I am 48.
I have a frozen pension from my previous employer of around £8k index
I now work for a company that offers a salary sacrifice pension.
Any advice as to whether I should join or simply save £200 a month for
the next 17 years and draw from that when I retire?
With annuity rates (including return of capital) paying only pennies more
than you can get for long term cash investment (leaving the capital intact)
I won't be putting a penny more of my money in a pension plan.
And I couldn't advise anybody else to do otherwise
You don't think that 40, 50 or even 60% tax relief on the contributions
would affect that decision?
At the moment I'm paying in as much as I'm allowed to. Should the
chancellor take away higher rate tax relief then I'll only pay in enough
to maximize my employer's contributions.
That's a good point. Higher rate tax payers with a good company scheme would be
daft not to, even with the increasing risks to the whole pension system (IMO).
tax office and your employer is essentially hedging your bet by a considerable
But for lower rate tax payers with weak company schemes (mine matches 3% of my
basic pay, which is 5k under median) it's much harder to make a case for pension
contributions. Even if you top it up significantly yourself, you're simply
on more of the risk yourself.
My plan is simple... don't retire. :-) Not completely anyway. To generate the
equivalent pension income from one day in a lousy job would require a silly
of pension savings. The maths just doesn't seem to work out.
And I must admit that these days my trust in just about any financial
is tending towards zero. My cash ISA may be being eaten by inflation, but I know
exactly what I've got and can plan accordingly. With pensions it's all guesswork
until the moment you put pen to paper on the annuity.
PS There's definitely a case to be made for early semi-retirement and enjoying
while you're still young enough to do pretty much whatever you want. Of course
you have expensive tastes that won't work, but I've always been cheap to run, so
I think a lot of people have wildly unrealistic expectations of retirement
based on a period when many people have -- unsustainably -- done very well out
system now struggling to keep its head above water.
In article ,
I think my employer adds whatever NI savings they are making by paying
Another element in the equation I thought about is this: my wife and I
have no dependents and own our property outright and so using that as
collateral in our old age is an option with no adverse consequences when
Equity release schemes, is that what they're called?
Given this situation, would you agree that my dependence upon an income
from a pension is not as great as someone planning on leaving their
property to offspring?
well, such tax relief roughly matches what the pension fund managers
will extract from the fund in commissions over its lifetime. Also, as
we have already seen, the government can change the tax rules applied
to pensions and apply the new rules to the whole pot, not just the bit
accumulated since the change. That leaves the fund rather a hostage
This may be true for some pension funds - and with a work scheme you
might not get a choice - but my current employer scheme has, since 2005
when I joined - achieved about the same return as I would have got had I
put the money, inc tax relief and employer contribution, into a savings
account at 2.5%
The remainder of my contributions go into a SIPP and the charges are
minimal, less than 0.2% of the fund value. (Although my SIPP is,
perhaps, bigger than average and I've "reached the cap" on charges other
than dealing charges.
This is a real concern, and I'm far enough away from 55 (which was 50
when I started contributing to my first pension plan) that I wouldn't be
overly surprised if the goal posts move again. I'm trying to hedge that
risk a little by keeping enough money outside of my pension (mainly in
index linked savings certificates as and when they are issued) to ensure
that I will merely curse if they move the minimum age to 60 and accept a
higher annuity/drawdown then and will not have to rethink my retirement
But, on the flip side, I made minimal pension contributions until my
mortgage was paid off. Although when I had a mortgage interest rates
fell into the 5-10% bracket. Nowadays the sums aren't as compelling. I
would probably still choose to pay off a mortgage first before
contributing to a pension but it would be a difficult call whether to
grab the tax relief while it is available.