Pension Choice

[denislawsbackheel]

What happens to all your contributions if they (pension provider) go bust? Are they protected?

If you are still working 90% is protected.
If retired and drawing it 100% is protected.

 

[RobMCFC]

I’ve had several people over the years telling me to put as much as I can in my pension. However, I always feel that a balance between spending now and sticking money in a pension fund is the best way forward.

I put 3% in and my employer 5.5%. My employer puts this in regardless of what I put in. In fact I put in nothing for many years.

The simple fact is that you‘ll never need as much as when you are paying for your 2 kids growing up.

I could put a bit more in but then I’d have to give up some of our holidays and short breaks ....... and seeing what can happen to people, I’d rather have the memories!

 

[trumpton]

Yes my work scheme is good, think it's nearly double what i put in

was thinking of stopping it for one year to pay off a loan, then rejoining

didn't actually know this was optional

You can opt in and out when you choose.

Personally, I've opted out full stop. Would rather clear my debts down sooner rather than later and make my own provisions. As my dad said, better an interest receiver than an interest payer. No point putting into a retirement pot whilst paying say 20% Apr on a credit card at the same time.

Company auto enrolled me into the Nest pension scheme. I stuck with it for a couple of years before I looked at my retirement projections. Carry on paying up to my retirement, to get my money back I'd have to live to the ripe old to age of 90!

 

[mancityvstoke]

Zen
I always found it a complicated subject and some of my understanding may be off as I retired a few years back.
Maybe and hopefully helpful is the following
The state pension is covered as long as long as enough folk continue to work and fund the lavish lifestyle of us oldies via NI contributions. The lower the overall sum of NI contributions the bigger the pressure on the gvmt finances. It’s why changes have been enforced on statutory retirement ages. Even putting payment commitments off by a year can have a big impact and help gvmts. Conversely the triple lock hammers the gvmt finances which is why the gvmt would love to do away with it. Ideal for the Tories would be a lot more pensioners dying, higher retirement ages to defer state pension payments and people working and paying NI for longer.
With regards public sector final salary type pensions many are 'unfunded' schemes in that there is no central fund, and they are paid for only by taxpayers year by year. Pensions of teachers, firefighters, NHS workers, the police and the armed forces are the best examples.
Of course MPs belong to a gold plated arrangement and
can choose to contribute at 1/40th, 1/50th or 1/60th In a final salary arrangement. It is a contributory pension with the contribution rates set at 11.9%, 7.9% and 5.9% of salary respectively. I think I understand that it’s about the best pension scheme still going. And why not coz they all work so hard for us commoners?
With regards most workers arrangements.
If you are in a defined contribution scheme like most folk your pension pot is safe and belongs to you and is invested in stocks and shares etc by whoever administers it. Of course, as the sales blurb goes the value of your pot can go up or down
If you are in (very luckily) a final salary scheme or have invested into a scheme that is now frozen or you’ve left it behind when working in a previous job it’s quite likely that a decent slug of the overall pot in the fund is invested in Gilts.
The last figure I saw was that overall in the UK Gilts account for some 20% of assets in these funds.
As the unit value of a gilt declines the organisation has to find a way to fill the shortfall to keep the fund topped up to assure that the liabilities can be met - where there’s a shortfall this is often done via a repayment plan.
This is what the reported worry is about. Where will companies find additional funds to top funds up as the value of Gilts falls….when often Boards of directors want to put shareholders dividends ahead of these payments or where the company is basically on its arse and has no spare cash or it wants to invest in technology or infrastructure or whatever to secure its future?
If any of these final company pension funds fail the default is the Pension Protection Fund. This security fund underpins the final salary schemes and takes on the liability and pays out a high percentage of peoples due pensions- some 90% I think.
Hope this helps

Thought this deserved repeating........... thanks to @BeerIsTheBest

 

[GornikDaze]

You can opt in and out when you choose.

Personally, I've opted out full stop. Would rather clear my debts down sooner rather than later and make my own provisions. As my dad said, better an interest receiver than an interest payer. No point putting into a retirement pot whilst paying say 20% Apr on a credit card at the same time.

Company auto enrolled me into the Nest pension scheme. I stuck with it for a couple of years before I looked at my retirement projections. Carry on paying up to my retirement, to get my money back I'd have to live to the ripe old to age of 90!

