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The truth about pensions: are your plans realistic?

A survey of Citywire Money readers reveals people have quite a good grasp on how much they need to save but may under-estimate when they can afford to retire.

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by Michelle McGagh on Mar 05, 2012 at 11:37

The government is struggling to fund the retirement bill as people live longer and is rapidly increasing the state pension age to 66 cut costs.

Neverthless, the majority of British people still believe they will retire between the ages of 61 and 64.

According to a survey of 1,000 people by Citywire’s The Lolly, 29% of people said they would like to retire aged between 61 and 64.

The percentage of people hoping to retire at that age increased to 37% for those currently aged 26 to 34 and to 34% for those currently aged 35 to 44.

The current state pension age is 65 but will hit 66 by 2018 as increasing life expectancy puts a strain on state resources. Figures from the Department for Work and Pensions predict the number of centenarians, those aged 100 and over, will increase over the next decade, from 11,800 in 2010 to 15,000 in 2015 and reach 21,900 by 2020.

However, the results of the survey seem to indicate that people are either unaware of the increase to the state retirement age and rising life expectancy, or are sufficiently confident that they are saving enough to retire before age 65.

One in four, or 25%, of people planned to retire at age 65 or over and 24% wanted to retire at age 55 to 60.

Independent financial adviser Shane Mullins, managing director of Nottingham-based Fiscal Engineers, said people should retire later.

‘Retiring is something you do five years before you die. Retirement is a deferred life plan where you save all of your money now so you can have your life in retirement,’ he said.

‘You have to get the balance between living life for now and for the future. You need to spend less and save a little for the future.’

Income in retirement

On retirement 40% of respondents across all ages said they would like to have a yearly income of £30,000. Although the percentage of people requiring this amount fell as the age of the person increased, when more people were happier with £20,000 annual income.

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33 comments so far. Why not have your say?


Mar 05, 2012 at 12:38

> it comes as little surprise that 623% of those polled said their biggest concern about retirement was having enough money.

It comes as a surprise to me!

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Mar 05, 2012 at 12:49

The state pension age will increase to 66 in 2018 ..... not 68

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Mar 05, 2012 at 12:52

For what it's worth, my attitude is :

Save the maximum in a shares ISA each year - this is money you can get at if you need to.

If your employer contributes to a pension scheme, join it - do the maths - it's very tax-efficient. Just before you retire, move it into a self-select SIPP, and take drawdown.

Get used to the idea that you can "retire" and still (say) set up your own business, even if it's only making pin-money on eBay.

With any luck, your ISA and SIPP and business will together put on far more than you are allowed to draw down. And that is your long-term care fund.

Keep going (and keep travelling) as long as possible!

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Mar 05, 2012 at 13:04

Age is 66 and not 68

Isa is the way forward with falling annuity prices

Problem for me is drawndown - does it require £20,000 of income before draw down? I'm a bit short of £20k, but I don't want to buy an annuity to make up the shortfall?

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Mar 05, 2012 at 13:08

@ Broomtree.

You need £20k secure income for an uncapped drawdown, but not for a "normal" drawdown, ie, income is limited by GAD limits.

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Mar 05, 2012 at 13:10

Citywire readers are not average people.

Your statistics are invalid

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neil gulliver

Mar 05, 2012 at 13:44

Having saved and built up a reasonable fund over 30 years I decided to entrust a well known IFA to advise me about 7 years ago I can only say that this experience has been the worst decision I ever experianced in my life I have been trying now for two years to sort out what is left of my pension but with illiquid funds, excessive charges ,help themselves feas, and an uncomprising attitude I have lost all confidence in the pension Industry. One is frightened to invest further.

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Peter Young Engineer

Mar 05, 2012 at 13:48

I read recently that to achieve an income of £30k at 60 you need to save £1400 per month from age 30.


So if you are earning £60k you are going to have to save roughly one third of your paycheck before tax in order to retire on half pay.

How many people can afford to do that!!!

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Mar 05, 2012 at 13:57

Wonder if Warren Buffett uses a F.A.?-

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Mar 05, 2012 at 13:59

Saving in a pension scheme is a high risk strategy. Start saving when you are 30 and you have 30 years for the Government to change the rules at least 30 times. You also have 30 years of various hidden commissions and charges to pay for. Save for retirement but be wary of private pension schemes unless your employer is making a good level of contribution. Alternatively join the public sector/ Civil Service in a management role or become: a judge, MP or MEP and you won't have to worry about saving.

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Mar 05, 2012 at 14:00

Don't forget the state retirement pension of £5311.80 when doing calculations. If the total income needed is £20k, then a fund of £293764 would suffice. It may be even less, when SERPS/S2P are taken into account.

But as others have said, ISAs are much more tax efficient for basic rate taxpayers.

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Mar 05, 2012 at 14:06

@NeilG - commiserations regards that IFA. I started taking control of everything myself a few years ago, and have been moving from the high-fee low-performance vehicles he used into far more streamlined investments. I wish I'd done it years ago!

I'm now putting over half of my income into my pension (and still doing ISAs etc.) and we're hoping to retire age 55 on a joint £50k pa, after tax and in today's money. This is "somewhat hard" as my wife doesn't work, so it's all on my shoulders.

