Private pensions

[Whosthedaddy]

Anyone got one?

I've got my pension through the NHS, it is supposed to be one of the best to have but I'm tempted to get a private one to provide me with some extra coppers in my old age.

What do you pay a month, do you know what that will pay out at 65?

[rotax81]

i remember my dad paying out loads to pearl insurance for a pension. the bloke collected it every month.
come his pension day they told him that if he gets his pension from them it will be less than the state pension, he could only have one or the other.
he dies a few years ago now and never really got anything from them.
not really your case here but imo extra pension s are worth shite. i wont do it.
i moved mine to legal and general and friends provident from the state one in the early 90's.
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[D O G]

Rotax I think you are operating on very dodgy information.

AFAIK the pension system works as follows:

- Everyone is entitled to a state pension, at a minimum level;
- Those who have worked and contributed NI during their lifetime get an enhanced state pension (or at least I think that is the case).

Nothing can preclude you from receiving this benefit.

Any pension that you contribute to independently outside of the state system is yours, and yours alone. Whatever you will contribute you will receive a pension based on it, plus the statutory state benefit.

[Kickstart]

[D O G]

Back to the OP, your pension is particularly odd in that is a special state pension for you good public servants.

Given that you are off around the world, a private pension plan may well be a good idea. Please be aware though that over here you have to, by law, contribute 9% of your gross salary into a private pension plan or 'Super' scheme. It is not a state pension, but the contribution is state enforced, and there is no matching of contibutions by the employer (which generally occurs in the UK).

Even if you leave Aus, you will retain this pool of money.

Now, a private scheme generally works by pooling contributions, investing them in the stock market, and thereby growing the value of the pool from the accumulation of dividends paid to the fund from the companies in which they own shares (which are generally then reinvested in more shares), and by the increase in capital value of the shares themselves.

Returns are, obviously mixed. In the current climate, billions will have been written off pension schemes' values. Over the long run though there will be an overall increase in value.

You can select what sort of fund to pay into, the general accepted idea is to pay into high risk but potential high return funds (which invest in smaller companies in emerging markets/technologies/economies) when you are young, and won't be needing to withdraw from the fund for forty years or so. This gives you the chance of getting good returns (say 10-20% p.a.) whilst you can affird to take the risk.

As you get a bit older and more risk averse then you shift into a fund which spreads investment in large, stable (ho ho) blue chip companies in major, established markets and economies. Like the Dow Jones or FTSE100 . You could probably expect 5-10% p.a. on such funds.

Then, when you get to within the last few years before retirement, have built up a good pension value, you move your accumulated fund value into a bond based fund, which invest in high rated (again ho ho) company bonds or government bonds, which effectively are like bank deposits, pay a decent rate of interest and are safe.

At the very end, you can then either take the cash, bank it and life off that and the interest, or buy a property, or buy an annuity, which costs x amount (e.g. 250k), but guarentees to pay a certain amount each year to you until death.

So, in terms of average return, I would say that over the life of a pension contributions you should be looking at around 8% p.a., but that is just based on guestimates of returns and I have done zero research on it! A financial adviser would help you better.

There are whizzy things you can do (such as salary sacrifice) which can minimse your tax - Itchy would be better for that side of things, but I doubt he knows about Australia or the US!

I just did a little calculation which assumed the following:

- Starting annual contribution of 2,500 p.a.
- Growth in contribution by 3% p.a.
- Average growth of the fund of 8% p.a.
- Contributing till 2045!

It would be worth 778,000 by the end - although clearly this would not be worth as much then as it is now.

[D O G]

[Whosthedaddy]

Not many things scare me but the thought of being old, with no money and no foreseeable income frightens the shit out of me and with the amount of state pension available to me in 35 years will probably cover a pint of beer and no change for a packet of crisps.

I still have to find out what will happen to the NHS one if I take a break of service.

Oz, you pay, if you leave, you get it back. Sounds good.

[Kickstart]

Hi

There are some dodgy things about UK state pensions if you take them when living abroad. Cannot remember exactly what, but from memory it is not index linked, but that might only be if you are claiming it while living in a non EU country. There was a big court case about it several years ago.

Also, not paying UK NI will impact your state benefits.

All the best

Keith
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[Itchy]

There is a simple formula I saw in an actuaries book which simplifies all of this...

