trEAsury ~ pension overwhelm

Yesterday saw us in Leeds attending 3 seminars delivered by the financial advisors Hargreaves Lansdown – you may have heard of them they are a pretty big national company.  The seminars were free – so seemed a waste not to go – after all any advice is better than none.

I must admit I am so glad we attended – we came away with much food for thought.

We decided on using the Park and Ride as the seminars covered most of the day and parking in Leeds is not only difficult but expensive with a capital E.  It worked well and I would use it again – the buses were clean, quiet and driven by a lovely helpful man and we did not have to wait long coming or going.  Cost £6

The snacks and drinks we had to buy during the day to keep us going were not very cheap – we took sandwiches which we ate at 11am in the car as the first seminar was 12 noon to 2pm,  after that it was places like Costa for a toastie.  The event finished at 8.30 so we had to cover food for all day although they did lay on tea and coffee and some chocolate chip cookies.  Cost for drinks and eats out a hefty £17.

I know some of my readers are in the same place as me or coming up to retirement – some of you will be lucky enough to have final salary or public sector pensions – every ones means are different and that is the message that came out of the seminars.  I am in no way promoting or recommending Hargreaves  Lansdown – I am certainly not being sponsored by them nor am I advising anyone in any way.

The three seminars were entitled –

  • Planning for retirement,
  • Looking to make the most of your money in retirement
  • Passing your wealth onto your loved ones (presuming you have some money left).

We thought we did not have enough wealth to warrant advice but the truth is when you add up your assets – your house, car(s), caravan, any valuables, savings, shares etc (especially if you live down south where property prices are higher) you may find that they exceed the £325,000 inheritance tax allowance and so when you (or both of you) pass away the tax man will claim his 40% first on the excess and this can work out more than any individual beneficiary receives. Thinking ahead can help to preserve more of your estate for your children’s / grandchildren’s benefit.

There are it seems many legitimate ways to protect some of the money that you might pass on to loved ones by means of a trust.  I did not know anything about trusts and they may not be applicable to us but it was interesting to learn more about them.

One of the main points I came away with was I do wish we had been more attentive when we were younger and thought seriously about putting more of our surplus money into a private pension pot.  Anyone younger reading this I would say get to know more about pensions now and act on it – you will not easily sustain the standard of living you have got used to, when you leave paid work and retire on just the state pension – so don’t rely on it.  That is not to say you cannot live fairly comfortably on a state pension – my grandparents did well enough but there are no frills attached.

Obviously for us this cannot be reversed now and I remember when we were younger we did not have a lot of spare cash – we had mortgages with hefty interest rates in the 80’s and two growing girls – pensions were not on our mind but should have been and I am sure we could have squeezed a little more out of the monthly budget to put away.

But we are where we are and part of the seminar was to think about how much money we really need to live on now and during the rest of our life (of course not knowing how long this might be is a bit of a key factor in this game) and are we going to meet that income with the pension we have or is there likely to be a major shortfall.  For instance if you want to travel to exotic places or keep a high standard of living going or remain in a big house this may cause a large shortfall.

I just need to know I can enjoy my retirement and be comfortable, have a few good holidays and follow one or two hobbies and if anything unexpected happens we have the means to deal with it – I am not expecting to live it up exactly but if there is a shortfall or we need expensive care costs how can we generate more income to bridge the gap.  There are only a few ways to receive more income during retirement – for most of us this would be through savings generating interest, investments generating dividends, or  rental income (if you are lucky enough to have another property or inherited one), you might be lucky at gambling or bingo but at worst you might need to go back to work.

Another fact I had not considered is that different governments will have a future effect on our money – some will want more than others in tax.  That will not alter the choice of party i vote for but is something to be aware of.

Since 2015 the flexibility of accessing our private pension pots has greatly increased but with it a lot of complexities and the goal posts change yearly with the budgets so you need to be mindful of these changes.

