Help with pension

[RobertT]

You seem very clued up to me!

In practice different people have got different priorities and those priorities can change throughout their lives, as you have found with your change in circumstances. Pensions do seem to take a back seat for most until later in life, which I can understand because of kids, mortgages, etc.
Those that break the mould and think about pensions early, tend to reap the rewards!

You're right to say the value of DB pensions are probably far higher than many people realise and that it would cost a large amount of money to replicate DB benefits with a DC scheme. Although the 5% rate you mention applies more to a level single life annuity, so one that doesn't increase with inflation or offer any death benefits.
If buying an annuity that offers those benefits, the rate would be more in the region of 3%.

The problem with annuities of course is they often die when you do, so if you pass away at a relatively young age, you could lose a big chunk of your money. And most annuity buyers do go for the single life choice!
However the pension flexibilities introduced in 2015 mean that you no longer have to buy an annuity and you can drawdown the cash instead. Which in my opinion is the much better option, although some might still prefer the stability and guaranteed income for life that an annuity provides.

Personally, my income from state pension age should be perfectly adequate, but before then it's not really enough. So I too see my AVC's as a way of supplementing my RM pension until SPA. Although I also have a personal pension to fund early retirement before my RM pension kicks in.

I hope everything works out ok for you.

[NWpostie]

Same here, I see my AVC as a bridge between my RM pension and state pension, if I have enough left over that is a bonus, this way I keep more of my money and maybe have enough to pass on to my family rather than let some commision hungry grubby pension salesmen getting their dirty hands on the family assets.

[posteee]

So an annuity might give you a 3% annual return on all of your money, in exchange for a guaranteed income for life, but at the risk of losing everything should you die instead of the money going to your spouse or kids ?
Sounds like this is a financial product that needs very careful consideration to me. Think I would actually rather be on the opposite end of that particular transaction.
Am I right in believing a good alternative way if possible, is to use a combination of draw down, maybe invest a percentage of the pot in a blue chip basket of dividend paying stocks, perhaps even some in an element of property for rental (if the size of the pot allows), and possibly taking 25% tax free and putting it elsewhere ? And then work out how much your money will last you over perhaps 10, 15 or 20 years, either as a bridge to state retirement age or until old age and setting yourself a budget accordingly ?
Of course none of this is a concern with a Defined Benefit Pension, (or the pension RM employees have had up to March 31st last year), but may be more of an issue for those of us that have many years service left or those with AVC's or private pensions I presume.
I know tax is a concern. Doubt it will matter to me as don't think my pot will be big enough to pay much or any tax if I draw down gradually, even if I manage to keep saving £50 plus a week for 20 years (or £73 a week with the shares, which are giving me and sure plenty of other people a headache but that's a different thread). Doubt I will be able to afford another property to rent out either as part of my pension but it's something I would love to be able to do. It's a shame that as part of the new flexible pension rules, you aren't allowed to move some of your pot into a tangible asset such as property before 55 ? Do you know if there is any way of doing this Robert T ? it would give me more leverage if I could I think.

[yellowbelly]

....
Personally, my income from state pension age should be perfectly adequate, but before then it's not really enough. So I too see my AVC's as a way of supplementing my RM pension until SPA. .......

Another informative post RT - my thoughts are that by the time today's millenials and generation Z's are thinking about retirement plans the SPA
age qualification will be 70+, the SP won't exist or it will be worth a pittance - then it will be too late.....

[RobertT]

So an annuity might give you a 3% annual return on all of your money, in exchange for a guaranteed income for life, but at the risk of losing everything should you die instead of the money going to your spouse or kids ?
Sounds like this is a financial product that needs very careful consideration to me. Think I would actually rather be on the opposite end of that particular transaction.

If you buy a single life annuity, you could lose a lot of money if you die young. There are also joint life versions that pay out to your spouse.
I have no intention of going the annuity route, unless rates increase drastically, and will be drawing down my funds.
This will give you an idea of what you might get when buying an annuity: https://www.hl.co.uk/retirement/annuiti ... -buy-rates" onclick="window.open(this.href);return false;

Am I right in believing a good alternative way if possible, is to use a combination of draw down, maybe invest a percentage of the pot in a blue chip basket of dividend paying stocks, perhaps even some in an element of property for rental (if the size of the pot allows), and possibly taking 25% tax free and putting it elsewhere ? And then work out how much your money will last you over perhaps 10, 15 or 20 years, either as a bridge to state retirement age or until old age and setting yourself a budget accordingly ?

It'll depend on the individual to some degree. But personally I plan to take the tax free lump sums from my personal pension and AVC's and put them into some kind of savings/investments(I haven't decided yet) as a dip in fund, with the remainder being drawn down to live on as basic income, roughly equal to the personal tax allowance. That will obviously be less than my current earnings, but because I save heavily towards my retirement and once I've actually retired I won't be saving towards it anymore, it will actually mean a higher amount in my pocket.

