Pensions and retirement, can we discuss?

RE: Pensions and retirement, can we discuss?

Roland Bulkyn-Rackowe — Mon, 23 Jul 2018 12:49:16 GMT

Hi Martin, I guess it's about priorities. Do you make sacrifices now for later or just "live your life" and enjoy spending, travelling etc? I travelled modestly (wish I had done a little more), saved hard and was very careful financially.

I have purchased a property that I want to live in and stay in long term once I found a nice area and job. The purchasing costs are a very big percentage of the outlay (stamp duty, legal fees etc). Whether to rent or buy depends on individual circumstances, such as the relative cost of renting, whether you're likely to move area, marry, have kids etc. I started my pension first and then bought a house after 2-3 years. I put 1/3 to 1/2 of my net income into mortage payments and 12% of my gross income into my pension. Before purchasing I paid into several savings plans such as TESSAs, PEPs and then ISAs. As house prices were rising fast at the time I missed the boat a little although the value of my savings meant I paid off the mortgage pretty quickly. My first job had accomodation "thrown in" which helped me to save, although I was paid 12k less than the job that didn't provide accomodation (in about 2001).

Investing in property other than as your primary residence has been profitable for many over the last 20+ years and may continue to pay dividends, depending on taxation. This is location dependent, not everywhere has seen a property boom similar to the UK.

The newer pensions freedoms do mean your pensions savings don't die with you, you don't just have to buy an annuity now.

Compound interest is a wonderful thing. The more savings you make earlier on, the less sacrifice maybe once you have a family. I put up to 18% of gross income into my pension for a few years. Now I have a family I just can't afford that any more.

RE: Pensions and retirement, can we discuss?

Rob Loxley — Thu, 19 Jul 2018 14:37:15 GMT

[quote user="Julie Innes"]Property is a good investment[/quote]

...when property prices are rising. It is also an illiquid, often highly leveraged investment, with increasingly less favourable tax treatment

RE: Pensions and retirement, can we discuss?

Julie Innes — Thu, 19 Jul 2018 08:57:13 GMT

I do have a pension now, although I came to the party late, so having to put quite a bit away to have anything.

My dad is very bitter about his pension as he was (then) forced to buy an annuity and lost a lot of money, as they later changed the law back. Most of his retirement income actually comes from drawdown on other investments, and he has encouraged me to invest as well as having a pension. Property is a good investment, but not if you have to live in it! I might look into buying a flat for my children when they go to university, both as a short term saving and a longer term investment- it certainly paid off for friends of mine

RE: Pensions and retirement, can we discuss?

Jill Butterworth — Wed, 18 Jul 2018 17:20:15 GMT

I'm biased and over leveraged in property, because when I was at that point of decision in my 20's, a friend's father died just a year after starting his pension, leaving her mother with virtually nothing...My big problem with conventional pensions is that the money cannot be inherited, which is a big con, to my mind, although I believe it is less cut and dried nowadays.

I personally believe property is a priority as you will always need to live somewhere, and yes, paying your mortgage off as quickly as you can means you can then live very cheaply and do more fun stuff. If you want to travel, you can just rent the house out and that more or less takes care of the mortgage. In your situation I would be trying to save as hard as possible to get a down payment on a house. I believe it's possible to be creative about this, and house sit etc.

Just bear in mind that property is a very illiquid asset, so you can't get your money out easily (unless you remortgage as leverage for something else, which is a sound reason to do it...).

RE: Pensions and retirement, can we discuss?

Martin Hamilton — Wed, 18 Jul 2018 15:20:30 GMT

No longer in the UK, but still very relevant anywhere! Long time no see everyone, I hope you're all well.

As a recent graduate, I feel I'm in a bit of a conundrum in regards to pensions. With high rent payments, I'm torn between just putting all my savings into short term low risk investments and cash to get a down payment on a mortgage quicker, instead of spending 25% of my income on someone else's mortgage. The quicker I get a mortgage, the quicker I can pay it off and have an asset I can live in (even in to retirement age). I also put a very minimal amount into a retirement investment account monthly to get the compounding started.

In your opinion, does that seem like sound logic, or should I delay a mortgage to put more money into a retirement account? I'm going off my father's advice for my current model (who runs a moderately sized successful business), but what are your thoughts?

RE: Pensions and retirement, can we discuss?

Rob Loxley — Fri, 06 Jul 2018 13:35:08 GMT

[quote user="roland bulkyn-rackowe"]I have (rightly or wrongly) put my pension into a lower cost platform that charges a flat £200 a year and bought lower cost funds.[/quote]

Rightly, I'd say. Reducing your costs by 1% on a return of, say, 7% makes a huge difference, and this compounds over the years.
If you're paying for active fund management, you need to be sure they are outperforming their index to justify their charges. Beware active funds that are closet trackers.

