Any opinions on the best way for those on low incomes to plan financially for retirement?
I have had several discussions with my dad and he reckoned if you can only save enough to fill an ISA each year, better to do that than start a pension so long as you make sure its in the right place re interest - is that the consensus?
Also, my wife has just been offered her company pension scheme. It is a 3% contriubition from her and the company pays 6% according to the blurb - is that a good scheme as they go?
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Your dad is taxed on his income.
Therefore £5000 saved in an actually cost him £5000+tax+NI so at least 30% more = £6500+
Another route is a Pension Plan - he can put the money in a "CASH Fund" or an "Shares Fund".
Less risk with cash but less potential growth.
A personal pension allows tax to be clawed back i.e. he can put more in without spending any more money - downside is he will have to buy an annuity at some point after taking a max of 25% cash tax free (if he wants to).
Your Mother - Save 3% and get 6% put in by employer is a no brainer - 3% is taken before tax so gross pay and tax are both less. Many pensions can allow you to increase the 3% to a higher figure.
Pitfalls of Pension - if you have less than say £50K in the pension pot it is not really worthwhile as the Govt has a guaranteed min pension. roughly OAP is £100, min GP is £130. So the £30 per week is free money - A pension pot of £50K will produce more but no significantly more.
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Thanks, not sure how it became my mother and father though :-) dads well into retirement, but he was earning £150k a year and times were different in the 90's, so I can never be sure he knows whats relevant now.
So if you can only put away a few thousand a year at best in the current climate, whats the best place to put it?
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Imo wifey should go for the firms scheme - got to be worth something for them to put 6% in. Compulsory in a year or two anyway, if i understand things right.
For yourself, Isa probably good idea.
I am not a financial advisor. Investments can fall as well as rise and past performance is not a guarantee for the future etc etc.
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Unless you can be sure to be in for the long term, say 5 to 10 years, then be very careful about pension schemes including company ones adding 6% to your contribution. The amount you will lose in commission to the financial adviser will be enormous. Please check what the deal is before you commit.
IMHO go with the ISA.
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I think mine will be half the value of what ever property my parents are living in 30 years time. A major risk though as they will probably end up selling the property to pay for their care.
I have been thinking about my pension before and I have come to conclusion I can't ever retire but I do need to start a private pension. Savings is no good to me because I will just dip into it so it would need to be a private pension or maybe shares but any shares are risky long term.
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>> be a private pension or maybe shares but any shares are risky long term.
No, shares are risky short term, long term.
Everyone says property. This is true, if you have capital. Placing it in property is probably the safest long term bet going.
To get capital you need to stuff it away somewhere on a regular basis and dont touch it.
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"I think mine will be half the value of what ever property my parents are living in 30 years time. A major risk though as they will probably end up selling the property to pay for their care."
Rattle you need to implement your retirement plan as soon as possible. 30 years will fly by. Start by driving a wedge between your sister and your parents, perhaps a whispering campaign about how her husband plans to flitter away her inheritance on fast cars will get the ball rolling.
When you're absolutely certain she's been written out of the will, think about reducing that 30-year wait. Perhaps a couple of rolled up ski socks wedged in the gas boiler flu, or simply wait until it's -15 outside again and switch it off altogether for a couple of nights. But don't just get them whacked - unless you can put your sister in the frame.
She probably has similar plans, so it's critical you make the first move.
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>> But don't just get them whacked - unless you can put
>> your sister in the frame.
>>
>> She probably has similar plans, so it's critical you make the first move.
>>
"Unless you can be sure to be in for the long term". You probably will be, and your pension pot will be maturing nicely while you are inside.
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>>Property.<<
You took the words right out of my North n' South.
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>>Property
>> You took the words right out of my North n' South.
Ditto.
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>> Unless you can be sure to be in for the long term, say 5 to
>> 10 years, then be very careful about pension schemes including company ones adding 6% to
>> your contribution. The amount you will lose in commission to the financial adviser will be
>> enormous.
