Pension Planning

  • Thread starter Thread starter Deleted member 49549
  • Start date Start date
D

Deleted member 49549

Guest
So how on earth do people do it?
I've always payed into the company pension at the max rate that the employer will contribute. This means I have about half a dozen pensions across a few providers of varying value.
To calculate the value of these I have to assume a retirement age, assume an estimated annual return, calculate the return of each after fees.
The I have to forecast the state pension and guess what value it will be in 25 years time.
Then estimate what I need to live on in retirement - what will the cost of living be, what tax will I pay, what benefits will be available etc.

Has anybody here calculated what their income would be when they retire?
 
I knew roughly what my pension would pay, basically half my salary after 40 years contributions. I took it after 38 years so had a small percentage reduction.
Also got a quote from Gov.UK to see what my state pension would be at 66.

So yes, pretty much knew before I left work and retired
 
I know what it will be, more or less; whether it will be enough, only time will tell.
Ideally, we pay into our pension plans all our working lives, building a pot of money that will provide an income of at least the average wage at the time we retire, eg currently circa £25k. With the state pension paying (if you get the full amount) circa £9.5k, if you needed an extra £14.k then your pension pot would need to be in the region of £300-400k if you wanted to pass it on as part of your estate, less if you are happy (as I am) to gradually reduce the capital in order to maintain a level of income.

In your case with a number of old company pensions, I would strongly advise a review with a truly imdependent financial adviser, because you need to know which if any of them are final salary (defined benefit) or moneypurchase (defined contribution), and how they are being run if the latter - ie are they growing the fund or mainly just paying the salaries of the fund managers. You have the option of combining them into a single one, which you or an adviser can monitor, or maintaining them as is.
 
Minefield innit? one day I suddenly realised that your "working life" is the bit in the middle that has to pay for the rest of your life. So yeah, I have some spreadsheets and occasionally look at annuity calculations.
 
I left work at 49 after realising I had enough money to live on for the rest of my life. I paid for it though with years of being a workaholic with no time for anything else. Leaving work early eases my mind and balances things out when I think that all those years as a workaholic were wasted years when I could have been enjoying life more instead of working every hour God sent.

It was someone I worked with who shocked me one day when I was talking to him about interest rates and investments and he pointed out that if I had enough to last the rest of my life why should I worry about income? What he said hit me light a lightening bolt so I gave them another six months to get up to speed to manage without me and then I was gone. I now see my company pension and the state pension which I don't get yet as bonuses.

I do realise that not everyone is so fortunate as to walk away from work relatively early but I think that if at all possible a good work / life balance is important. I "retired" early but I really did waste a lot of time at work.
 
Last edited:
You could take inflation out of the equation.

Take all of the money purchase pensions and add up the present values from the latest statements. Roll that number forward the required number of years at a rate of return without inflation (the real rate of return). You should be able to find a bit on that on t'internet, but assuming a balanced investment portfolio with modest costs, 4% would be acceptable, but a little racy; 3% is cautious; 2% is safe. That final balance on your chosen date of retirement can then be multiplied by the same real rate of return to derive an inflation linked pension, but quoted in today's terms.

Then take any final salary schemes and get the latest estimates, or request them if they are more than a couple of years old. Read the words carefully - you may need to call the administrators to clarify. You need to understand if the number quoted is the amount to be paid at age X, but in today's terms (it usually is) and if it is inflation protected. If it is not, or if you believe that the inflation protection is a little weak you're going to have to do some more tricky stuff. Assuming all is OK, that number can just be carried forward as the amount you will be paid, in today's terms, to your chosen retirement date.

Finally, the State Pension estimate will tell you how much you will get from HMG and when. Again this amount is presented in today's terms and should be reasonably inflation protected (except when they pull stunts like this year).

Job done - a small spreadsheet with three categories and one variable (the real rate of return).

Taxes, can be assumed will be roughly comparable to today (rates and allowances). Sure, they might not be, but what are you going to assume they will be - not sure I would want to guess that.

Your living costs will probably be similar to today. Some people live quite frugally in retirement and can get away with 2/3 of pre-retirement costs. Some other people go on cruises and buy cameras and lenses with abandon, and their costs rise. I would probably assume the middle road unless you have a crystal ball.

Of course you can choose to take each pension at a different time - but you wouldn't want to make your planning any more complicated. You can always refine that part of it when you get there.

HTH
 
If you are still paying into your current company pension you can amalgamate every pension you have apart from the state pension into one.