[quote user="Neil Wheadon"]I bought mine through a discount broker. They reduce the percentage they get back from the pension provider and it's put into the pension instead. The way the system is set up you can't avoid the fees, either the broker gets it or the insurance company[/quote]

RDR should have eliminated a lot of this commission and lower cost versions ('clean') of most funds now reflect this.

RE: Pensions and retirement, can we discuss?

Neil Wheadon — Fri, 06 Jul 2018 13:20:13 GMT

[quote user="roland bulkyn-rackowe"]I was putting in up to £7000 and the overall fund was shrinking. The minimum cost by 2014 was nearly £3000 a year. My growth over the first 16 years of pension was relatively feeble.[/quote]

Ouch!!

[quote user="roland bulkyn-rackowe"]I have (rightly or wrongly) put my pension into a lower cost platform that charges a flat £200 a year and bought lower cost funds. These are pretty labile but growth has been good. The funds have been non selective tracking ETFs, which generally cost between 0.05% and 0.12% per year.[/quote]

I bought mine through a discount broker. They reduce the percentage they get back from the pension provider and it's put into the pension instead. The way the system is set up you can't avoid the fees, either the broker gets it or the insurance company. The AVIVA one I have has 0.3% annual fees, I don't take investment decisions just rely on the average, figuring that no-one can beat 1-7-2.2% addition that an active fund manager can give and few can do that!!

Neil

RE: Pensions and retirement, can we discuss?

Roland Bulkyn-Rackowe — Fri, 06 Jul 2018 12:42:41 GMT

My experience at around halfway there is that the costs really can mount up. With my previous pensions from 2 different providers (one a personal pension, one provided by the practice), there was a platform fee, a fund fee taken annually and also a fee for the purchase of the various funds. I had requested a diverse portfolio to be decided for me by an IFA. The purchase cost, for example, for the commercial property fund was 5%. The overall cost once all the various costs were taken into account was averaged at between 2 and 2.5%. In years when there was no growth I was putting in up to £7000 and the overall fund was shrinking. The minimum cost by 2014 was nearly £3000 a year. My growth over the first 16 years of pension was relatively feeble.

More recently I have had kids and had to decrease my pension contributions. I have (rightly or wrongly) put my pension into a lower cost platform that charges a flat £200 a year and bought lower cost funds. These are pretty labile but growth has been good. The funds have been non selective tracking ETFs, which generally cost between 0.05% and 0.12% per year. It's too early to tell how this will work! I'll move a percentage into some "safer" investments over the next 10-20 years.

RE: Pensions and retirement, can we discuss?

Francisco Gomez — Sat, 23 Jun 2018 07:40:53 GMT

I have worked in the system for about 12 years in the UK. Only a couple of years in Spain. I'd expect to be able to claim pension once I retire independently of where however, the rules keep changing and the settled status (not defined yet) is expected to require some sort of continued proof of the individual situation as it'd expire every X years. Studying the test and paying for citizenship is currently the easiest option to securing my future. Some other long term EU citizens either don't have the option as per incompatible government rules post-Brexit or they might not have proof or the money for it.

RE: Pensions and retirement, can we discuss?

Martin Atkinson — Wed, 20 Jun 2018 18:11:28 GMT

[quote user="Neil Wheadon"]

If you choose to drawn down the monies rather than an annuity. The query was are you taxed on the amount you have left?

If you're under 75 that's correct, if you die past 75, it's taxed

[/quote]I cannot argue with that as I was not aware of it.

[quote user="Anthony Todd"]

See if you can get statement from your pension provider and see what net return you are getting.

You may be surprised by the "costs" and "charges" levied!

[/quote]They provide statements regularly and I can go on-line and look any time I want. I was/am fully aware of the costs/charges so there is no surprise. Whether I get value for money from my IFA's charges is another matter - presently I don't feel I am and may be addressing that soon.

RE: Pensions and retirement, can we discuss?

Anthony Todd — Wed, 20 Jun 2018 15:50:38 GMT

[quote user="Martin Atkinson"][quote user="Neil Wheadon"]So are you better to simply keep the monies in a pension and draw down as you need it?[/quote]That was the advice from my IFA and my current plan.[/quote]

See if you can get statement from your pension provider and see what net return you are getting.

You may be surprised by the "costs" and "charges" levied!

RE: Pensions and retirement, can we discuss?

Neil Wheadon — Wed, 20 Jun 2018 11:57:41 GMT

Some context in the post. If you choose to drawn down the monies rather than an annuity. The query was are you taxed on the amount you have left?

If you're under 75 that's correct, if you die past 75, it's taxed

Neil

RE: Pensions and retirement, can we discuss?