I think you may have misread that… the regulator insists on annuity income figures being shown at retirement. The reality is that no one buys an annuity these days. You can in theory take all of your pension pot in one lump at retirement - you’d pay a lot of tax though! Even a small pot is a good supplement to state pension even if it runs out in later life

 

[mancityvstoke]

If your pension pot is £400,000

Can you really take £100,000 tax free?

 

[GornikDaze]

If your pension pot is £400,000

Can you really take £100,000 tax free?

Yes 25% is generally the max tax free

 

[denislawsbackheel]

Thought this deserved repeating........... thanks to @BeerIsTheBest

It is outdated though.
Most public sector pensions, if not all, are no longer final salary schemes but career average and it fails to mention that all public sector employees contribute to their pension. Teachers for instance pay between 7.4 and 11.3% of their salary depending on how far up the pay scale they are.

 

[Kompany Car]

If your pension pot is £400,000

Can you really take £100,000 tax free?

Absolutely, if you have the maximum allowable in before you get hit with the 55% super tax which is around £1.07m, assuming that you earn enough to do so, you could have £250k tax free.

It’s sounds a lot but it’s certainly possible if you a £100k plus salary and have invested it well.

I know some senior directors in private firms who are still in the British Rail pension scheme (via TUPE arrangements). They are taking early retirement so they don’t exceed the limit, remembering that final salaries pensions are assessed as 20 times their yearly value.

 

[Tommy_Catons_Perm]

You can opt in and out when you choose.

Personally, I've opted out full stop. Would rather clear my debts down sooner rather than later and make my own provisions. As my dad said, better an interest receiver than an interest payer. No point putting into a retirement pot whilst paying say 20% Apr on a credit card at the same time.

Company auto enrolled me into the Nest pension scheme. I stuck with it for a couple of years before I looked at my retirement projections. Carry on paying up to my retirement, to get my money back I'd have to live to the ripe old to age of 90!

That doesn't make sense. Say typically you pay in 4% and the employer matches it at 4%. You also get tax relief so your 4% becomes 5%. So you actually paid in only 4% of your own money for a return of 9%. You have more than doubled your money. In fact 9/4 = 2.25.....A whopping 225% return. It's very short sighted to miss out on this free money.

And you might live to be 90.

 

[Kompany Car]

That doesn't make sense. Say typically you pay in 4% and the employer matches it at 4%. You also get tax relief so your 4% becomes 5%. So you actually paid in only 4% of your own money for a return of 9%. You have more than doubled your money. In fact 9/4 = 2.25.....A whopping 225% return. It's very short sighted to miss out on this free money.

And you might live to be 90.

If you were born in the early 80s you have about a 20% chance of living to 100.

 

[Bill Walker]

A pension company has made an offer to convert one of my annual pension into a one-off lump sum.
This is only a small pension of £900 paid annually (fixed for life) and the offer is for 10x (tax at 20%).
I am 73 and reasonably fit for my age except for Type 2 Diabetes which is under control.
This pension is not regarded as part of my budget as such and is used just to treat myself.
I am single, no dependents, own my home and do not owe a single penny.
There is no negotiation, a one-time take it or leave it deal.
Take it or leave it?

I had a similar offer two years ago with a small pension.
I took it. Legal and general UK.
I got 17,000 quid. Paid 400 quid UK tax then bought a new Mitsubishi Outlander with it.
Something tangible.
Haven't hardly used the car since covid. It's done 12,000 kilometers in 2.5 years. We now use public transport mostly.
It's still like new and is now worth more than the new price. Due to them having a long waiting time. I'm sure that will change.
I'm happy with my choice, it felt like a sort of free retirement car.

 

[trumpton]

That doesn't make sense. Say typically you pay in 4% and the employer matches it at 4%. You also get tax relief so your 4% becomes 5%. So you actually paid in only 4% of your own money for a return of 9%. You have more than doubled your money. In fact 9/4 = 2.25.....A whopping 225% return. It's very short sighted to miss out on this free money.

And you might live to be 90.

Each to their own.

It's only free money if you live long enough to get back anything more than what you put in.

I'd rather bung the money against the mortgage and clear it down quicker.

 

[denislawsbackheel]

…and live in penury from the age of 66….

 

[Tommy_Catons_Perm]

Each to their own.

It's only free money if you live long enough to get back anything more than what you put in.

I'd rather bung the money against the mortgage and clear it down quicker.

Currently it's free money if you live to the age of 55 and you draw it down instead of buying an annuity. It sounds like you are confusing the value of the annuity with the value of the pension pot...hence why you mentioned the age of 90.