You need to make sure you dont have any that are final salary, they are best left alone but any of the other ones should be fine. A financial adviser shouldnt charge much to look at each one and tell you if any should be left alone. Your current pension company will advise how to go about amalgamating them - I cant recall who you instruct first but its painless and doesnt cost you anything. I move mine every time i have changed employers or the employer has changed pension companies

You will be paying admin fees on each of those pensions and while that might not be large amounts 1-3% per year every little helps. This then means you would have a single private pension and a state pension. Your current pension provider should have a calculator either on their website or inside a members section where you can enter how much your current pot it - you will need to total up all your seperate pots and when you plan to retire, it will spit out an amount that will be based on your pot plus state pension amount.
 
Rapscallion said:
So how on earth do people do it?
I've always payed into the company pension at the max rate that the employer will contribute. This means I have about half a dozen pensions across a few providers of varying value.
To calculate the value of these I have to assume a retirement age, assume an estimated annual return, calculate the return of each after fees.
The I have to forecast the state pension and guess what value it will be in 25 years time.
Then estimate what I need to live on in retirement - what will the cost of living be, what tax will I pay, what benefits will be available etc.

Has anybody here calculated what their income would be when they retire?
Click to expand...
Across the company pension schemes you were in, are there any that were "Final Salary" or were they all 'defined contribution' ones. And of those latter type, it is worth asking if they have a GAR (Guaranteed Annuity Rate), if so they are like good dust, especially in the current climate of very low annuity rates.

Basically, it can be a complex situation with a portfolio of schemes.....so my advice is, write to each scheme asking if there is a GAR (only relevant to defined contribution). Plus, if any were final salary (again gold dust) the scheme managers should tell you what your pension is worth per year.

IMO find yourself an IFA and be prepared to pay for proper advice!

PS without going into detail, not that either contributes significantly....every little helps......I had a very modest pension that came out of nowhere, working for a company 1980 to 86 had GAR and pays enough to fuel my car every year & I worked for the NHS 1973 to 1980 and that has also helped somewhat! In both cases I get more out than I ever paid in ;)
 
As said above generally it's not good to have many pensions, you pay a platform fee and then obviously a fund fee.

I always have my work pension then one private one with Vanguard for there ultra low fees
 
I ahve gone a different route.. state pension and savings.. my savings will work the same as a private pension accept I had to put it all in.. Nobody mentioned pensions anywhere I worked and anyway been self employed for the last 30 plus years.... saying that.. I have it all planned out... I can retire now and live a happy life... the problem is... i dont want to stop working.. tried it.. its boring... I have cut down and will cut down more but probably still make enough to live on without touching savings... its all a bit wierd... helps that i enjoy being a paid photographer :)
 
I would advocate the use of an independent financial adviser.

Pensions are a complex area and FCA rules and requirements have changed significantly over recent years.

You'll need to look out for any defined benefit schemes (final salary) as typically these offer a greater level of income in retirement.

GARs (guaranteed annuity rates) are also something to look out for, but typically these will be on older pensions contracts. These can offer the member a much higher annuity rate than is available on the wider market, however it may not offer you the method or options you require. For example, it could limit payment frequency, dependent / spouse pension, guarantee periods and so on.

Another thing you and the adviser will need to consider is Safeguarded Benefits, these are other benefits that could be linked to the pension. Are any of the plans old Section 32 buyouts, that may have enhanced PCLS entitlement for example? Or do any have any GMP rights attached?

My advice would be find an IFA, pension specialist (with DB qualifications and permissions as your average IFA won't have PI / qualifications / or be able to advise on certain types of pension) and be prepared to pay for good advice.

Go looking for a cheap IFA and you may find they can't look at all of the schemes you have.

As in photography, you gets what you pay for.

You may find that the IFA can help consolidate them onto a platform. They should provide you with a cost analysis and pension report (typically via systems such as Selectapension or O&M - which they have to pay for). They can consider your risk profile and capacity for loss and also discuss options available at the retirement stage (Annuity, FAD, UFPLUS). Portfolio costs should be considered and compared to options under the current plans also.

It can also take time to gather the required information, especially if any of your policies are with closed life offices.

So good luck, shop around and take your time. It's the one area I genuinely believe people should seek advice as rules / tax can be complicated and you can't always undo an incorrect decision, or make back lost time for investment performance.

