Exactly... you're going to need a very substantial pot to match your salary. This is why for years final salary schemes have pretty much been unheard in the private sector. It doesn't help that life expectancy is so much longer nowadays so pension payments need to made for 15 years or more.
The average payout from an annuity is approx £4,000-£5,000 per annum per £100,000, from what i read. Its not a lot if its your only source of monies to live off.
There was a lot of misselling in the 90s as providers were trying to convince individuals that they needed to put away enough each month to match their current/future salary for a future pension. This was very damaging as many investors simply didn't bother. I have few friends and relations that are still locked in the matrix mindset that they can't give up work, as they cant afford to 'give up' their current salary. Individual circumstances will vary of course. But if you've paid off your house and not collected a couple of ex-wives and a tribe of inherited kids, you really don't need anything like the salary you're giving up. Time is precious.
That's about right but even if you didn't take up an annuity you still need a substantial sum to invest to get any where near a decent 'salary' from it. The last thing you would want to do with a pension pot is make a high gain/high risk investment. It's one of the reasons the housing market is in such a mess because house rental can provide a good income... 10% or more Very true... and this is the best way of reducing your pension pot - reducing your expectations & outgoings. When you actually look at the things that make you happy & content you may realise they don't actually cost a great deal. Apart from that £150 week coke habit...
But you don’t actually have to “match your salary” to end up with the same net income…….firstly your not paying NI, and to state the bleeding obvious you won’t be paying into a pension pot either.
That is very true... however for me it took been furloughed to see that even trying to match your net income may be a fools game. The mortgage had already been paid off but I could still pay the bills & didn't starve and spent a rather jolly 6 months bimbling about. True there was little opportunity to spend but after this I went back to work on a 4 day week and again found it pleasant without the need for a larger salary. So, both these experiences helped me realise that perhaps I could retire early on a relatively small income and still enjoy it.
I used to run my own business and I was fortunate to be able to stuff my pension when we had a good year. When I sold the company and retired I had a hard look at my pension (which was with Standard Life) and realised how much I was paying them in fees each year. I had been through a few financial advisors in the past and had been having an informal chat with an IFA (who I knew personally through the Aprilia forum trips), but he retired. I couldn’t see why I needed to pay a substantial % of my pot to a new IFA, for what was basic info (without any investment advice). However there are companies which will allow you to pay an hourly fee, which was much cheaper option for me. I looked into further and I decided to manage the pot myself in a SIPP with Interactive Investor. The costs were next to nothing and I picked a low cost global tracker fund and a low cost bond fund. I haven’t need to draw on it yet and I wouldn’t buy an annuity. With a SIPP you can keep funds invested and manage the withdrawals (so you don’t run out of money). If you die early then you can pass the pension fund onto your wife/children in a very tax efficient way. I understand it’s not for everyone but it works for me. The most important thing with all pensions is to keep the fees low!
Having spoken to someone it’s c2% ongoing advice and platform fees with an upfront charge of 3k for the transfer work (comes from the pot). Some research shows not many will deal with CETV as it’s full of risk for the adviser and their insurance company. The find is invested and I can track and choose to make changes or leave it with them to do (it’s what the fees are for). Got some good (sounded it) advice about using tax free sums in most tax efficient way. Ball has started rolling. Hoping it carries on until it’s in the back of the net and not deflected off the line…..
An interesting aside - our wonderful government now has designated state pensions to be a benefit despite the fact that you me and everyone else has actually paid for it themselves -more like an investment/ savings program to my mind. As your pension will be a benefit, under the new Tory rules, they will have full access to your bank account, without a warrant or notifying you. The only way to avoid this snooping is to not claim what is rightfully yours. So what do you think about that?
I saw that reported this week, it’s shocking what they have added in the last 29 years. Blair started pushing the boundaries and this latest govt have exploited public ignorance and blind following by making it worse. Don’t want to get this thread all political, but one of the reasons I want to get access sooner than later is they will continue to take more and more
@bradders the general advice is not to leave a final salary scheme, they are usually a much more profitable long term option. I understand you said you had health concerns and if so you can often get an ‘enhanced’ annuity if you decide to go that way. Good article laying out the options here: https://www.unbiased.co.uk/news/pensions/leave-or-remain-the-final-salary-pension-decision Enhanced annuity https://www.lv.com/pensions-retirement/enhanced-annuities Just be careful there are a lot of dodgy ‘advisors’ out there and all they care about is the commission.
I'm thinking some of the skills you had when running your business helped in your confidence to then run your own financial affairs. And as you say this isn't something that would suit everyone. As an aside another reason for my caution and going with an annuity alongside investments is that my mother & partner pretty much lost everything because of the 1987 stock market crash. They made the classic mistake of not having sufficient liquid assets to help them ride out any falls in their investments.
Andy It depends on the amount you have in your pot. You can always take a part annuity and leave some invested in a SIPP which should hopefully allow for further growth. This is a good guide to passive investing in Tracker funds. Most of these will match the market of a long term period (5 years) and provide average returns at a low cost https://monevator.com/category/investing/passive-investing-investing/ Most active fund managers find it had to beat the market (or a tracker fund) on a consistent basis, so even if they achieve average returns their increased costs will reduce your overall gains. Vanguard offer pretty simple low cost pension plans with cheap trackers It's easy to get confused but with a bit of research it's actually pretty simple and IFA just take a bunch of money to tell you to diversify your assets. I have most of mine in a global tracker, then smaller amounts in UK All share tracker, European tracker, US tracker, Global Infrastructure tracker, Global bond fund and a bit in a Small cap tracker. I'm also a bit naughty and have some Apple shares (which I wish I'd bought years ago but have still done well.)
Historically property outperforms most investments. When I quit the UK for France (with not a huge pot of money…) I bought a cheap house in the North East. Cost 7 years ago, 89k, value now 138k. IF* it was rented at full market value, then there would be an income around 7k a year. Less tax and overheads. So an ongoing return, plus the investment goes up. Obviously you need to read the market and pay the right price in the first place. Newer houses obviously have much lower overheads for maintenance and surprises. So far, a new kitchen and a boiler have been installed. Offset against tax. *my daughter has been living there at massively reduced rent , though her and her partner now have ‘real’ jobs and are finally looking for their own house!
A good few years ago I stopped paying into my pension pot as the law at the time only allowed for an annuity to be bought with it on retirement. So I changed tack and invested in NI bonds & ISAs & such. Come forward 20 years & the law changed wrt to what you could do with your pension pot, draw down, take 25% tax free etc etc and what did I do when taking my early retirement? Yep, took advantage of the higher gilt yields and bought an annuity... I do have other liquid assets that have been invested on a FA advised platform & wrappers within and both, of course, are taking their snip. I may let this situation run for a year or two and when I have fully retired may well look at managing these myself... or perhaps not.
