My understanding is that I would need a pot of £350k-£400k to get my target income of £12k pa (in todays money) at the age of 67. Question: If I pay in £1200/month how long will it take me to be more or less assured of hitting this target?

If you get a £400k pot you'll withdraw £100k tax free. Using your £12k a year target, this funds you to age 75.
Then you still have £300k in the fund (assuming no further growth). Why would you then convert this to an annual income, when you could just do drawdown?


If you take an annuity at age 75 with £300k in the fund, you'll need to live to beyond 105 to break even. Why would you need a regular income?