The speaker, who was extremely knowledgeable, took the time to explain about the merits of the relatively new drawdown pension scheme in contrast to taking the traditional annuities.  The advantage of drawdown is that it passes on to your beneficiaries which annuities do not.  This pension pot is there to draw on if and when you need to but if most of it is left invested it can generate more capital growth to create an income stream (something I had not considered as I had been under the impression that capital was something that just ran down steadily in retirement).

The downside of a drawdown pension is that the money continues to be invested and so needs managing and if not by yourself by someone else at a cost.  If not managed well you could run out of funds unlike an annuity which gives you a set guaranteed amount monthly for life – it is a secure amount but you need a decent sized pension pot to receive a decent monthly payment in the current climate.

On the risk side I learnt that you cannot assume that having your money in cash just gaining interest is low risk – this is actually very high risk as that money although safe will undoubtedly not keep pace with inflation and if you live another thirty years will be worth very little and might only buy you a cup of tea in the future.

The best way we were told to minimise risk is not to put all your eggs in one basket – invest your money in a whole range of ways.  Sadly, this is not a simpler option and as you know I am looking for simplicity in all areas of my life but we live in a complex world so it feels pretty unavoidable.

We came out feeling much more informed if not a little overwhelmed – but like everything else we need a plan – so during this next week we are going to seriously plan our strategy and have a go at a lifetime cashflow chart as they suggest.

We arrived home to find two letters – a bank statement for our bill account, all as expected, and one from DWP notifying us of a rise in our state pension from April of £4.25 a week, about £18 month – when I budget I will work on the old amount not the new – this rise of £18 will go straight to savings.

A day of potential doom and gloom – (but made better by the free freshly baked cookies and an unexpected rise in income). x

20 thoughts on “trEAsury ~ pension overwhelm

  1. Oh, yes, if only we could go back to our youthful days when retirement, old age and the need to look after ourselves was too far away to think about! Now that I am retired I am grateful that I was in a compulsory superannuation fund that a percentage of my salary was automatically paid into. I had no understanding of retirement finances back then, but am able to enjoy a reasonable standard now because of it. Your advise to younger people is very wise!

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    1. Hopefully people will remain in the People’s Workplace Pension – the best thing the government has done for a long time and should, in my opinion, have done sooner. I was never lucky enough to work in a place that offered a pension. I was enrolled into the People’s Pension a year before I left – a bit too late for me!

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      1. Not sure what the People’s Workplace Pension is. I imagine it to be a system where each pay money is taken and put into investment, to be used when the person retires. Am I close?

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        1. Yes it is a government led scheme where an employer is bound now to offer a pension scheme and both employee and employer have to put a percentage of money each pay day into it. There are certain exceptions and a person can opt out of the scheme but why would you if the employer is going to add to your pension and then the government put in another 20-40% through tax relief.

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  2. Both my partner and I paid into Superannuation. With that on top of our state pensions we are at the end of our lives far more financially comfortable than we have ever been. We also downsized on our last retirement which purchased our current home outright. We count ourselves very lucky and quite a large part of our ‘wealth’ goes to charity. As well as our increasing family!

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    1. Once we decide what is to be done with our flooded cottage which was intended as our retirement home we will be better much better off! I am quite enjoying the challenge of managing on the state pension at present but it is hard work. Not sure how my grandparents managed as that is all they had.

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  3. We did pay into a Swiss pension, and that makes it possible for us to live carefully in quiet comfort. I’m impressed that my niece’s children are much more sensible about investing for their future than I was at 30ish.

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  4. You just motivated me to look into my super account. I’m in one that collects the minimum mandatory payments. Our super laws have changed, like most western countries, over the past decades. My account is sitting on $350,000. Mr S is in an earlier government super fund for govt employees. He will go out on a much higher amount. They stopped that fund decades ago so I didn’t get in it, despite working for the same employer. He will have more than double me.

    I plan on going to the free seminars hosted by our different super funds in about four years. I will retire about 5 to 6 years after that. Mr S probably 3 to 5 years.