It says :

If you want an income of Z in your retirement , your retirement fund needs to be 25 x Z...

Thus if you want 10K in retirement you need a pension fund worth £250,000....

To defend against inflation you need X 32.

taking into account growth / fees and inflation it means that if you save less than £120-150 a week , your pension will be worthless*

*Or rather more worthless..... since £10,000 is a fair bit now by 2046 will barely buy a loaf of bread, don't believe me? , go to the geriatrics ward and ask people in their 80s and 90s now how much a loaf of bread cost when they were 25..

Don't forget tax relief and also 1.5-3% pension management fees, which don't apply if you have a SIPP.

You might ask what is my pension, I don't have one , my problem with pensions is that :

#1 its locked in and you can't get hold of the money if you suddenly need it

#2 there is very very little to prevent a robert Maxwell event on your pension, assurances are worthless.

I am heavily reliant on technology such that by 2046 I will have replaced all my worn out body parts with cybernetics.
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[Whosthedaddy]

[Whosthedaddy]

Cheers Itchy, nive way of calculating the future.

£320,000 sounds huge, better start delving down the back of the sofa now. On the other hand, you spend all the time saving only to die before you get to it.

[D O G]

Retirement is overrated IMO.

The culture of getting to 65 and stopping altogether is simply ridiculous in this day and age, you still have a good 20 years left, not five after being worked like a dog for forty years.

I don't really know what you would do either, that would need full time commitment when you are old.

I plan to just knock it back a bit over time, have various little hobby businesses and do a couple of days work to pay for overheads. Should have paid for my house by then (not that I have one now!), which is the major cost of living.

I don't intend leaving anything for my kids, so I wouldn't be against unlocking some of the value in a home.

I'll still be 'working' when I'm 80, I hope.

[D O G]

[Itchy]

[Whosthedaddy]

The idea of working one day and never again the next is a strange one, especially if mentally and physically ok.

Don't think that the kids will be too fussed if we don't leave them anything as my parents won't be leaving me and my sister much, if anything at all.

[D O G]

[Itchy]

[D O G]

[WildGoose]

Pensions are an utter head fuck, i'm well aware I should be already sorting something out, and havent a clue what to do.

Anyone on a modest salary, can forgot about having 200-300 quid spare a month to put away, let alone to toss it into a pot and gamble with it for the next 40 years.

Furthermore, how can you make an informed/calculated decision if the government will never be honest about the state of inflation. I.e Consumer Price Index, Retail Price Index... always including this that and the other to make the figures look better, goalposts always moving, so they are telling you inflation is at 3% while most of the things you are buying at going up at 20%.

Some good valid points here about the dodgyness of pension funds linked to the stock market. I know my dad is rather concerned atm, as his pension which he already started late so wasn't great, has just taken a nose dive, and is worth effectively bugger all to him now.

The whole thing seems a big rip off, you pay into a scheme, lots of money, for years and years on the off chance that by the time you are ready to/need to retire, its actually worth something, no guarantee's though, pays your money, takes a chance. Your money is gone the moment it goes in, there is no access to it, you just have to ride it and see what you end up with.

Its clear with the events of late, that although banks are safer in the scheme of things, you still have no guarantees, and the larger the sum of money, the scarier it gets.

The only sure fire way to have peace of mind is to be a rich bastard, put 2 million in cash in a lock box somewhere, just say bollocks to the relative value, and even if inflation spikes to 25% for the next 40 years, you will still just about have enough for 15k eqivalent a year by the time you come to retire, so as always, only the rich can have peace of mind.

Something is terribly wrong with the system.

[Whosthedaddy]

^ Exactly my point, bravo Goose!

[WildGoose]

Just a further, as I understand it.

Final salary pension schemes.. will pay out a salary reflective of your salary at the time of retirement, for as long as you live.

Naturally, these are very very costly to the company, so they pretty much don't exist anymore.

If my sanity could have withstood another 18 years in the Navy, I could have retired at 40 on a part pension + lump sump, then full pension at 65 until death.

But is it really worth wasting the better part of your life, just in order to safeguard youre retirement.

The fire service is the only thing I know that still offers final salary schemes, naturally i'm applying, but then so is the rest of the country.
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[D O G]