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Retirement con or what ??


dakota

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My daughter who is 40 years old was telling me shed got confirmation from her pension provider that her retirement age will be 74 , WHAT?? is this the governments way of hardly ever having to pay pensions out surely a great many of these people are never going to see their pension , and if they do what state of health are many of them likely to be in .? Ok i know they say people are living longer and yes some of the lucky ones may be able to retire early , but to have to wait untill 74 .
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Guest pelmetman

As many kids don't start work until they're in their mid 20's ;-)..............Its not surprising really........

 

 

I blame the education industry :D..............

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I think you have the wrong end of the stick there Dakota - the government has recently done away with the ruling that you could be forced to retire at age 65 (as well as increasing the State pension age for women considerably from 60 to 66 in my wifes case (and she is not a happy bunny over that! :-S )

 

What i think the provider is saying is that whilst compulsory annuitisation has been done away with at age 75, providers need some sort of end point to provide an illustration of benefits accrued under the scheme. And most use the year preceding attainment on age 75 as this convenient "end point".

 

Whilst compulsory annuitisation at age 75 is now no now (thank goodness!) - the rules as to death benefits from pensions do change post Age 75 for things like Phased and Income Drawdown from a pension pot. Hence the reason why most providers/schemes use age 74 leading up to age 75 as a sensible end point.

 

The rules have changed a lot of late.

 

I suggest you get someone qualified in pensions to have a look at it.

 

We are based in Ferndown - not a million miles from you - so if you want us to have a look at your daughters documentation and give you a briefing on what it means then I will be happy to arrange it. No charge.

 

PM me if you want to arrange this.

 

 

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dakota - 2013-10-20 9:40 PM

 

Thanks for the offer , well appreciated , shes actually having a meeting with her companys accountant next week so i reckon shell be coming away better informed . ;-)

 

I admire your confidence!

If I wanted advice on pensions I certainly would never ask an accountant and certainly not my employer's accountant - information maybe but nothing more!

Horses for courses!!

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Tracker - 2013-10-20 10:04 PM

 

dakota - 2013-10-20 9:40 PM

 

Thanks for the offer , well appreciated , shes actually having a meeting with her companys accountant next week so i reckon shell be coming away better informed . ;-)

 

I admire your confidence!

If I wanted advice on pensions I certainly would never ask an accountant and certainly not my employer's accountant - information maybe but nothing more!

Horses for courses!!

 

On the other hand Rich, If company accountant probably in the scheme them selves. I know I was, and get a very good , rising every year pension from them!! Though I think things have changed considerably since I retired

PJay

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The good thing about pensions is that you get tax relief on your contributions, the bad thing is that you get taxed on the income you receive on retiral. You probably also pay charges throughout its lifetime and as we now know, these can mount up rapidly. One therefore needs to do some counting up to see which is likely to be more profitable for you. Add up what you paying in, use an indexing factor for each year to increase your contributions, use a growth factor of about3%, subtract 1.5% for charges and get an estimate of what you might end up with. Multiply the final number by 0.045% and that is your annual pension. If you wish it index linked then half it, however it can take up to 15 years before you catch up with a non index linked payout. You need to decide how long you are going to live, and also consider if you wish a spouse pension to be paid. However, the bonus with any pension is if you can get your employer to make some payments on your behalf. This effectively increases the amount going in with out cost to you. Unfortunately most private employers will only match what you put in, up to a certain level. If you are a 'fat cat' at the top of the tree then this is of no consequence to you. Clive will probably be able to do this for you, for a small fee, but remember the pension funds are always optimistic with growth figures, and tend to hide charges, so be sceptical.

 

Public sector workers on the other hand get almost 1/2 -2/3'rd of their pension paid by others, good for them, bad for the rest of us having to pay it. This is due to the fact that they are virtually the only employees left with an index linked final salary pension scheme. So if your last salary is just £10000 pa you can retire on £6600 per annum for the rest of your life. To get that in the private sector will need a pot of in excess of £150000 to be built up. If your final salary is £30000, not an excessive amount these days, then you get £20000 index linked for the rest of your life whereas a private individual will need a pot of nearly half a million pounds to achieve the same result. There have been some instances where teachers for example have received more pension than they have ever earned while working, if they retired early and live long enough. A good deal if you can get it

 

So, if you are in the public sector you do not really need to investigate too much but if in the private sector then you need to do some homework. If your boss will only pay a small amount, or nothing at all then consider other savings means instead of pensions such as ISA's. These do not give you tax relief but you will not pay tax on the final pot or the interest accrued. In additon the final pot is all yours. Consider other savings means or investments which may be a bit more risky but pay out more at the end of the day, but never put 'all your eggs in 1 basket'. Remember even your pension schemes rely on stock markets so if they go down, so does your pension so you do not escape the perils. Again as public sector workers get their pensions paid from tax, they do not have these problems.

 

Putting it under the mattress may start to become a reasonable option for the future, just as long as it does not get nicked, or the house burns down. The alternative as Milliband will no doubt work on, is for everyone to work for the State, so all will get generous pensions. Who pays? Don't know.

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And if you contribute via salary sacrifice, you can get your employer to contribute the employers NIC as well - that makes it very worthwhile - we are doing a lot of this where people also lower their salary so as to keep child benefit.

 

Now I know this is bending the rules and some may not like the idea of that - but we did not make the stupid rules - we just follow them! 8-)

 

But overall - cannot fault your analysis Dave.