 

[trumpton]

Currently it's free money if you live to the age of 55 and you draw it down instead of buying an annuity. It sounds like you are confusing the value of the annuity with the value of the pension pot...hence why you mentioned the age of 90.

Probably am confused!

It implies I can take a tax free lump sum at retirement of a maximum of 25% of the value of the pot. The remainder is used to buy an annual pension. That lump sum is less than what I have contributed.

Not contributed this financial year and value dropped by 5%. Personal choice to get rid of the debt first and owe nobody anything when I hit 50 in a few years time.

 

[RobMCFC]

It implies I can take a tax free lump sum at retirement of a maximum of 25% of the value of the pot. The remainder is used to buy an annual pension. That lump sum is less than what I have contributed.

You are correct about the 25% tax-free.

However, you can then leave the other 75% invested and "draw-down" what you need each year.
So, for example, you could take out £10K a year and it will all be tax-free (providing you don't have any other income or state pension).

The theory is that you can take what you need to top up your state pension and whilst leaving it invested, it will last a lot longer than handing over all your money and buying an annual pension.

FWIW, I agree with you paying your debts first.

My view is that people have had it drummed into them to save, save, save for your pension without considering that you will need way less money in retirement than you do now (whilst paying a mortgage, paying for family holidays etc.) This is why I prefer the balanced approach of putting a small amount in your pension whilst making sure you do the big things now (whilst you are fit, able and have all your marbles!)

 

[Tommy_Catons_Perm]

Agreed about the balanced approach.

Don't put all your eggs in one basket.

Try to pay off debts but keep at least the bare minimum pension payment going that attracts the free employer payment.

 

[Tommy_Catons_Perm]

Probably am confused!

It implies I can take a tax free lump sum at retirement of a maximum of 25% of the value of the pot. The remainder is used to buy an annual pension. That lump sum is less than what I have contributed.

Not contributed this financial year and value dropped by 5%. Personal choice to get rid of the debt first and owe nobody anything when I hit 50 in a few years time.

You don't have to buy an annuity. You can draw it all down.

Now or the next few years could be a good time to contribute whilst markets are down. Units are cheaper and you will get more for your pound. Compounding is your friend and your older self (55 !!!) might thank you one day.

 

[M18CTID]

You are correct about the 25% tax-free.

However, you can then leave the other 75% invested and "draw-down" what you need each year.
So, for example, you could take out £10K a year and it will all be tax-free (providing you don't have any other income or state pension).

The theory is that you can take what you need to top up your state pension and whilst leaving it invested, it will last a lot longer than handing over all your money and buying an annual pension.

FWIW, I agree with you paying your debts first.

My view is that people have had it drummed into them to save, save, save for your pension without considering that you will need way less money in retirement than you do now (whilst paying a mortgage, paying for family holidays etc.) This is why I prefer the balanced approach of putting a small amount in your pension whilst making sure you do the big things now (whilst you are fit, able and have all your marbles!)

It's a tough balancing act isn't it? I certainly wouldn't advocate putting nothing into a pension but no point in ploughing all your disposable income into one either. As you say, you could end up having a big fuck off pension fund but not be fit or healthy enough to really enjoy it. Plus you can't get it out all at once, unless you fancy giving the taxman a nice pay day ;) Don't get me wrong, pensions are much more accessible these days - about the best thing Osborne ever did - compared to back when you had to buy one of those shitty annuities but the issue will always be there as to whether one will live long enough to truly enjoy whatever pot they've built up.

I've got this dream where I buy a property abroad - preferably the Canaries - and that my pension fund is large enough to at least part-fund the mortgage on it if I can't afford to buy it outright. At the moment that dream is just a pipe dream when looking at what my portfolio is currently worth! I've seen about 40% wiped off the value of my SIPP since January 2021 (bizarrely, most of my funds performed really well during the pandemic) but I suppose it could just as easily bounce back at some point. Now if I'm in a position to work until I'm 65 - 13 years away - and keep paying into my SIPP and NEST workplace pension throughout that period plus try and save some into a Stocks And Shares ISA along the way, I ought to be in a good enough position to buy that property abroad, perhaps even outright. However, do I want to be leaving it that long? Even if I'm still around then, I might not be in a position to truly enjoy it because even if I stay relatively healthy there's no way I'll be as fit at 65 as I am at 52. Ideally, if I'm still around I need to be doing this in the next 5 or 6 years, even it means slapping part of the value on my domestic mortgage. That vision looks a way off reality as things stand but if my NIO shares finally take off then I might be in luck!