whats your pension plan?

[Englishman2010]

Serious stuff this thread.

The pension you need will naturally depend on the kind of life you would like in retirement.

You need to think about:-

Your 'survival' estimated monthly budget be for day-to-day expenses (Energy/Water/Council Tax/Telephone/Car/Clothes/Food etc)

What kind of 'life' would you want to enjoy above and beyond survival. Holidays can be expensive! Would you like to eat out now and then? How will you spend your time?


Just as an eye-opener and to throw some numbers around, for a modest £10,000 pa retirement pension income you would typically need a pension 'pot' of around £150,000

Remember as well that income tax is payable on pension incomes.


Peanutz, that £100 per month for 25 years would only be worth around £60,000 based on 5% interest pa

To reach a target pension pot of £150,000 you would need to invest more like £250 per month for 25 years at 5% annual interest

If you want a pension of £20,000 pa income you would typically need a pension 'pot' of around £330,000

To reach that target of £330,000 you would need to invest more like £550 per month for 25 years at 5% annual interest

Most people with only state pension as income will tell you that it's only very basic survival mode if that. Make no mistake it's tough!. That maximum full state pension currently stands at about £97.65 per week (£5000 per year)


Food for thought.

Terpe's correct here, however a couple of extra points to add:

Anyone who is a PAYE taxpayer will pay pensions contributions net of basic rate tax (20%), the pension company then claims an additional 20% from HMRC and adds it to the contribution. What this means in real terms is that if you invest £100 PM, you are actually getting £125 per month invested. People who complain about pensions, don't usually understand them, but despite Gordon Brown robbing pension funds of their tax free investment growth status, pensions still remain the most tax efficient way of saving money:

Where else can you get an extra 20% of your contribution added by the government? you don't get that in savings plans, ISA's , savings accounts or investment bonds.

You are also allowed to take 25% of your pension fund as a tax free lump sum. Therefore if your final pot is worth say £200K, you can take £50K of that as tax free cash and use the remaining £150K to buy a pension annuity (regular monthly income).

If you're a higher rate tax payer, the savings are even greater, as you can claim tax relief on contributions at the 40% tax rate. You would still claim BRT relief on the initial contribution, and claim the additional 20% relief through your Self Assessment claim. The net result for a higher rate tax payer is they will get £125pm invested at a total cost of £80pm.

It's also worth noting that the modern pension contracts are completely different to the contracts from 10 or 20 years ago. Charging structure have been greatly reduced, and typically, pension funds will take around 1 - 1.25% of the premium to cover running costs, compared to 5 or 6 % in the past.

If anyone has been paying into a pension for more than 5 years or has a frozen fund (retained benefits) from a previous personal pension or employers money purchase scheme, it is worth speaking to a reputable IFA and enquiring if it is worth switching to a new style contract.

I've been a financial adviser for 20+ years and have complete faith in our Pension and Insurance companies, and despite what the Daily Hatemail wants you to believe, 99.9% of the people I have employed, worked with, been associated with in the Financial Services industry are honest, professional and act with integrity at all times, and aren't out to stitch up their clients.

However, pension planning is only part of the equation for good retirement provision. No one should put all of their eggs in one basket. My advice is to spread your risk and have several different investment strategies, such as Pension funds, investment property (buy to let), cash reserves (deposit accounts), national savings (up to your tax free limit), ISA's, stock and shares...etc