Basic pension info required

startingfromscratch_2

Hello Everybody,I'm looking into a pension and would like some info. I have tried reading up on pensions but it's getting me confused as I have no previous experience on them. I was hoping someone could answer the following questions as simply as possible to help me start to get my head around them and kind of give me some basic knowledge of how pensions work. 1. If I make no attempt to save for a pension do the government have to provide me with a pension when I retire? If not, how would I be expected to live? (I'm not for one moment suggesting I will make no attempt I just want to know what would happen if I didn't).2. I've read about S2P on a few posts on this board. What exactly is this please? Is it a 2nd pension I can get to give me more money when I retire? Is it another government pension?3. If I save for a pension I can take 1/4 of the total cash amount tax free, is this right? With regards to the remaining 3/4 I would HAVE to invest this in an income for life is this correct? How exactly is this worked out? Say I have £100,000 (to make the maths easy) after I've taken my 25%. I buy a 'pension' for life with the £100,000 - how do they work out how long I'll live? What if I invest the £100,000 at 65 and I die when I'm 67. That means I've only had 2 years worth of income from it. Is the rest of the £100,000 gone? What about my remaining family?4. I've read about opting-out. What exactly would I be opting out of? The basic state pension? The S2P pension? If I do 'opt-out' how exactly would that benefit me? Does it mean I can choose where I invest my money for a pension? What if the fund I choose collapses? Would I have no pension when I retire?Sorry if these 4 questions seem so simple but I have tried googling for information but the pages I'm directed to just confuse me even more. If anyone could answer these questions as simply as possible that would be great.Thankyou very much.

startingfromscratch_2

Why is my post all squashed together? I put spaces into my original post but once I submit it all the spaces are gone and it's one huge paragraph?

CLAPTON

startingfromscratch wrote: »

Why is my post all squashed together? I put spaces into my original post but once I submit it all the spaces are gone and it's one huge paragraph?

you can go back and edit it... just press the edit button

startingfromscratch_2

I tried that but it didn't work. I clicked edit, put the spaces into my post and clicked save changes. When I looked at the saved changes no spaces were saved??

CLAPTON

the state provides a basic state pension which requires 30 years NI contributions (or equivalent)

the state provides for a second state pension also
however you can opt out of the second pension in two main ways
- if you have a occupational pension (i.e. one connected with your work) then these are sometimes opted out... you pay a little less NI i.e. at 9.4% rather than 11%
-or you can opt out and have the money invested in a private scheme.. but don't do that until you fully understand what you are doing.


If you make no provision for yourself, the state currently has pension credits scheme so you would be guarenteed at least 135 per week

What happens at retirement with a private schemse is complicated because you have a lot of options

but yes if you have 100,000 fund then you could take 25% cash leaving a fund of 75,000
this could be invested in an annunity which guarentees an income for life... is a gamble , if you die in a few years you dont get much but if you live to be 100 you get a great return
there are options like drawdown but you're best to read up about these.

In any event if you're young then the options will probably have changed by the time you retire

CLAPTON

startingfromscratch wrote: »

I tried that but it didn't work. I clicked edit, put the spaces into my post and clicked save changes. When I looked at the saved changes no spaces were saved??

use new line key (enter) rather than spaces

startingfromscratch_2

Thanks for the info Clapton. I did press Enter but for some reason it won't save spaces in my posts."If you make no provision for yourself, the state currently has pension credits scheme so you would be guarenteed at least 135 per week"If the state has a guaranteed minimum I will receive, why don't they just provide a higher basic state pension if I'm guaranteed to get more from pension credits? I'm probably missing something here??

startingfromscratch_2

Also, if the state says I should have a minimum to live on, why should I bother to saving for a pension? Surely the less I have the more the government gives me?

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(please note, I'm not saying this is shat I would do)

dunstonh

I've pulled a few points but not answered all as the formatting of the post is difficult to read.

What if I invest the £100,000 at 65 and I die when I'm 67. That means I've only had 2 years worth of income from it. Is the rest of the £100,000 gone? What about my remaining family?

Depends on whether you have commenced retirement or not. State pension age is going up to 68 in stages. (2024 -66, 2034 - 67 and 2044 - 68). If you are in your 20s then you may not be retired at 67/68.

Anyway, if you commence your pension you have a range of options. Each will have pros and cons. You can do income drawdown which can be passed to spouse to continue on your death or that can be liquidated with a tax liability. Or you can buy an annuity. That annuity can be on single life or joint life basis, it can have a minimum guarantee period that continues for 5 or 10 years. You can include capital buy back. So, if the fund was £100k and its only paid out £30k before you die then the the remaining £70k can be paid out with a tax charge.

What if the fund I choose collapses?

Single fund investing is bad investing. However, even then the fund itself invests in anything from 15 to hundreds of different companies or investments. So, to lose the lot would require every investing in your portfolio to fail. Its not going to happen unless you see nuclear war and then it wont matter anyway what your pension is invested in.

1. If I make no attempt to save for a pension do the government have to provide me with a pension when I retire? If not, how would I be expected to live?

Currently, the Govt will pay you as mentioned higher up but its is a breadline payment. Its £7000 a year for a single person. So, you would basically be living out your later life in near poverty. The Govt is not there to pay anything other than the basic needs. That is your responsibility. Also the pension credits (what this benefit is) currently starts at 60 but is being increased in age to match state retirement age and will follow the increases to 68.

startingfromscratch_2

Thanks for answering.Sorry for the format of the post. There's something wrong with my account and I don't know what to do. When I typed my original post I looked fine as I pressed enter after each question and had spaces in there. When I clicked submit all of my spaces were removed for some reason and it's just one huge paragraoh now. I don't know how to sort it out.