What is a decent pension pot?

[Dark Knight]

I read an interesting article in the finacial bit of the paper yesterday about the new pension rules and what it all meant,
one comment mentioned " a hefty pension pot of £150,000"
I dont know much about pensions , as I am a way off retirement but is this a decent pot? and how much income would it generate?

[GillD46]

I don't think that's a hefty pension pot at all, above average possibly, but hardly hefty.

AFTER my 25% lump sum, I get about 5-6% pa of the 75% left of my private pension. But that one was very small as I only took it out 4 years before I chose to take retirement.

[Dancing Queen]

I read an interesting article in the finacial bit of the paper yesterday about the new pension rules and what it all meant,
one comment mentioned " a hefty pension pot of £150,000"
I dont know much about pensions , as I am a way off retirement but is this a decent pot? and how much income would it generate?

I would say not but it depends on what you decide will be sufficient for you, my OH has always paid the maximum he can into his pension to maintain the figure we thought will best meet our needs.

To look at it another way £150k based on someone living 10 years after they retire ( obviously that figure doesn't take investment into account ) would give £15k a year( which is also taxable once your tax limit is reached ) but it doesn't work like that because someone could well live for another 20/30 years so all this is taken into account when you are buying an annuity ( I do realise the rules on annuities are about to change ) it is worked out on a % level but sorry I have no idea how, a good financial advisor should be able to give you some idea though.

I don't know if I'm explaining this very well but you can never start planning for retirement too early, the bigger pension pot you have the better as far as I'm concerned I would hate to think we suddenly couldn't do all the things we have planned.

[david63]

I don't think that there is a definitive answer to that question - apart from whatever it is it will not be enough.

Working on the assumption that when you get your "pension pot" that you are going to invest it in order to provide you with an income then the first question that needs answering is "how much income will you need" bearing in mind that, as things stand at the moment, you will also receive state pension.

The big unknown for future planning is what the investment rates will be in the future. Up until six/seven years ago you could with the help of a good financial advisor get around 10% (more if you were to take risks). These rates fell to somewhere around the 2.5% mark when the "crash" came but are now getting back up to the 6% mark.

The other big unknown when planning for this is how long will you live to draw your pension once you retire.

So based on that I would base my calculations on getting 5% and hope that it is no lower when you start as you would then find that you would be drawing on your capital and it would disappear very quickly.

If, based on today's values, you wanted to have an income of £20k then allowing for the fact that you would be getting £7k state pension you would need an income of £13k which means that you would need to have an investment of around £250k (non of this allows for whatever tax rules are in place either now or in the future)

I would say realistically looking at say 30 years hence and allowing for inflation one way or another you are going to need something in the region of £500k - but some of that could possibly be achieved by "downsizing" in the property market.

[Frank Manning]

Very true David, £150K? No, that is not at all excessive.

My total pot after contributing all my working life was MVA'd and they dragged their feet in paying out when I wanted to take an open market annuity, (I will never trust Legal and General again). Even after that it was £200K plus, and after taking into account lousy annuity rates, inflation proofing and providing for Sue, the final monthly amount was not great. However I had paid into SERPS, (lots of people contracted out - biggest con ever that was! Stay in SERPS.), and Sue had her own pension, so we didn't do too badly.

Dont rely on the state, dont trust the insurer/ pension company to look after you; they are in it for themselves. Dont blow it all; you dont know what the future holds. Dont run up massive debts. That's my advice for what its worth.

The entire market needs a major overhaul and strict regulation but I am not sure the budget really did people many favours.

[Dark Knight]

when I read the article, £150,000 didn't seem overly large
I agree with David's assesment , as far as my knowledge allows.

[kaymar]

If it helps, when I retired I had the opportunity of buying out my final salary pension pot of c£500k, having taken the tax-free 25%. At the time, I could probably have invested this at 6-7%, earning £30/35k p.a. Having given it some thought, I declined the opportunity and took the pension on offer, which was a similar annual figure. I can only say how glad I am to have made that decision, given the rates available over the last five or six years, which may or may not improve to any extent in the near future.

Unless you are prepared to see your capital reducing, and want to maintain a reasonable standard of living (and the occasional cruise!), I would suggest that you should be looking at something like £500k as a starting point in todays climate.

Good luck!

[barney]

'Unless you are prepared to see your capital reducing'

I'll be quite happy to see the capital reducing

As my old mother says, 'there are no pockets in shrouds'

You can't take it with you

Spend it. Enjoy it. And live life to the full.

Certainly don't trust the pension companies, their only reason for existence is to make money out of your money

[david63]

'Unless you are prepared to see your capital reducing'

I'll be quite happy to see the capital reducing

As my old mother says, 'there are no pockets in shrouds'

You can't take it with you

Spend it. Enjoy it. And live life to the full.

Certainly don't trust the pension companies, their only reason for existence is to make money out of your money

That is true - up to a point.

If your capital reduces too quickly too soon then you could end up with nothing sooner rather than later.

It is a very fine balancing act and one that is almost impossible to get right.

[kaymar]

'Unless you are prepared to see your capital reducing'

I'll be quite happy to see the capital reducing

As my old mother says, 'there are no pockets in shrouds'

You can't take it with you

Spend it. Enjoy it. And live life to the full.

