Pension query

kev2009

Hi,

I have a long way to go to retirement so my pension compnay predictions are not really anything I can take as that's what I will get as soo much could happen in the next 20+ years but I was wondering based on current predication (even though as said probably inaccurate) if these were a option:-

So Pension predication for retiring at 65 says i'd have a pot of approx £440k with a pension income of £8k from a annuity (these figures are rounded for ease). It also says i would have used around 80% of my lifetime pension contributions. This is based on no tax free money taken.

If i increase my pension age to 68 and 3 months I've used 100% of my pension contributions i could make and it says my pot is £503k with a pension income of 16k from annuity, again no tax free money taken. So this got me thinking, if at at 64 and 65 I was to make up the approx 63k shortfall (i.e 3xk one off payments) from my 100% pension contributions, would that mean i would get the 16k annual pension at 65? No guarantees I could but just wanted to see if this was a option as I believe you can pay a max of 40k into a pension per year? and obviously i'm not paying anywhere near that at present.

2nd options:-

Assuming I went to 68 and 3 months and got the £503k pension pot with a prediction of £16k a year + state pension which would give me approx £24k a year income, would it be worth me taking the 25% tax free meaning this reduces my overall income to £20k per year but i'd have i think it said 125k tax free in my bank?

As said i'm a long way but but just wondering what people think? Obviously no one knows if i'd reach these figures as job could change salary could change, contributions could change in future, just wanted to get a rough idea.

Thanks

Kev

LHW99

Over 20+ years, predictions are likely to be about as accurate as a forecast of next summer's weather.
You don't have to buy an annuity (at the moment) with all or even any of the fund, certainly not at SPA. And since those are mysteriously (to me) linked to an unspecified set of calculations annuity rates in 20 odd years time will also be different.
I would say put as much into a pension as you can now, because compounding is always good. Keep an eye on the LTA (which may well increase before you retire) and inflation (which will also have changed).

simonfitba

£440k should be able to sustain a drawdown of £17k if you pick that route rather than an annuity.

Linton

simonfitba wrote: »

£440k should be able to sustain a drawdown of £17k if you pick that route rather than an annuity.

Yes, if invested and managed sensibly.

But the money would need to be invested mainly in equities. At times there will be a large fall in value during which it will very desirable to substantially reduce or stop the drawdown to avoid eating into the investments needed to provide future income. This means that a large cash buffer of perhaps 2-3 years income will be required unless variable expenditure is acceptable. If that level of savings isnt already available it will need to be taken from the lump sum making less available to finance income.

kev2009

Hi,

Thanks all. I'm only going on the future calculator that the pension provider has whereby i can see what i would get if retiring at a different ages, if i paid in more/less etc, i realise that until i'm probably within 10 years of retiring it may not mean too much but just thought worth looking at now to get some kind of idea.

Due to a job change via Tupe, the pension changes were not as favourable and as such the company only made up the shoft for fall the employers contribution by increasing my salary so effectively I am now paying in a higher % than my employer to keep my overall % of pension contributions (employee/employer) the same as it was before.

I can't aford to pay in any more at the moment and at present it seems any real significant pay increase is a long way off as we have had low increases for the last 3 or 4 years now. Fortunately as my pension is a %, my payments are going up each year but not by much.

At present i think i would prefer the annuity as my understanding is once you purchase the annuity, its a fixed income for as long as you then live. I had factored in a 3% increase per year just so that when the prices of everything goes up, i feel like my income is also going up a little to compensate rather than being 16k at 65 and then at 85 still being 16k. I've never been a risk taker with money, i've never had money i could just spend for the sake of it so the thought of putting it on the stock market and loosing it has never appealed as it takes a while to re-earn it etc. Perhaps I will think differently when i retire, who knows, will obviously depend on what money I have at that stage of my life but at present i certainly don't have 2-3 years of salary in the bank. However 17k from a draw down maybe ok, would need to compare them like for like etc, my fear would be a stock market crash which takes years to recover from meaning i may not live to see it recover and potentially could then struggle and i don't think i'd want to be looking for a part time job etc to bump up income.

Many thanks1

Kev

Audaxer

kev2009 wrote: »

At present i think i would prefer the annuity as my understanding is once you purchase the annuity, its a fixed income for as long as you then live.

That's true, and annuity rates may be better when you are due to retire. However if you were due to retire now with a £440k pension pot, buying an annuity that only provided income of £8k a year would not be a wise choice. Most people in that position would choose to keep their money invested as even a modest annual withdrawal rate of 3% would provide you with over £13k per year with the potential for income and capital growth if properly invested.

In your case as retirement is a long way off, you have plenty time to learn more about what options you will have in the future.

LHW99

Have you checked your state pension entitlement?
https://www.gov.uk/check-state-pension

kev2009

Hi

@LHW99 - I checked it a few years back, as I was curious as to how many years I had etc, I was basically told i'd missed 3 or 4 years as I was at uni as the contributions are not paid etc but as they said at the time the number of years you need was being reduced from the 40 years i think it was, they basically said it isn't worth me paying those years as I'd likely be in work long enough to qualify for full state pension. If i was to guess, I'd say I've certainly got 20 years of contributions and as i still have over 20 years to go, I suspect i will get the 30 or 35 years to qualify for a full state pension when i'm 68, assuming they do increase it to 68 which i believe they are definitely doing. Hence why i presumed 8k state pension as I believe thats what is. If for any reason I am short closer to the time then I will no doubt pay for the years i'm missing, if I can.

Thanks

Kev