Lifestyle From Pension At Minimum Wage After 40 Years Service

55ryan

We were discussing this in the office earlier. Say someone at 20 is on a minimum wage job and their/employer pension contributions were also the minimum. What sort of lifestyle could they expect when they retire if they stayed in the same type of minimum wage job for 40 years?

Many I know either have no idea about their pensions at all, want to cash the lot in as soon as they can or are of the 'i'm not paying into something I can't get for x number of years/it is part of a Government control brigade. 

I personally think it is a ticking timebomb with many who will live way below the breadline. There are far too many working a few hours a week at NMW topped up by the state or who because they are bringing home next to nothing that they would be forced to cash in early simply to pay off the accumulated debts they have.   

Workerdrone

I'll have a stab. I'll keep it paid weekly. So lets assume minimum wage is £9.50, and full time employment of 40 hours a week. £380 a week gross. 8% auto enrolment contribution of which employee 5%, employer 3% so £30.40 per week plus the 20% tax relief £36.48pw.

Let's assume a 3% annual pay rise on the minimum wage and retirement at 68 and because the person is young they pick slightly riskier funds giving 5% return over the lifetime of accumulation. Sticking all that into a compound interest calculator gives a fund of £145.6k at 68.

If they were to draw down from that at 3%, that would be £4.3k a year, plus of course their SP of 9.6k per year £13.9k per year in todays terms.

I don't know what sort of lifestyle that would buy you. Its been a while since I was a 20 year old on that sort of money.

Im sure someone will be along presently to correct any errors in my assumptions/calculations.

JoeCrystal

55ryan said:

We were discussing this in the office earlier. Say someone at 20 is on a minimum wage job and their/employer pension contributions were also the minimum. What sort of lifestyle could they expect when they retire if they stayed in the same type of minimum wage job for 40 years?

The same lifestyle they had when they had their minimum-wage job. In some respect, they will find it easier to do so since they will have their state pension in 68, which will make up most of their expected incomes anyway. I think you really underestimate these people who are on minimum / national living wages and who are capable of making sure every pound last.

Many I know have a good idea about their pension schemes since most of them were auto-enrolled and pleased about it anyway. So please do not tar the employees working on minimum wage as benefit scourgers, which is what your post implies.

Since you know the information, perhaps you can calculate the pension pot of such an employee. It would be more significant than you think with 40 years of auto-enrollment; maybe not as big as it should be, but more significant than you expect.

You must remember that most people in the private sector, especially those on minimum wages, generally do not have access to pension schemes whose employers contribute. Indeed, for many people, auto-enrollment is the first time their employer properly contributes to their pension scheme.

Workerdrone

Addendum. I do however guarantee one thing. The people with the "I'm not paying into it, I want to spend the cash now" attitude, will be the same ones to howl and criticise those who did plan for the future when they hit 68. There'll be an awful lot of jealousy and an awful lot of "He got a lucky break", "Must have been left an inheritance", "Must have trod on people own the way up", internal justification going on among their nodding peer group.

JoeCrystal

Workerdrone said:

I'll have a stab. I'll keep it paid weekly. So lets assume minimum wage is £9.50, and full time employment of 40 hours a week. £380 a week gross. 8% auto enrolment contribution of which employee 5%, employer 3% so £30.40 per week plus the 20% tax relief £36.48pw.

Let's assume a 3% annual pay rise on the minimum wage and retirement at 68 and because the person is young they pick slightly riskier funds giving 5% return over the lifetime of accumulation. Sticking all that into a compound interest calculator gives a fund of £145.6k at 68.

If they were to draw down from that at 3%, that would be £4.3k a year, plus of course their SP of 9.6k per year £13.9k per year in todays terms.

I don't know what sort of lifestyle that would buy you. Its been a while since I was a 20 year old on that sort of money.

Im sure someone will be along presently to correct any errors in my assumptions/calculations.

Nice one! I would say the assumption should be unpaid break so 37.5 hours per week would be a better fit. 👍 I see you already took auto enrollment limit into account.

Workerdrone

Pensions and the importance of starting early should really be taught in school.You can't rely on parents to do so. Some aren't aware and some are openly hostile to the notion of pensions and that rubs off on kids, a bit like intergenerational voting patterns in coal seam towns.

A quick example from closer to home. Excuse the hatchet job but I'm building a picture here.

I have a nephew, he's 15. Unfortunately my brother in law married a lass who is... how can I charitably put it. One of the live laugh love brigade. The kind who thinks Elf on the shelf is a Christmas tradition because it says so on the box and posts things on Facebook like my house may not be clean but there is always love.

She comes from a very dysfunctional family. Both parents morbidly obese and smoked and ate themselves into ill health. She's morbidly obese but in denial. Her mam never worked and her dad was a manual roadworker for the council. She was raised in the sort of environment where logic doesn't win an argument, its the one who screams loudest. She's only just returned to work because her second child is 5. Something to do with child tax credits. They have no savings but eat out all the time. Generally an all round disaster with finances.

So as you can imagine, with limited life experience, she has nothing to offer her son in terms of good advice. She's overbearing so my brother in law cowers and won't either. Not that he himself has a lot of experience in this area.