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    1. Sounds like you have everything in hand and hopefully enough to guarantee a worry free retirement where money is concerned. For a £100,000 private pension pot here an annuity would only guarantee about £3,500 to £4,000 a year. The average pension pot in the UK is about £71,000 and you would ideally need £260,000 to have a decent standard of living. So a bit of a shortfall for most people.

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  5. I’m curious to know if you receive payment from a ‘private pension’ do you also qualify for the age (state) pension?
    Don’t think of it as doom and gloom, yes It is a stressful time indeed- I remember when The Golfer finally left employment the meetings with our accountant plus Centrelink (government) were endless but were necessary to sort out assets (both physical and on paper / house etc and investment) to be able to see what we would qualify for.
    With payments from super, UK age pension and Australian aged as well we manage. Quite well in fact. But then what we want out of life could be very different to others. Paying your house off is key to making it work!
    Take care
    Cathy

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    1. Hi Cathy and thank you for your comments. We are at present living on one state pension of DH – I do not qualify to claim mine yet. We have a small private pension pot as yet we have not converted it into a pension – we must attend to that soon as we are no longer paying into it so the value of it could evaporate. In the meantime we have to live on savings for any capital expenses we have monthly like decorating etc.
      I did take away from the seminars that no one path is right you have to look at what you want from retirement and assess what your needs might be – if you do not have enough pension to cover that then it is vital to look to make up the shortfall in some way and for some people the only option is to go back to work. I think for me I will make it work and manage rather than return to work to fund a higher standard of living again.

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  6. I have bought shares through HL’s platform. I should probably put them in a Shares Isa, but I just never get around to it. I have a massive gap in my pension, due to staying home with LB for 15 years, but I did get NI credits towards the state pension. I have a couple of small Government(NHS and Civil Service) pensions due to me from past employment, but I’m trying to pay more in my current job and put aside savings to close the gap a little. I just hope there’s still a state pension by the time I retire, but there are no guarantees these days.

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    1. I am sure there will be a state pension of somekind – what they might do is remove the so called triple lock or eventually force people over to using the People’s Pension scheme at the moment it is voluntary and you can opt out. It is something the government should have done years ago but they always firefight like the NHS.
      Good for you for taking the time to look into your future needs. We should have taken more note sooner but DH was on a final salary scheme which was abandoned by his employers and scrapped so we lost out big time. On getting legal advice the employees were told it was just about legal but certainly not moral!!

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  7. Not expecting to be massively wealthy in retirement – OH is a Baptist minister (great job, but the rewards are not financial) and I’ve worked part time as a supply teacher for over 30 years. Recently discovered that despite paying NI all that time, I will not get full State Pension as I’m in a public sector pension scheme (and as a part-timer only get 20% teachers pension) . Fortunately I have the option to top up due to recent change in law. I retire at 66 in two years time. I will now get full SP, and once I get to 70 I’ll have recouped my top up contributions. This is affecting a lot of part time public sector workers, but many are finding out too late. The govt pension website & the helpline have been excellent. I’m trying to share this info with friends in same situation.

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    1. I must say I was not aware of this. I thought everyone qulified for the state pension if they had enough years – that is mean to cut the state pension if you worked public sector. I still think the public sector do better as they are guaranteed some kind of pension – I never worked anywhere where the employer paid into a pension fund until the People’s Pension forced them to – but it was almost too late for me – I only got to pay in for a year and the employers contribution when it began was only 1 or 2% – it has increased now.
      It was good that you have been able to put in contributions to get a full pension and I hope you have a long and happy retirement when it comes and that you will always have enough when it is needed.

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  8. I applaud your examination of how to handle retirement. In the US, pensions are becoming obsolete. I was fortunate enough to retire with one. With the combination of my pension and social security (you must work a minimum of forty quarters to get any s.s.), I ended up with about 66% of my work income at retirement. I also have some additional money I set aside in a private account, which I haven’t drawn on yet, but must start to draw down at a certain amount annually by age 70 1/2 (it gets taxed, too). I am better off than many, but like most of you, the years when I was raising four children there wasn’t a lot of extra money to put aside so my savings are modest compared to what is suggested. My adult children are having to be very strict with their spending to save for their retirement as the average social security payment in the US is not something people can live on (e.g. 938 pounds a month with 101 pounds taken out of that for medicare insurance). There are very few safety nets for the poor and disabled in this country.