Not if you don't use an adviser or buy direct. Use a funds supermarket. I don't understand why you would dissuade anybody from an employe'rs (I assume you mean a defined contribution) scheme where they put a significant contribution in - it's free money and there are no intermediaries involved.
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Couple of earlier threads here.
www.car4play.com/forum/post/index.htm?t=4798&v=f
www.car4play.com/forum/post/index.htm?t=1979&v=f
An ISA isn't an investment, it's a wrapper that makes an investment more tax efficient. Pensions (e.g. a SIPP) also have tax benefits.
With either you still have to think about what you invest the funds in.
For the long term, think about stocks and shares ISA rather than cash. You don't have to be a trader. My ISA allowance this year will go in to, probably, Standard Life's Global Absolute Return Strategies fund. goo.gl/UhPcM . (Not a recommendation, I'm not qualified!)
Don't buy funds from the issuer or an IFA. Use a funds supermarket like Hargreaves Lansdown who will not take the initial charge for most funds (4% on the one I mentioned above).
Do the basics first. Make sure you have a rainy day fund, and pay off any mortgage.
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For my two penn'th...
Your wife's employer is offering her 6% of her salary. It will cost her 3% of her gross salary i.e. before tax & NI so actually considerably less of nett salary. Why would you turn it down?
As for yourself I'd say, ISA, and as pointed out elsewhere this is a tax wrapper, not an actual investment. I'd go for a stocks 'n shares one not cash. India, China or spread the risk and go global. That may be a stepping stone to property.
Plan B is spend it all and rely on the state.
John
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At some point ill inherit a portion of my parents wealth, so that will be put into property, but I know I cannot rely on that so I want to have something of my own cooking aswell, even if its rather insignificant, just incase mum spends the lot through spending or care, which seems likely the way things are going.
Thanks for info, to a dumb dumb like me, investments all seem rather complicated, think ill go and wash a car before my brain fries :-)
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"just incase mum spends the lot through spending or care"
I think it's these damned animal charities that are the biggest plague on inherited wealth.
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Haha, mum isnt really into animals, shes into spending on clothes and other frippery.
She also does rather buy me alotta stuff, nice food and such, so does my nan, but then my great-grandmother had the same vein of generosity towards family too, so its not because Im good at sucking up to people :-)
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I agree BBD.
My old Mum is getting through her money on TravelZoo.
Grrr
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I had thought about a virgin one, paying about £30 a month into it. The returns are not great but if for some reason I am not working at 70 (if I am still living) then I am sure the extra income would be very handy.
I know 30 years will fly by, the last 5 certainly have!
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>> I had thought about a virgin one, paying about £30 a month into it. The
>> returns are not great but if for some reason I am not working at 70
>> (if I am still living) then I am sure the extra income would be very
>> handy.
>>
>> I know 30 years will fly by, the last 5 certainly have!
>>
Try £300 a month Ratts, petrol will be £50 a litre by the time you retire.
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No point of paying a third of my income into a pension, if that was the case I may well jump in the Mersey now and have done with it. If I have to jump in the Mersey when I am 70 at least I have had enough 40 years.
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From posts on here it is obvious that the property boom does not have much further to go.
Does nobody, really, remember the late 80s early 90s when interest rates reached 15%?
Your wife should grab the generous terms on offer from her employer.
Otherwise, I'd go ISA rather than pension as the wrapper for savings.
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"Does nobody, really, remember the late 80s early 90s when interest rates reached 15%?"
They only stayed at that level for about half an hour and then Geoffrey lost his job.
John
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i remember having to pay my mortgage that month at 15percent.. ouch.
although thankfully it was lowered quickly but still at 7ish percent.
its remarkable that rates have been so low for so long now.
stu. get some ready cash first.
3k in the bank or better still get someone to keep it for you until an emergency crops up then an isa or similar.
your partner needs to read her info on company scheme but they are mostly a better bet.
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>> "Does nobody, really, remember the late 80s early 90s when interest rates reached 15%?"
>>
Yes. Heard it on the radio at work. It was going up through the day, and I was starting to worry about my mortgage payments. Then it hit 15% and I stopped worrying because I knew i would be homeless.
