[Dave]

Currently very fortunate to live in a house with mortgage paid off .....BUT, no final salary pension with company , & current outlook for money purchase pension is so poor I had to look at other ways to invest money. The only thing I can think of with decent returns & tax free, is your personal property.

So managed to sell house privately STC & have looked at many houses, but find you just don't get much these days for your money SOOOOO have decided to take a different route & have just had an offer accepted on a 1730's Farmhouse, with attached 1 bed cottage & self contained 1 bed annexe , which are currently rented out. Although I have to take out a mortgage of 5x my salary , the income from the rentals pay 80% of the mortgage interest

So the plan is to run this as a business for 10-15 years, doing the main farmhouse up to higher spec & possibly look to extend 1 bed cottage in to 2 bed & sell off to decrease mortgage, or continue to rent & take the property rise over that period as pension investment, for release at some point by downsizing

Fingers crossed it all goes through, as I'm being quoted nearly £2k for full structual survey .....which I won't be happy to lose if the chain falls through

Anyone else made alternative plans to replace / subsidise the normal pension ?

[fionaB]

LOLOL i havent even made plans for a normal pension!

Fi

[stevegreen]

The company I work for has just announced that they will be stopping the final salray pension scheme at the end of June, so now I will have 2 pensions, one based on my first 18 years at final salary and then the remainder that I pay in at a defined contribution rate.

I am currently thinking that i should be paying as least as possible into the DC scheme as the company puts in 8% of my pensionable earnings anyway, even if I only contribute a small amount.

Property is certainly a good bet at the moment (and I stress at the moment) and I am lucky enough to have been divorced at the right time to make a killing on a flat that I bought. My main pension, as far as I am concerned, is in a property that I rent out which hopefully will enable us to live very comfortably when we decide to sell it and retire. I personally don't think that any pension will be worth that much at retirement age (and thats if I even get to the age to take it) so planning for earlier retirement and being comfortable and happy is the priority.

Renting out property is fine, as long as you can afford to cover the mortgage if it is empty for any period of time.

[Matt F]

Originally Posted by stevegreen

I personally don't think that any pension will be worth that much at retirement age...

Well, for starters, your 18 years final salary scheme benefits should be pretty decent.

Assuming it works on 1/60th per year of service then you'll get 18/60ths of your salary at the date it stops plus they normally then revalue this each year by something like the lower of 3% and inflation.

So - whatever your salary is now - you should get just under a third of it as a pension from the final salary scheme.

As to money purchase arrangements, it all depends how much you put in and the later you leave it the more you have to contribute. Some rudimentary calcs suggest that I (at age 39) need to put in at least £500-£1000 per month to get any sort of decent income at age 60. That's assuming growth of 10% per year (quite possible) and annuity rates of 7% per annum (about right for a 60 year old male).

At the end of the day whilst the chancellor disgracefully pocketted tax credits on dividend payments earned by pensions schemes they remain a sound investment:
1. Contributions receive tax relief at the highest level
2. Fund grows tax free (only dividend income is taxed)
3. Part of the fund can be taken tax free at retirement

Matt.

[fionaB]

Originally Posted by Matt F

Some rudimentary calcs suggest that I (at age 39) need to put in at least £500-£1000 per month to get any sort of decent income at age 60. That's assuming growth of 10% per year (quite possible) and annuity rates of 7% per annum (about right for a 60 year old male).


Matt.

£500 - £1000 a month................. that has to be a laugh! I dont even EARN that
so what they are basically saying is the usual.... the better off will stay better off cos they can afford to save and the worse off become poorer still.............. and who said everyone is equal!

Fi

[Matt F]

I think what’s clear is the cost of delay.

The (very basic) figures I’ve done show that if I put £500 gross into a personal pension than with 10% pa growth and an annuity rate of 7% I’d get an income of £32K per year. Don’t forget that inflation would reduce this in real terms but it’s still a decent income nonetheless.

HOWEVER – for a 25 year old to achieve the same benefits at age 60 they only need to contribute £116 per month! Okay so inflation will have a greater effect because we’re looking at 35 years to retirement instead of 20 but the effect is still dramatic. Once you take off tax relief you are looking at something like £25 per week – is that too much to pay for a half decent retirement income? I suspect plenty of 25 year olds spend that and more on a night out – I know I did.

As for what the state provides, unfortunately, demographics means that there won’t be enough earners in 20 years time to pay the kind of benefits the retired enjoy today, hence the increasing of the state pension age to 68. The biggest problem with the system is that there is no investment – our taxes today go straight out in pensions – but that’s a vicious circle that is very difficult to break.

One thing’s for sure, if you are going to rely solely on the state pension at retirement then your income will be pretty poor. I genuinely feel for those not in a position to make private provision as I do for the current crop of pensioners who have seen their pension income failing to keep pace with the cost of living thanks mainly to inflation busting council tax rises.

Matt.