Martin Atkinson — Wed, 13 Jun 2018 09:37:51 GMT

[quote user="Neil Wheadon"]So are you better to simply keep the monies in a pension and draw down as you need it?[/quote]That was the advice from my IFA and my current plan.

[quote user="Neil Wheadon"]You mentioned using the 25% tax free lump sum to pay the mortgage. My understanding is that you then need to take the rest as a pension, or can you at 55 take 25% of your pension tax free and leave the rest invested and keep paying in?[/quote]I took the tax free lump sum to pay off the mortgage on the surgery 3 years ago from one policy then the rest and all my other pension funds bar one were re-invested in the Fidelity Fund. I am continuing to pay a small monthly sum into that fund, there was never any compulsion to take an annuity. The only restriction on the horizon is that my total pension pot has exceeded £1,030,000 so I will not receive tax relief on any further contributions therefore this year for the first time since I started my pensions 40 years ago I have not made an additional contribution to save tax.

RE: Pensions and retirement, can we discuss?

Neil Wheadon — Tue, 12 Jun 2018 19:49:26 GMT

[quote user="Martin Atkinson"]On which not it should be pointed out when you cark it and your pensions are willed to them, they don't pay inheritance tax on them[/quote]

That's interesting. I'm assuming this doesn't apply to an annuity as once you plump for that it's gone when you die. So are you better to simply keep the monies in a pension and draw down as you need it?

Secondly (sorry I can't figure how to multiple quote) You mentioned using the 25% tax free lump sum to pay the mortgage. My understanding is that you then need to take the rest as a pension, or can you at 55 take 25% of your pension tax free and leave the rest invested and keep paying in?

Neil

RE: Pensions and retirement, can we discuss?

Rob Loxley — Tue, 12 Jun 2018 17:40:38 GMT

[quote user="Anthony Todd"]certainly in my cases, the agent selling you a pension continues, or used to, get a rolling commission annually as well as the initial sum[/quote]

Retail distribution review should have ended a lot of this trail commission, though you might still be paying it on pre-2013 products https://www.fca.org.uk/consumers/trail-commission

RE: Pensions and retirement, can we discuss?

Martin Atkinson — Tue, 12 Jun 2018 17:04:24 GMT

[quote user="Neil Wheadon"]It won't be a huge amount in 40 years time, but when they toast 'dear old father' on an annual holiday using the proceeds, I'll be delighted[/quote]I think mine will be toasting dear father from the inheritance.

On which not it should be pointed out when you cark it and your pensions are willed to them, they don't pay inheritance tax on them. Or for that matter on business assets they inherit. Although there may be capital gains tax on those, this will largely be mitigated by business taper relief. So it is almost better to use equity release to fund your retirement so there's less inheritance tax on the your house and leave the pension pot largely intact to draw down for one off purchases or a rainy day.

RE: Pensions and retirement, can we discuss?

Neil Wheadon — Tue, 12 Jun 2018 15:39:00 GMT

[quote user="Anthony Todd"]

[quote user="Neil Wheadon"]START EARLY[/quote]

Golden, if not diamond advice! It is amazing how much many, including me, have wasted over the years.

With interest rates so low property investments in areas of limited supply and unlimited demand make sense and, of course, buy the practice premises, don't rent.

[/quote]

Both of our children have pensions.

I pay in £25/month and after 16 years it's about £7000/policy now

Imagine £250/month and another 40 years of contributions.

It won't be a huge amount in 40 years time, but when they toast 'dear old father' on an annual holiday using the proceeds, I'll be delighted

Neil

RE: Pensions and retirement, can we discuss?

grumpyoldman — Tue, 12 Jun 2018 15:35:29 GMT

What ever pension you invest in run a smaller parallel Hargreaves and Lansdown fund ,about 20% of the total that mirrors your investments in the big one so that you can watch the returns are coming back and your management is working well . you should get 10%-20% most years minus IFA charges . Think your end point fund or wealth will need to be 1.2-1.5 m.

RE: Pensions and retirement, can we discuss?

Anthony Todd — Tue, 12 Jun 2018 14:21:16 GMT

As I understand, certainly in my cases, the agent selling you a pension continues, or used to, get a rolling commission annually as well as the initial sum.

This is, of course, as well as the annual fee taken by the pension company itself.

This is all taken from your promised "enormous" final pot.....

RE: Pensions and retirement, can we discuss?