Then it went back down into the worried levels.
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>> "Does nobody, really, remember the late 80s early 90s when interest rates reached 15%?"
>> >>
>>
>> Yes. Heard it on the radio at work.
Me too, remember those blissful, internet free, days when your only up to date news was on the radio?
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Base rates have spent a lot longer higher than people seem to remember. They were at 15% for an entire *year* in 1989/90. It wasn't just an afternoon in 1991. People clearly really *don't* remember when interest rates were at 15%.
Above 10%:
July 73 - March 77 (save for a couple of months, but hitting 15% during this period)
June 78 - April 83 (save for a couple of months, but reaching 17% in November 79)
July 84 - March 87 (a fraction of one percent below 10% for a few months)
July 88 - Sept 91 (peaking at 15% in October 1989 a level it remained at for an entire year)
www.houseweb.co.uk/house/market/irfig.html
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We bought our first house when rates were around 15% and always based affordability of mortgages on the possibility they would get to that level again. It's not a worry we have now but I'm amazed that folks are still taking out mortgages based on low rates being here for ever.
Regarding retirement plans for low earners. From what Stu has said of his income on here in the past I wouldn't bother. I say this having tidied up a couple of estates where the ten bob a week plans would be lucky to buy a new TV after 30yrs of payments. It would probably take all of Stu's monthly income after expenses to produce a worthwile investment.
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A year?
I had a mortgage in in 1989, I cant remember it being at that level for year, I wouldn't have been able to afford it.
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>> A year?
>>
>> I had a mortgage in in 1989, I cant remember it being at that level
>> for year, I wouldn't have been able to afford it.
>>
As mentioned, nobody remembers; not even those who were paying a mortgage at the time. Click on my link above if you don't believe me.
I remember at that time tying my paltry savings up in an account that was paying 12% Fixed until about 1995.
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>> They only stayed at that level for about half an hour and then Geoffrey lost
>> his job.
Someone is offended. Not Geoffrey, surely...
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... maybe his new friend Rattle? ;-)
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>> >> They only stayed at that level for about half an hour and then Geoffrey
>> lost
>> >> his job.
>>
>>
>> Someone is offended. Not Geoffrey, surely...
Bungle?
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I bought my first house in 1979 when the mortgage rate was 15%. When it came down I carried on paying the same amount each month; I managed to knock 8 years off the mortgage term that way.
Refused all the inducements over the years and different mortgages to have an endowment policy - always had straight repayment.
With the benefit of hindsight I wouldn't have done anything differently.
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i quickly realised that the endowments were worthless and switched to a repayment.
i remember paying several large payments based on 10-15percent interest on my mortgage and like others based affordability on 10percent interest.
if the economy gets worse(it will) then people who cant afford even 5percent will be in very big trouble
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Geoffrey has every right to feel offended and I apologise to him. It was Norman.
From Wikipedia;
"On 16 September 1990 the British government announced a rise in the base interest rate from an already high 10 to 12 percent in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15 percent, dealers kept selling pounds, convinced that the government would not stick with its promise. By 19:00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12 percent (however, on the next day interest rate was back on 10%"
I had bought a house just the previous year so had a new mortgage. I was very glad to have gone for a very simple repayment mortgage where the payments went up each month. I had avoided The Halifax who stuck you on a rate for 12 months and then reviewed where you were at the end of each year. As the rate went up it started to hurt. As the rate came down I took the decreases, I just needed the money. And then one month I decided I could afford to carry on and not decrease the payment. I knocked years off the repayment period, as noted by others.
John
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thats how my mortgage was paid off years early aswell.
paid at a rate equiavelant of 10percent and knocked nearly 10yrs off. then bought and sold well fior several years and now mortgage free entirely and no borowings whatsoever.
best way to be for now incase income takes a dive
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I am working on a two tier approach. I am one of the lucky few who have a final salary scheme which I tip as much as they will allow in. My employer puts aprox twice what I do in, but I am still aware that its not likely to be a final salary scheme when I come to take out.
