How much to live on

[Deleted User]

blue.peter, nothing wrong with digression at all!

Ibrahim5

The problem is that it's only really interesting at the lower income end. It's amazing how little people will live off. Nobody wants to know that you are retiring at 65 with £1 million pension pot

[Deleted User]

Maybe that’s because the majority of people do not retire with a £1 million pension pot.
Therefore threads like this are useful to reassure the majority of people that a happy and fulfilling retirement can be achieved within more limited means. 

GeordieGeorge

[Deleted User] said:

Maybe that’s because the majority of people do not retire with a £1 million pension pot.
Therefore threads like this are useful to reassure the majority of people that a happy and fulfilling retirement can be achieved within more limited means. 

While you’re right, there are an awful lot of state employees whose defined benefit pension is equivalent to more than a million pounds in a defined contribution scheme.

blue.peter

GeordieGeorge said:

While you’re right, there are an awful lot of state employees whose defined benefit pension is equivalent to more than a million pounds in a defined contribution scheme.

Hmm. It depends what you mean by "an awful lot". I've just done some sums.

The best annuity rate currently available* for a 65-year old man in good health, married to a lady 3 years younger, with LPI and a 50% widow's pension, paid monthly in advance is 41.416:1. A £1,000,000 fund is therefore roughly equivalent to a pension of £24,145 pa (or £18,108 pa + a lump sum of £54,326). For someone with 40 years service, that gives a salary at retirement of £36,217.

How many people overall are in schemes that good, with a retirement salary that high *and* that much service? Even if it's a high proportion of state/local government employees (which I doubt), they don't make up a huge proportion of the population. (ONS says that the public sector is currently about 17%.)

*I obtained quotes from Hargreaves Lansdown for this purpose.

MovingForwards

Not everyone Geordie, the ones who would receive something near that over their retired lifetime will be posting on the pension board. Those who do the lower paid jobs eg the cleaners, bin men, admin, general office workers etc or those who haven't stayed or been with them from leaving school / uni through to retirement won't.

Just done a quick calculation. If I stay in my role until SPA, live for 20 years post retirement, I would receive less than £80k in total including the 25% lump-sum, based on my current banding (if there's another payrise in the future after this year, that's me at the top of my banding, hoping banding points are increased due to inflation). That's not including increases due to inflation over the next however many years, but even so it's still no where near £1m.

Again doing a rough calculation, I would be lucky to earn £1m over my entire working life.

As @[Deleted User] has said, this thread reassures those on lower incomes that they can afford to eat, heat and have an ok retirement.

203846930

I find it quite frightening that some people get more for a single years pension that I earned in 3 full years of work.
I don't begrudge them the money as they have obviously contributed to a pension fund that has worked well and pays out well.

I had a money purchase pension scheme and while I put in as much as I could afford it was never going to be as good at paying out as a defined benefit scheme.

MovingForwards

It does feel like everything is geared up for those earning average + wages, rather than those on NMW - £25k.
Replies tend to be save what you can, which makes people think they've no chance of doing anything and will be relying on beans on toast cooked over one lump of coal when retired.

A simple there's a few providers who do low fees, work out outgoings and remove x, y and z to get your lowest figure, check NI record for SP and see how that looks against what you need, then you know what the difference is to aim for. Would go a long way to making people feel less like there's no hope and potentially see others posting.

I'm grateful this thread is going, as it does cater for those of us on what I would describe as 'normal average' incomes, the 'national average income' is blurred due to the high earners.

blue.peter

duncanthedog said:

...it was never going to be as good at paying out as a defined benefit scheme.

Broadly speaking, DB and DC funds give as good a payout as one another. For a given pension, the underlying fund requirement will be pretty much the same for both DB and DC schemes. Both buy annuities from the same insurers at the same rates. (Yes, I know that DB schemes aren't required to annuitise pensions, but the numbers are still pretty much the same.)

The reason why DB schemes often provide better pensions for members than DC schemes is that the contribution rates are usually a lot higher (and so they have much higher underlying funds). The greater part of those contributions by far is usually borne by the employer, not the employee. They can be eye-watering (25% x salary or more is often paid by employers). This is why employers are closing down DB schemes. I think I'm right in saying that there are no longer any private-sector DB schemes open to new members, and that most that are still open do not allow existing members to accrue further benefits under them.

The issue for you is not the rate of payout, but the amount that was paid into your fund. You almost certainly benefited far less from employer contributions than members of DB schemes do.

Employers will claim that DB schemes have become unaffordable. I'm rather cynical, and suspect that it's more a case of shareholder pressure to cut costs and increase dividends.

[Deleted User]

GeordieGeorge, I believe most public sector pensioners receive DB pensions that are far less than some similar DB pensions in the private sector. Mainly because, historially, private sector salaries have been higher. This allowed higher pensions to be accrued. I accept this is not the case for everyone.

However, I would hate this thread to become yet another discussion about public sector and private sector pensions.

It exists to discuss the retirement numbers and plans of everyone with more typical pension incomes. regardless of which sector in which they were employed or the type of pension they may be receiving.