In practice a fairly large chunk of my DC savings will be probably have been spent by then. But I hope to have some of the dip in funds well into my retirement and the main RM pensions and the state pension will provide a decent guaranteed income from 67 onwards.

I'm not really interested in rental property, and will continue to invest my drawdown funds in pooled investments as they are now. But each to their own.

Of course none of this is a concern with a Defined Benefit Pension, (or the pension RM employees have had up to March 31st last year), but may be more of an issue for those of us that have many years service left or those with AVC's or private pensions I presume.

Many posties are lucky to have a decent DB pension to provide a good base for retirement, but in many cases won't be enough on it's own. So DC pensions/AVC's are a great way to bridge the gap between taking their RM pensions and state pension age.

I know tax is a concern. Doubt it will matter to me as don't think my pot will be big enough to pay much or any tax if I draw down gradually, even if I manage to keep saving £50 plus a week for 20 years (or £73 a week with the shares, which are giving me and sure plenty of other people a headache but that's a different thread).

Pensions are taxed in the same way as earnings, so the first £12,500(from 6th April 2019) is tax free, with anything over being classed taxable income – including the state pension. So you might still be affected at some point.

I'm not buying any shares via P&M, but I do think they have the potential to go up in value in time if RM's 5 year plan works out. But that may be at the expense of the workforce.

Doubt I will be able to afford another property to rent out either as part of my pension but it's something I would love to be able to do. It's a shame that as part of the new flexible pension rules, you aren't allowed to move some of your pot into a tangible asset such as property before 55 ? Do you know if there is any way of doing this Robert T ? it would give me more leverage if I could I think.

Not as far as I know.

[RobertT]

Another informative post RT - my thoughts are that by the time today's millenials and generation Z's are thinking about retirement plans the SPA age qualification will be 70+, the SP won't exist or it will be worth a pittance - then it will be too late.....

Thanks.

SPA will probably increase again sooner or later, particularly for anyone currently in their 30's or below. But increases in life expectancy are supposed to be slowing, so it may not be as high as was thought a few years ago?

Personally I think some kind of means testing could be the future for the state pension. With millennials less likely to have generous DB pensions and unable or unwilling to pay enough into their workplace pensions to provide a decent income, I don't see how it can be scrapped, unless the future workforce will be expected to work until they drop.

But there's always CDC I suppose?

[heapsy]

Yes thanks Sputters. I worry with all the future changes & automation (work in a mail centre) that remaining employed until 67-68 for state retirement could be a challenge. So I'm looking at this as a 15-20 year plan where if the worst comes to the worst at anything between age 55-65 I have some options. Took mortgage over 25 years taking me right up to full retirement to pay off, and people have suggested instead of paying more into my pension I pay down my mortgage faster. But my thinking is with a pension pot thus far valued at £300 a month, it doesn't matter whether my mortgage is paid off or not because with that income I wouldn't be able to live in it anyway even without a mortgage ! So with interest rates low, and the PSE advantages of tax & NI savings I'm going down the long term savings route. Have no way to afford to save anything else now though so good job the house is in a reasonable state of repair, and the car is running ok. Just going to grit my teeth and keep going forward with my plan I think. Will be nice to see a statement after 12 months from my AVC to help motivate me to keep going.

Just read your post. I was in a similar situation when I split from my wife in 2000. Divorced and sold the house in 2001. Started a new mortgage over 25 years in 2001. (49k) chipped away and paid it off in 8 years and 9 months. Initial payments were £291 pm. Got it down to £250 pm then it was fixed by the building society, as they said people were telling them they wanted to pay off their mortgages quicker. Suited me anyway. My original idea was to get the 9 years back I wasted with the idiot, as I didn't want to be approaching retirement, (RM pension age was still 60 then) and still have a mortgage. Thanks to the financial crisis and plummeting interest rates, I became debt free about 18 years after I started my original mortgage with her. I would concentrate on getting debt paid off. You can always put more away a bit later. BTW I was 33 when we split. Nearly 34 when I started 2nd mortgage and 43 when I paid that one off. I'm 52 this year.

The idot is still paying hers off and will be 50 in April.