I have also followed the property route and have a rental property (may consider another) which I could hopefully sell at retirement
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Best thing I did was stop paying into my private pension 12 years ago.
Returns get less & less.
Several friends 'in trade' have given up being self employed and chosen life over work. Nice long holidays, payment if sick, good pension, no pressures or stress, and not a single one regrets it. I accept that their jobs are now under scrutiny , but after 10+ years in local govt, and being aged mid fifties, they are looking forward to being made redundant.
Glad I bought my first house in the late 70's when I could afford a deposit. Not sure I could afford a deposit now at the same age, and I had saved five years for that deposit, but then I began saving for my first car when I was 12yo which I bought & insured myself at 17.
My estimated pension will currently get me £800 per annum, aged 65, and I gladly accepted the 25% tax free lump sum when I was 53.
I don't worry about it.
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>> . I am one of the lucky few who have a final salary scheme which I tip as much as they will allow in.
>> My employer puts aprox twice what I do in, but I am still aware that its not likely to be a
>> final salary scheme when I come to take out.
AFAIK
What you are describing above isn't my idea of a final salary scheme.
In a FS scheme you put in a nominal payment, the lower the better from your point of view, and the employer stumps up what's needed to give a pension related to your final salary.
That pension/salary relationship is often 1/60 of final salary for each year worked, so if you've worked for a company for 30 years, starting as a junior sprog, and over the years you climbed up the ladder to be "quite well paid" your pension is 30/60th of quite well paid (give or take factors for early retirement).
That's the reason some schemes are changing to career average (salary), rather than final salary, as the cost to the employer is huge.
Employer putting in a matching contribution is a defined contribution (DC) scheme. The "pot" the contributions make is invested, and if there's anything in the pot come retirement it is used to buy an annuity (you could take up to 25% as cash at the point of retirement, not before).
Regarding years already in a FS scheme, currently historical terms and conditions are sacrosanct, but future is career average for some, and DC for others.
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>> AFAIK
>>
>> What you are describing above isn't my idea of a final salary scheme.
>>
Final pension is the average of my salary over the last 3 years of employment.
We have two levels of payment - i opt for the higher as it allows me to leave earlier should I chose.
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Well, if this is the case: "Final pension is the average of my salary over the last 3 years of employment," why do you bother paying "as much as I can" into it? It doesn't sound like a final salary pension to me either.
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>> Well, if this is the case: "Final pension is the average of my salary over
>> the last 3 years of employment," why do you bother paying "as much as I
>> can" into it? It doesn't sound like a final salary pension to me either.
Is the poster buying in extra years service? IIRC its still possible to do so in the Civil Service scheme so long as actual + bougght in years dont exceed 40 at age 60.
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Because that is the guaranteed minimum, but he is adding additional voluntary contributions to increase that amount?
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"final salary" being average of last three years does conform with some FS schemes.
Different size of payments could be buying different accumulation rates (50th, 60th, 80th) and nominal retirement date being 65 or 60 in a FS scheme.
(Whereas under a traditional FS scheme all that is set and "earned" from a modest employee contribution (if any))
The place I worked previously changed the scheme to include the options above and the contributions varied (AFAIR) between 6% and 15% in six steps.
But, despite the changes from that point onwards the phrase "what you've got you've still got" was bandied about.
It meant the terms up to the change were not altered, so I had X years in the scheme under the old rules.
However, employer matching contributions still sounds like DC to me.
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>> Well, if this is the case: "Final pension is the average of my salary over
>> the last 3 years of employment," why do you bother paying "as much as I
>> can" into it? It doesn't sound like a final salary pension to me either.
>>
>>
>>
Because as I stated in my last post it allows me to leave earlier.
Quote from the pesnsion website:-
The Scheme is a Final Salary scheme, sometimes known as a Defined Benefit scheme, which means that you get a pension based on your salary near to retirement. Therefore, your standard of living is reflected by your pension. Your pension is not dependent on the ups and downs in the value of investments on the day you retire, like a personal pension plan.
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Low-earner retirement plans - Falkirk Bairn