    Bad enough to worry about the ever increasing cost of housing, food and other expenses, but in the US, the thing that is most concerning as one ages is the cost of medical care. Everyone has to go on Medicare at 65 (or whenever one stops working), but the irony is that it is becoming harder to find doctors even willing to take patients if that is the only coverage they have. I do have a secondary supplemental health insurance plan from my work and that includes a prescription coverage though I still have a copay for each prescription. But one large hospital/medical bill could wipe out everything one might have saved. Even with medicare, you still have to pay 20% of every single doctor, medical procedure, labwork or hospital bill and those costs can be prohibitive. Prescription costs can financially cripple people as they can add up to thousands a month as corporate greed has inflated the price of some medications like insulin 300% or more in the past couple of years. Insurance plans also have annual deductibles that must be met before they even pay out a dime. My annual deductible is 375 pounds, but a relative of my DIL has to meet a deductible of 9,385 pounds before their insurance starts to pay for a portion of any medical expenses. To give you an idea of costs, the cost of my biannual blood work (e.g. CBC, Lipids profile, etc) is 675 pounds, of which I must pay 135 pounds out of pocket. Heaven help you if you must go into assisted care or a nursing home where costs can be over 3000 pounds a month. I can only hope to stay healthy enough to not go bankrupt–literally. Medical bills are one of the leading reasons families in the U.S. have to declare bankruptcy. One major illness and you can virtually lose everything. That is why in the US, financial advisors often recommend having a couple of million dollars saved up before retirement. As if.

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    1. That makes our NHS seem very desirable but they are in financial trouble as the population here is going to be a higher percentage of elderley from now into the future. The problem with our NHS being free for all services is that it gets abused and people become more reliant on the GP’s rather than try and get well themselves first. You may have heard that far too many people go asking for antibiotics for colds and things which is causing a big problem here and our doctors have been told to limit these. Our nursing care for the elderly in a home is only funded when you have less than £23,000 and don’t own your own home otherwise you pay privately costs about £35,000 to £50,000 a year. Such big bills to think about at retirement – I would sooner have paid more tax whilst I was working to cover my old age – I think they do this in Sweden.

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  9. I make mandatory contributions to an “old fashioned” employer pension plan, which is a rare thing now, reserved for us government workers. I do get annoyed sometimes when people complain about our “gold plated” pensions, when I am paying more than 12% of my salary off the top for it! However, I only started working in my current job at age 40, so I have to stay to 65 to get a livable pension. At that point I will also get Old Age Pension which is the same for everyone at age 65. There is a third national pension, CPP, that is also cost-shared between employers and employees. Neither Rom nor I will get the full amount because he emigrated here at age 45 and I spent 10 years out of the country and/or not working. If I leave work prior to age 65 and take the CPP early, I will get reduced CPP and reduced employer pension for life, plus I will have to wait to 65 for the OAP. I would likely use up all my savings for those interim years, and the total amount of all pensions is still nowhere close to my old salary. Nevertheless, I am saving as much as possible so that if I did have to leave work early, I could make do. Most people don’t retire when they want to – they leave work because of health or caregiving responsibilities.

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    1. It is all a bit of a lottery for everyone. The old pension scheme here was introduced in 1909 for anyone over 70 so everyone would have something to live on in their old age, however not many people lived that long to draw it! Eventually in 1940 it was changed again so women would get it at 60 and men at 65. It stayed like that for many years but now it is 66/67 for both depending on your present age. With private pensions topping this up if you have one and the public sector pensions it is much more likely now that everyone has a very different income at retirement.
      I hope it all comes together for you when you decide to quit working.

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