The thing is she is so overprotective of her son for fear of criticism by proxy it borders on comedy. You just can't have a normal conversation. As an uncle I can't ask him how his GCSE work is going, or his predicted grades as she gives him daggers and he's frightened to answer. She wouldn't discuss his SAT's results as "SAT's are marked differently in our town so can't be compared".

He's a bright lad, never in trouble but he's just coasting. The thing is I know I'll never be able to get him to one side to discuss the importance of starting pensions early. Even if I did, he's been so indoctrinated in poor financial management he would always defer back to what his mam or grandparents say.

It's really rather tragic. Myself and the wife are due to retire in 14 years on what should be a good set of pensions. I dread to think of the flak we will cop for having saved!

thriftytracey

yes, the thrift I inherited from growing up in the 60's and 70's has always been with me and particularly in the present economic climate.  Perhaps the generation growing up now may learn about saving, cutting back and frugality, although it is worse now, at least my single parent could always feed me.  It was blooming cold in the winter though, no central heating, a coal fire in one room, a gas fire in the "front room" which was only switched on occasionally.  One "treat" a week and I always chose a Fry's Chocolate Cream which I ate very slowly.  

Of course, back then consumerism was not the main driver for a healthy economy. As a child there was no financial education but my primary school ran a 50p saving stamp scheme and I think that type of initiative and my mother's frugality taught me a good life lesson.  Also, green shield stamps!

It is sad that you can't talk to your nephew - could you take him out on his own?  

Your sister in law is probably unhappy which makes her defensive.  Obesity must be an awful condition to live with, and her self-esteem must be low, hence splurging on retail therapy for comfort.  

Workerdrone

thriftytracey said:

yes, the thrift I inherited from growing up in the 60's and 70's has always been with me and particularly in the present economic climate.  Perhaps the generation growing up now may learn about saving, cutting back and frugality, although it is worse now, at least my single parent could always feed me.  It was blooming cold in the winter though, no central heating, a coal fire in one room, a gas fire in the "front room" which was only switched on occasionally.  One "treat" a week and I always chose a Fry's Chocolate Cream which I ate very slowly.  

Of course, back then consumerism was not the main driver for a healthy economy. As a child there was no financial education but my primary school ran a 50p saving stamp scheme and I think that type of initiative and my mother's frugality taught me a good life lesson.  Also, green shield stamps!

It is sad that you can't talk to your nephew - could you take him out on his own?  

Your sister in law is probably unhappy which makes her defensive.  Obesity must be an awful condition to live with, and her self-esteem must be low, hence splurging on retail therapy for comfort.  

Oh I get that. There's a lot of intergenerational values going on which have led to the current malaise. She very much displays the anxious avoidant/anxious preoccupied attachment style. It explains the lack of trust, hostility to input fear of criticism etc. The thing is we have a lot of life experience both good and bad to share. Ive tried on a few suggestions, paintball, going to the cinema etc. She has him so clingy due to her push away pull back parenting style you can see he wants to go but feels its not worth the effort for the interrogation he will get when he comes back home. Sadly I think even if he goes to Uni, he will live at home, same for when he eventually gets a job. It seems there's very little chance of getting him to one side to council him :-(

Workerdrone

thriftytracey said:

yes, the thrift I inherited from growing up in the 60's and 70's has always been with me and particularly in the present economic climate.  Perhaps the generation growing up now may learn about saving, cutting back and frugality, although it is worse now, at least my single parent could always feed me.  It was blooming cold in the winter though, no central heating, a coal fire in one room, a gas fire in the "front room" which was only switched on occasionally.  One "treat" a week and I always chose a Fry's Chocolate Cream which I ate very slowly.  

Of course, back then consumerism was not the main driver for a healthy economy. As a child there was no financial education but my primary school ran a 50p saving stamp scheme and I think that type of initiative and my mother's frugality taught me a good life lesson.  Also, green shield stamps!

It is sad that you can't talk to your nephew - could you take him out on his own?  

Your sister in law is probably unhappy which makes her defensive.  Obesity must be an awful condition to live with, and her self-esteem must be low, hence splurging on retail therapy for comfort.  

Oh I remember those saving stamp schemes fondly. And green shield stamps. Less fond on Fry's chocolate, But I am a child of the 70/80's so perhaps there was a little more choice. Consumerism is very seductive but its a shame when it interferes with traditional values. On the very odd occasion both sides of the family come together for say a birthday meal. At one end is her, her sister and, her parents and her kids all glued to iPhones/samsung etc. On the other end of the table is my family, kids and inlaws. No phones anywhere in view all engaging in discussion. 

Albermarle

yes, the thrift I inherited from growing up in the 60's and 70's has always been with me and particularly in the present economic climate

I know plenty of people brought up in the 60's/70's/80's who are anything but sensible with finances. In the past debtors prisons were overflowing.

I think it is less the period you were brought up in (although it will have some effect) and more about family influences and your own basic personality.

german_keeper

It will also be very different if the employer pays contributions on the full wage or just the amount above the LEL.