Rob Loxley — Tue, 12 Jun 2018 13:54:02 GMT

[quote user="Jill Butterworth"]fire away opinions, warnings, experiences of annuities, stocks and shares, property[/quote]

Don't invest in anything you don't understand
Look at asset allocation and diversify your investments
Understand and follow your own attitude/appetite for risk
Don't dismiss paying for advice but make sure it is good (go on recommendations of IFAs)

Always look at costs you are paying ongoing - e.g. for ongoing advice/management, admin fees, platform fees. 1% cost if your growth is 5% is a fair chunk, and remember that compounding really hits with costs (the opposite to the benefit of compound interest building savings)
Always maximise tax benefits - eg higher rate tax rebate when paying into a pension, which makes them more efficient than ISAs for higher rate payers

RE: Pensions and retirement, can we discuss?

Anthony Todd — Tue, 12 Jun 2018 12:35:04 GMT

[quote user="Neil Wheadon"]START EARLY[/quote]

Golden, if not diamond advice! It is amazing how much many, including me, have wasted over the years.

With interest rates so low property investments in areas of limited supply and unlimited demand make sense and, of course, buy the practice premises, don't rent.

RE: Pensions and retirement, can we discuss?

Neil Wheadon — Tue, 12 Jun 2018 11:58:00 GMT

Two bits of advise

1) I take lots of retired people away and have asked a lot of them what they actually need. The answer seems to be £2000 to £2500 a month for a couple and these folks are taking holidays. That means £24000/annum. (The other one is you can take 4% of your total pot a year) This will give you an idea of how much you need in your savings. Bear in mind to that it's quality over quantity, you can't do all those things you want to do past 75 years, I've seen this in so many cyclists

2) START EARLY

Don't prevaricate, think about the stock market etc, just put the money aside.

In my late 30's I wandered what an earth I was doing putting it away whilst others seemed to be getting new cars, going on holiday and living beyond their means. Well at 53 I have the ability to stop, the spenders are on that treadmill of having to work till they are 150.

I played with an AVIVA pension forcast the other day. I'm putting £725/,month away and at this stage, even doubling that makes little difference to the final amount if I want to retire in the next 5 years. It's what went in years ago that made the difference

Neil

RE: Pensions and retirement, can we discuss?

bob lehner — Tue, 12 Jun 2018 11:35:48 GMT

Well I sold up in 2005 at a relatively early age (55) - had some good pension funds and a pretty reasonable pile of cash. At that time bank base rate was at around 5-6% I think and you could get a decent return on capital by investing in fixed rate bonds with various institutions - with security of your capital 'guaranteed' via the FSCS. And annuity rates weren't bad.

I am the world's most cautious investor - and don't like anything where your capital is at risk (i.e investing directly in the stock market). I think in the latter part of your life it is crazy to take risks with capital - I know all the arguments about the stock market being the best long term investment - but do you really want to wake up one day and find your capital has vanished because some bloody jihadi has blown up Downing Street? Also I hate the exorbitant fees many financial institutes charge for supposedly 'managing' your money - in short I never trust the buggers to do what they say.

Anyway in 2008 there was of course the financial crash and interest rates fell to virtually zero, where they have stayed ever since - tho' slight glimmer of hope of rises now. So in short very difficult to make a decent return via my preferred 'safe' routes - and annuity rates became pitiful.

So I continued working (tho' very much part time) - which actually I was quite happy to do - you've got to consider how you are going to fill your time when you retire.

Just a stark lesson that the best laid plans ...etc. etc. And we are all at the mercy of events far beyond our personal control. No one in 2008 would have predicted virtually zero interest rates for 10 yrs plus - it's never happened before!

Probably the best thing I did was to re-locate from SE England too rural Wales - where property is dirt cheap - so was able to buy a better property than I had, for half the price - and the cost of living is a bit better here overall.

RE: Pensions and retirement, can we discuss?

Martin Atkinson — Tue, 12 Jun 2018 11:19:09 GMT

As you may have read in other threads, at 68 I am procrastinating over retirement. I switched all bar one of my multiple pensions two years ago after taking the tax free cash sum from one to pay off one of my mortgages into one pot with Fidelity on the advice of my IFA. It has done very nicely and gained about 20% since Brexit although rate of growth has slowed recently with the stock market being a bit volatile. Its in managed funds including some stocks and shares so these obviously go up and down although its a cautious portfolio to mitigate large fluctuations. There is a price to pay with this arrangement in that I have to pay a small % as a fee to the IFA but if you don't have one of those the pension company takes much the same as a service charge regardless.

I retained just one small additional pension fund with about £130K in it as that was the only one with a guaranteed annuity rate. The intention is to draw the small annuity from that when I retire and use the much larger Fidelity fund to draw down funds as necessary. I have delayed taking my OAP as it is earning a nice bit of interest in the the government's hands.

I have two valuable properties, one the surgery and one home so don't see a need to invest in any other property but I was considering buying somewhere in the Alps until Brexit and the fall in the pound. With all the uncertainty over that its on the back burner.

Still procrastinating.