Pensions and Learning Difficulties

Alice_Holt

LocoLoco wrote: »

I won't be putting substantial amounts in, unfortunately, so yes, it looks like it might be better for me to stop paying in to it now.

Ideally any advice should look at the total financial circumstances. My comments looked just at your pension question.
A more holistic opinion would take into account the trust you have arranged for your son with the help of Mencap.

I'm assuming your son would be in receipt of ESA (or an equivalent benefit) for most of his adult life. He would then build up NI credits and would be eligible for the state pension of c.£8.5k.
(I'm basing this on current pension legislation, and not speculating about what may change in the future. Any numbers are expressed in today's money).
A fall back situation would be Pension Credit - which is the basic amount the government says a retired person needs to live on. Pension Credit will then top up income to that minimum (which is c.£8.4k).
If he continues to receive a disability benefit such as PIP (the DL element) your son would receive a disability premium on his PC. This would give a PC figure of c.£11.7k.
https://www.disabilityrightsuk.org/pension-credit-additional-amount-severe-disability

That's why I think a small pension pot might not be worthwhile. Any private pension would only serve to reduce the amount of PC top up to that minimum income of £11.7k.

Currently his income in retirement might look like:
State Pension (NI Credits)...................£8.5k
Income from Private Pension...............£0.2k (Note a)
PC top up to £11.7k...............................£3.0k

Note a: Based on a withdraw rate of 4% on a final pension value of £5k.

PC would also give any entitlement to Housing Benefit and CT support (perhaps £100pw so another £5k or so).

A substantial DC pension pot would be needed to generate the increase from the state pension to get to an equivalent £17k annual income. Around £220k (again assuming 4% per year withdraw rate); which means having about £40 to 50k in his pension fund today (assuming real growth rates of 3-5% and no further contributions).

To have a pension that would give him worthwhile retirement income in excess of the (current) minimum state provisions would require a substantial sum that would grow to, say, £400k by his retirement age. £400k would give around a £16k annual income to add to the £8.5k state pension.

That sort of sum is only likely to be possible for someone working 40 plus years and receiving an employer pension contribution, making contributions themselves, and getting the tax uplift on contributions (assuming healthy growth rates in excess of inflation, and the impact of compounding returns).
https://www.investopedia.com/terms/c/compoundreturn.asp

The very large caveat is, of course, I'm working from the current pension and benefit provisions and assumptions.

LocoLoco

Alice_Holt wrote: »

Ideally any advice should look at the total financial circumstances. My comments looked just at your pension question.
A more holistic opinion would take into account the trust you have arranged for your son with the help of Mencap.

I'm assuming your son would be in receipt of ESA (or an equivalent benefit) for most of his adult life. He would then build up NI credits and would be eligible for the state pension of c.£8.5k.
(I'm basing this on current pension legislation, and not speculating about what may change in the future. Any numbers are expressed in today's money).
A fall back situation would be Pension Credit - which is the basic amount the government says a retired person needs to live on. Pension Credit will then top up income to that minimum (which is c.£8.4k).
If he continues to receive a disability benefit such as PIP (the DL element) your son would receive a disability premium on his PC. This would give a PC figure of c.£11.7k.
https://www.disabilityrightsuk.org/pension-credit-additional-amount-severe-disability

That's why I think a small pension pot might not be worthwhile. Any private pension would only serve to reduce the amount of PC top up to that minimum income of £11.7k.

Currently his income in retirement might look like:
State Pension (NI Credits)...................£8.5k
Income from Private Pension...............£0.2k (Note a)
PC top up to £11.7k...............................£3.0k

Note a: Based on a withdraw rate of 4% on a final pension value of £5k.

PC would also give any entitlement to Housing Benefit and CT support (perhaps £100pw so another £5k or so).

A substantial DC pension pot would be needed to generate the increase from the state pension to get to an equivalent £17k annual income. Around £220k (again assuming 4% per year withdraw rate); which means having about £40 to 50k in his pension fund today (assuming real growth rates of 3-5% and no further contributions).

To have a pension that would give him worthwhile retirement income in excess of the (current) minimum state provisions would require a substantial sum that would grow to, say, £400k by his retirement age. £400k would give around a £16k annual income to add to the £8.5k state pension.

That sort of sum is only likely to be possible for someone working 40 plus years and receiving an employer pension contribution, making contributions themselves, and getting the tax uplift on contributions (assuming healthy growth rates in excess of inflation, and the impact of compounding returns).
https://www.investopedia.com/terms/c/compoundreturn.asp

The very large caveat is, of course, I'm working from the current pension and benefit provisions and assumptions.

Thank you again for this, Alice, so helpful, I really do appreciate you taking the time to go through all of that for me Yes, it's difficult to work out what to do now when none of us knows how things will be for people who aren't working in the future, I think educated guesses are really the best any of us do. It's highly unlikely that he'll be able to work in any meaningful way (and by that I mean earning a good wage on a regular basis). The only vague possibility is if he becomes one of those people you read about every now and again that comes up with a computer game or some sort of design that makes them a fortune - similar to a lottery win in terms of likelihood, I think! Thanks for all the info, I've bookmarked it so I can sit down and start getting my head around things better (pensions are a real closed book for me, I've never done more than tick a box on a form at work to agree to an amount being paid in).


Thanks again for your help