Charges are important, but don't let costs be the main worry.
 
talk to a pension adviser
but my personal advice would be to combine some of the funds to make them more visible and manageable.
also look if some of the pension funds that are based on salary can be converted to cash pensions which are more suitable for drawdown
 
Mr Bump said:
talk to a pension adviser
but my personal advice would be to combine some of the funds to make them more visible and manageable.
also look if some of the pension funds that are based on salary can be converted to cash pensions which are more suitable for drawdown
Click to expand...
If you are talking about a pension based on "Final Salary" i.e. a defined benefits pension? Converting that into a 'cash fund' to make a pension investment.......is IMO a very rash move. In the past few years there were some scandalous activities by some ( so called) pensions advisors.....were they were neither professional not independent advisors. They were in many cases sales people on a commission!!!!

FWIW a defined benefits scheme will yield more than any cash drawdown pension. Furthermore a cash drawdown, in the current climate of market volatility, if not handled carefully can mean if you withdraw too much you then erode the capital and worst case scenario you can simply run out of money.

Just my opinion of course and sorry if I have made a wrong surmise on what you said.

PS all individuals have different circumstances and as I said previously above and echoed by others a regulated IFA can help set things up to suit "you". One size may fit many but a bit of tailoring can make for a better fit ;)
 
Last edited:
Consult an IFA don,t think of trying to sort it yourself.
I used an IFA for mine and due to medical reasons I got much enhanced deal such that at the time the payment was more than I was earning.
I retired at 58 and got a little part time ,stress free,job until I got my state pension
 
I went to a couple of advisers, one from the government pension advisory scheme and a private one
They both said not to change a final salary pension into another scheme anyone who tells you to is wrong
But see an independent advisor before you do anything
 
I was once a told by an ifa employed by the company I worked for that my final salary pension was worthless.
Good job I ignored his advice for my 500 a month
 
Adamcski said:
I would advocate the use of an independent financial adviser.

Pensions are a complex area and FCA rules and requirements have changed significantly over recent years.

You'll need to look out for any defined benefit schemes (final salary) as typically these offer a greater level of income in retirement.

GARs (guaranteed annuity rates) are also something to look out for, but typically these will be on older pensions contracts. These can offer the member a much higher annuity rate than is available on the wider market, however it may not offer you the method or options you require. For example, it could limit payment frequency, dependent / spouse pension, guarantee periods and so on.

Another thing you and the adviser will need to consider is Safeguarded Benefits, these are other benefits that could be linked to the pension. Are any of the plans old Section 32 buyouts, that may have enhanced PCLS entitlement for example? Or do any have any GMP rights attached?

My advice would be find an IFA, pension specialist (with DB qualifications and permissions as your average IFA won't have PI / qualifications / or be able to advise on certain types of pension) and be prepared to pay for good advice.

Go looking for a cheap IFA and you may find they can't look at all of the schemes you have.

As in photography, you gets what you pay for.

You may find that the IFA can help consolidate them onto a platform. They should provide you with a cost analysis and pension report (typically via systems such as Selectapension or O&M - which they have to pay for). They can consider your risk profile and capacity for loss and also discuss options available at the retirement stage (Annuity, FAD, UFPLUS). Portfolio costs should be considered and compared to options under the current plans also.

It can also take time to gather the required information, especially if any of your policies are with closed life offices.

So good luck, shop around and take your time. It's the one area I genuinely believe people should seek advice as rules / tax can be complicated and you can't always undo an incorrect decision, or make back lost time for investment performance.

Charges are important, but don't let costs be the main worry.
Click to expand...
nope
read
www.which.co.uk

Should I combine my pensions? - Which?

Combining your pensions can reduce costs as well as admin. Find out what the process involves and what you need to consider first.
www.which.co.uk www.which.co.uk

final salary pensions are good if you live for a s*** load of years
but when you die they die with you
converting the final salary pension into a drawdown pension allows the money to be included in your legacy so it doesn't die with you.
 
Last edited:
LOL I have to giggle at the interweb sometimes..

Whilst you are correct @Mr Bump a DB scheme does not offer the same death benefits as other, more flexible options post 2015, they offer a great degree of security and income. The FCA stipulate the advisers starting position is to assume a DB transfer is NOT in the best interest of the individual. They then need to justify why it is. There may be reasons as to why it is more suitable, such as single individual, no dependants (amongst others) but it's an uphill battle for the adviser from the first meeting to prove its in the clients interest.

I'm not about to be drawn into a heated debate on the matter, but in my experience in this heavily regulated area over the last 20 years (which includes working with the FCA amongst other parties on the matter), taking advice from a Which page would be the last thing I advocate for a DB transfer.

Also, as previously mentioned, everyone is different and no two people have the same needs, wants, financial circumstances, assets, risk capacity, capacity for loss and so on.

Each to their own...
 
Last edited:
You must log in or register to reply here.
Back
Top