Certainly don't trust the pension companies, their only reason for existence is to make money out of your money

Excellent sentiments, Barney, on the assumption that you know exactly how long you are going to live.

Clearly, If you rely on the income from your initial capital sum then, if that capital reduces, so does the interest it earns and if you keep up the same level of spending then your capital reduces even faster, creating a rapid downward spiral. If you are happy with that then fine, just spend it and worry about it when it runs out (if you are still around)

[Dark Knight]

looking at the replies, £500,000 seems to be the magic number, plus a state pension, should it still exist when I come to retire
one observation is how on earth are the younger generation ever going to amass such large pension pot?
luckily my pension provisions are well in hand and we should reach the magic number, fairly comfortably.
Also with the new rules .the temptation would be to take the money and run, however reading more on the subject this might not be the wisest move

[Quizzical Bob]

looking at the replies, £500,000 seems to be the magic number, plus a state pension, should it still exist when I come to retire
one observation is how on earth are the younger generation ever going to amass such large pension pot?
luckily my pension provisions are well in hand and we should reach the magic number, fairly comfortably.
Also with the new rules .the temptation would be to take the money and run, however reading more on the subject this might not be the wisest move

They have to start saving and putting money away instead of living the high life.

[Andrea S]

I look at a pension pot being equivalent to x number of years annual salary. To maintain a reasonable standard of living in retirement aim for a pot as high as you can.

Starting a pension as soon as you are employed is a good start.

No one can see in to the future and know for sure that they will be able to continue working until they reach state pension age. Save whilst you can.

[Quizzical Bob]

http://www.deathclock.com/

This one gives me to abut 81 so about another 17 years. I tried several of these predictors ranging from +30, +15 to -14 years!

[Delboy]

At today's values a Pension pot of £100,000 would get you an Annuity of approx £5,000 per annum.

I did a calculation recently with age relate

Somebody with savings of over £10,000 would not be entitled to any additional benefits on their state pension.

However if they only had a state pension and no savings to declare, then they would be entitled to approx £4,800 per annum in top ups, roughly the equivalent of the annual income of a £100,000 annuity.

[Stephen]

The only use my pot will have is for pi**ing in

[Dark Knight]

Thats what you get for living darn sarf and spending all your money on rent and mortgages
that would explain all those people sitting on park benches wrapped in newspaper

[GillD46]

Lots of us pay neither rent nor mortgage DK!

[towny44]

Just done a quick check on one of the annuity calc websites and at current rates I would need a pot over 3 times the size I had when I retired in 2000 at 56 to get a similar sized pension with inflation at rpi. Frightening!.

[Dark Knight]

Towny
this is the bit that worries me
if I have a £500,000 pension pot and get the meagre interest rates currently on offer of 3-5 % then it would not be enough, however if it reverted to the rates paid before the crash, of around 8-10% then happy days
however how can people divert enough money into a pension and still have a decent standard of living, to offset he low interest rates
on an average salary, it cant be done
one thought, will the annuity providers be offering better rates ,now people have more options

[Jan Rosser]

I am one of the fortunate few who was in a final salary pension scheme as was my late husband which is index linked and now subject to CPI rather than RPI unfortunately. I honestly have no idea how big my pension pot was but do know that my husband's was substantial and I pay a lot of tax on it but at my time of life with no mortgage either I consider myself comfortably off - I'd be even more so if I could stop booking cruises and buying clothes and shoes

[towny44]

Towny
this is the bit that worries me
if I have a £500,000 pension pot and get the meagre interest rates currently on offer of 3-5 % then it would not be enough, however if it reverted to the rates paid before the crash, of around 8-10% then happy days
however how can people divert enough money into a pension and still have a decent standard of living, to offset he low interest rates
on an average salary, it cant be done
one thought, will the annuity providers be offering better rates ,now people have more options

The annuity providors are going to have to increase their rates, and risk exposure, if they are to continue in business, so for your sake I hope you are right. If not you might have to take the risk yourself and opt for the new drawdown system. Whichever system you opt for I doubt it will pay for the same number of cruises as we older and more fortunate folk.

[Dark Knight]

Towny
unless interest rates rise and annuities are increased there will be lttle hope for my generation and there will be a very marked divde between have and have sod all

[kaymar]

I am one of the fortunate few who was in a final salary pension scheme as was my late husband which is index linked and now subject to CPI rather than RPI unfortunately. I honestly have no idea how big my pension pot was but do know that my husband's was substantial and I pay a lot of tax on it but at my time of life with no mortgage either I consider myself comfortably off - I'd be even more so if I could stop booking cruises and buying clothes and shoes

Yes, maybe, Jan, but what would be the point?

[Jan Rosser]

I am one of the fortunate few who was in a final salary pension scheme as was my late husband which is index linked and now subject to CPI rather than RPI unfortunately. I honestly have no idea how big my pension pot was but do know that my husband's was substantial and I pay a lot of tax on it but at my time of life with no mortgage either I consider myself comfortably off - I'd be even more so if I could stop booking cruises and buying clothes and shoes

Yes, maybe, Jan, but what would be the point?

That's what I say - you never know what's around the corner - live for today