 

Pensions work if your employer contributes as well or if you are a Higher rate Tax payer.

 

If you are not a HRTP then Pensions are of dubious overall value.

 

Especially when you consider todays low annuity rates.

 

And if you do accrue a pot of a reasonable size such that Drawdown is an option then beware the 55% tax hit your beneficiaries suffer on YOUR pension pot when you die.

 

That makes the Taxman the biggest beneficiary of your hard earned and saved pension pot when both you and your spouse die.

 

So do consider other savings vehicles to give you "Tax Free Cash" (TFC) so you can used Phased Retirement (or Staggered Vesting as it is also known) which is where you take slices of TFC to live off rather than take ALL the TFC in one dollop.

 

Phased Retirement works best for most people - but you do have to accept that taking the full amount of TFC upfront is then not an option. So even if pensions saving is suitable for you - do yourself a favour and save via an ISA or similar to build up a chunk of non-pension asset.

 

Having that option is a very wise move indeed.

 

Finally - get to grips with "Auto-Enrolement" if you are an employee and currently your employer does not offer a scheme - overall it is a good concept modelled on the Australian experience - but it is still a second best solution. Ask your employer what the staging dates to identify the timing and make sure you check out the scheme selected.

 

I am loath to say opting out is a sensible option seeing as the employer will be forced to contribute. But to me the issue that everyone ignores is what happens to the pot accrued when you retire. Nothing much has changed there, sadly.

 

When Auto-enrolement is fully introduced employers will have to contribute 5% of your earnings and employees 3% of their earnings. It is being phased in but coming it is!

 

But as I say it is a very poor second to the Public Sector Scheme which is Final Salary related and paid for out of the tax contributions we all pay.

 

Sadly this means that the low paid are forced to contribute far more to other peoples pensions than they can ever afford to contribute to their own financial wellbeing either now or in their future.

 

 

 

 

 

 

:-S

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Personally I have no issue with paying charges on my investments if it means my investment will show me a better return than other forms of savings.

 

People sometimes get blinded by what they think others are taking from their money, but I take a broader view that as long as we all do well that seems pretty fair to me?

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peter - 2013-10-21 11:19 PM

 

If you're savvy you put all your investments under an ISA umbrella and pay no tax at all.

 

The tax treatment of the investments within an ISA or a pension is exactly the same - both grow free of tax on any Capital Gains achieved but thanks to Gordon Browns first stealth tax both now suffer tax on the dividend income achieved within the funds that gain dividend income. Prior to Gordons stealth tax both the capital gain on a share AND the Dividend Income were tax free. But now the Dividend Income within investments (both ISA and Pension) suffer a tax. This nets the tax man circa 5 to 8 £Billion a year and had done more to put people off saving for retirement via pensions than anything else.

 

If you do not like this then select funds within the ISA or Pension wrapper that do not produce Dividends - such as Property funds (obviously beware Property Share Funds) or the Fixed Interest Sector. The former produces Rental Income (not subject to Gordons stealth tax) and the latter produces Interest (also not subject to Gordons stealth tax)

 

So you can circumvent this tax to a degree. But it means ignoring the Equity Sector - not an especially sensible thing to do really.

 

As for other taxes - Pensions have the advantage of tax relief on the contributions that can make pensions very good options if you are a HRTP or can benefit from Salary Sacrifice where you can benefit from the employers NIC "kicker" as well.

 

ISA's do not have this advantage. But they DO have the advantage of no income tax or restrictions on how you access the income or capital.

 

And when you die, monies in an ISA "crystallise" and the funds are added to your estate so they could suffer 40% IHT.

 

But this means that ISA's should be considered alongside pension planning to enable any "Tax Free Lump Sum" to be achieved outside of pension plans as these days, using the 25% Pension tax free cash lump sum to produce "slices" of "income" each year via Phased Retirement because this option is a highly tax efficient option on all counts - especially now that they have changed the tax hit on a Drawdown Pot on death of last spouse to a whopping 55%!!!!!!!

 

A non-vested pension pot as can be maintained via Phased Retirement (or Staggered Vesting) as it is also known can be passed onto your beneficiaries intact and if the Death Claim Value is written in Trust, it acts like a kind of "Life Policy" that pays out the value of the pot on death into a Trust that has your loved ones as beneficiaries and so the 'pot' does not form part of your estate and so avoids IHT. So use ISA's to accrue your Tax Free Lump sum - so as to allow the more sophisticated Staggered Vesting of your pension pot.

 

So when you consider staggered vesting or phased retirement allows slices of tax free cash to be taken as income during retirement AND the Non Vested pot to be protected from IHT - this option is well worth considering compared to Drawdown that provided taxable income and on death of last surviving spouse, the 'pot' suffers that whopping 55% tax hit.!!!

 

And the really sad thing is that recent research indicates that 80% of people just take the annuity offered by their employer or their provider without checking out what other options are available.

 

Which considering the decision to buy an annuity is irreversible and probably the most important decision people will ever make at that stage of their lives before they die, this statistic is rather surprising! 8-)

 

So if you are approaching retirement - do some research as to what your options are. Make the wrong decision and you have the rest of your life to regret it.

 

 

 

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This has all been interesting reading thanks to all , ive been informed by my daughter that the documents that were issued to her and her collegues have been replaced by documents that give the correct retirement dates , and not the miss printed ones issued earlier , shes now sighing with much relief after finding 65 is her correct age of retirement . :-D
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