[NWpostie]

Yes thanks Sputters. I worry with all the future changes & automation (work in a mail centre) that remaining employed until 67-68 for state retirement could be a challenge. So I'm looking at this as a 15-20 year plan where if the worst comes to the worst at anything between age 55-65 I have some options. Took mortgage over 25 years taking me right up to full retirement to pay off, and people have suggested instead of paying more into my pension I pay down my mortgage faster. But my thinking is with a pension pot thus far valued at £300 a month, it doesn't matter whether my mortgage is paid off or not because with that income I wouldn't be able to live in it anyway even without a mortgage ! So with interest rates low, and the PSE advantages of tax & NI savings I'm going down the long term savings route. Have no way to afford to save anything else now though so good job the house is in a reasonable state of repair, and the car is running ok. Just going to grit my teeth and keep going forward with my plan I think. Will be nice to see a statement after 12 months from my AVC to help motivate me to keep going.

Just read your post. I was in a similar situation when I split from my wife in 2000. Divorced and sold the house in 2001. Started a new mortgage over 25 years in 2001. (49k) chipped away and paid it off in 8 years and 9 months. Initial payments were £291 pm. Got it down to £250 pm then it was fixed by the building society, as they said people were telling them they wanted to pay off their mortgages quicker. Suited me anyway. My original idea was to get the 9 years back I wasted with the idiot, as I didn't want to be approaching retirement, (RM pension age was still 60 then) and still have a mortgage. Thanks to the financial crisis and plummeting interest rates, I became debt free about 18 years after I started my original mortgage with her. I would concentrate on getting debt paid off. You can always put more away a bit later. BTW I was 33 when we split. Nearly 34 when I started 2nd mortgage and 43 when I paid that one off. I'm 52 this year.

The idot is still paying hers off and will be 50 in April.

Well done, I did similar paid my mortgage off early as that was a priority, you save a lot of money in interest payment as well as the security of your own home.

In a relationship but never married, she's got her own place.

I think marriage is overrated anyway.

[Hawkey99]

Its funny how we all do things differently.

I still have a large mortgage but have spent a lot of money on AVCs. Its been a risky strategy but I started it after the last crash and its paid off handsomely.

I still doing it and my mortgage rate is less than 2% against the 30% plus I make by not paying tax and national insurance.

Its not for everybody but certainly worked for me and was something I could always stop and start paying extra on my mortgage if necessary.

[RobertT]

It is funny how people differ!

I saved hard and bought my house at 27 years old for cash and have never had a mortgage. Although to be fair that was in the mid 90's at the bottom of the market and just before a property boom that lasted a good few years.

At the time all of my money was in a building society account with Cheltenham & Gloucester and I got a nice bonus of 13% of my balance if I remember correctly when they got taken over by Lloyds Bank.
When I add that to the interest gained while saving, which was a higher rate than now, the house effectively cost me about 18% less than the actual sale price.
God knows how much I would have paid with a 95% mortgage and 25 years of interest payments.

I've never taken out any type of loan at all, unless you count using my credit card. And I paid interest on that for the first time in my life around 18 months ago, when I forgot to pay the bill on time. The princely sum of £3.10!

[arnold cheshire]

It is funny how people differ!

I saved hard and bought my house at 27 years old for cash and have never had a mortgage. Although to be fair that was in the mid 90's at the bottom of the market and just before a property boom that lasted a good few years.

At the time all of my money was in a building society account with Cheltenham & Gloucester and I got a nice bonus of 13% of my balance if I remember correctly when they got taken over by Lloyds Bank.
When I add that to the interest gained while saving, which was a higher rate than now, the house effectively cost me about 18% less than the actual sale price.
God knows how much I would have paid with a 95% mortgage and 25 years of interest payments.

I've never taken out any type of loan at all, unless you count using my credit card. And I paid interest on that for the first time in my life around 18 months ago, when I forgot to pay the bill on time. The princely sum of £3.10!

Well done Robert T

[posteee]

Thanks to everyone. I might be looking at it even slightly differently to everyone again. I don't know if PSE has always had the same benefits, but with the money I am saving in tax and insurance by paying more into the AVC's (& shares), this alone in effect cancels out my mortgage interest payments which is why I've decided to keep going in this manner as opposed to paying more down on my mortgage.
Admittedly, I am slightly concerned that I could be starting it at the top of the market but hindsight and foresight are wonderful things and very difficult to strike the right balance between the two. Think the fact that I'm doing something rather than nothing though gives me an element of comfort. But I won't be driving around in a top marque car anytime soon that's for sure with the amount of money I have left !

[heapsy]

My strategy was down to the simple fact that I went from a 3 bed semi, and had no choice but to buy a 1 bed flat. Our weekly pay back then was only £200+ per week, so I couldn't afford anything else at the time. As we know, times and our earnings have changed. I got used to being debt free so didn't fancy buying UPWARDS with a new mortgage. I've gone down the investment route to hopefully more than cover the service charge on the flat. With whatever inheritance I get, I should be ok. No interest in getting involved again so forever single.

[sfox123]

Heapsy, certainly know the feeling of once bitten twice shy. Don't know if I'll ever shake it either.