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Mar 05, 2012 at 14:08

@cherrybowl - google for "buffett gotrocks" to see his views on managers, advisers, helpers, etc.

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Paul via mobile

Mar 05, 2012 at 14:09

Seems that everything i read about pensions at the moment has basic factual errors such as the 2018/68 nonsense here. I stopped reading at that point.

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Mar 05, 2012 at 14:15

There does appear to be one problem with the survey though. I seem to remember it asked 'are you currently saving for a pension' . This assumes that you must currently be saving unless you're retired, and that there is no other way to save for retirement.

1. Some people probably answered 'zero' as they already have a sufficiently large pension or have bumped up against the lifetime limit, though they are not retired.

2. Some people prefer to save in vehicles other than a pension scheme. While I do have a SIPP, I prefer to save my money in ISAs and VCTs which already generate a decent income as well as being tax efficient (though in different ways from a pension).

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chris robinson

Mar 05, 2012 at 14:16

People can generally take money from their pension funds at age 55 although some occupational schemes (mainly in the public sector) provide benefits earlier. You do not have to stop regular paid work at the same time and, indeed, many people take up new paid work after 'retiring' (ie taking benefit from a pension scheme).

I'm 55 and taking an income from two (private sector) occupational schemes and contributing to my own SIPP from current earnings. With my state pension and another (public sector) occupational scheme to come my total pension income will be over £20,000 by age of 66 such that I can take as much or as little from my SIPP whenever I want. In the meantime it grows in a tax advantaged environment and charges are the same as my separate ISA portfolio.

my own view is ISAs and pensions are different, not 'good' and 'bad' and I suspect a combination is probably the least bad option for most people. Not saving anything at all is a bit too micawberesque for me - and the magic of compound interest has convinced me over the decades that deferred gratification is, on balance, a good thing. .....and, on balance, asset backed savings even after charges beat cash although its easy to get ripped off if you don't read the small print.

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Pensions Angel

Mar 05, 2012 at 14:53

The problem with Pensions is several fold; Constant Government interference; Lack of value for money & innovation for consumers and a fundamental failure of so called Pension 'Specialists' whose advice these days is geared towards doing as little as possible for as much as possible.

If even the biggest most resourced pension funds (Final Salary type) have failed to provide fully funded pension schemes with 20%+ contribution levels, how can IFA's and Pension Advisors able to deliver better results with less than half the funding rates and exactly the same underlying investment options?

The answer quite simply is they do not and will never do so.

There needs to be a fundamental change in attitude and strategy.

The only way of achieveing a better outcome is to stop repeating the same failures and investing blindly into strategies that deliver exactly the same outcomes which have led to an average shortfall of over £250,000 in the last 20 years.

Pension Trustees and Individuals need to challenge their Pension 'Specialists' / Consultants and IFA's to raise their game and look at the wider options under RPSM.

The ONLY answer to a savings crisis is to encourage more saving through innovation and for consumers to acknowledge that they need to accept more risk, otherwise exactly the same outcome will be achieved as in the last 20 years.

The question every Pension Trustee and Individual should be asking is 'What else is out there to help me plug my savings gap?'

Several lower risk strategies are emerging which offer unrivalled consumer outcomes and protection. Solutions which involve private 3rd party sponsorship (3PPS) are one such option where the investment risk is placed on professional investors and allow consumers only to pay for succesful outcomes without risking any of their own money.

Tackling the serious issue of 'Cost of delay' is where advisors need to invest much more focus to help their clients achieve much better outcomes.

Only then will we see trust & more positive comments posted about an industry that consistently under delivers for the consumer.

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Mar 05, 2012 at 15:01

Somehow, your statistics don't add up, maybe because you are using Citywire readers as your database.

The average salary in the UK today is £30K and out of this people pay mortgages, for children, etc.. So why do people think they still need £30K when they retire and their expenses go down. I suspect that the reason for this is that your database has an average salary much higher than £30K.

Finally, to get a pension of £30K (i.e. a pension pot of £600K according to your figures) over a working life would require somebody to save £10K per annum, i.e. 33% of their average salary. So, according to your figures, live on £20K now so that you can live on £30K when you retire.

In terms of a useful article you score 3 out of 10. You asked the wrong questions and derived the answer you wanted.

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Rob Walker

Mar 05, 2012 at 15:09

It's OK to say you have to save X amount when you are 30 etc etc but best to save when one can afford to - ie after kids leave home and any motgages are paid off. The issue of 'Fun depravation' never enters the brain of the pensions adviser because the concept of customer happiness doesn't enter their equasion. If you save hard, stay miserable and drop dead when you're 50 you didn't make the most of your time on this planet.

Personally, During my mid 50's I started to save enough to stop work early at 62 and used these savings to tide me over until pensions kicked in (at 65). By doing it this way I didn't have to deprive myself earlier in life and then I started saving with a realistic goal and no real hardship. If things had gone wrong it would just have meant I would have retired a bit later - no big deal.

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Mar 05, 2012 at 15:57


Im with FRANCO & MARK22 on this one.

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Keith Hilton

Mar 05, 2012 at 17:26

"People [planning for future retirement] will need a pension fund of £1 million at least." WTF!

The average wage is £26K, so after tax about £17-18K. Assuming average real return of 2% p.a. over 50 years, would need to save £12600 p.a. leaving about £5K per year to live on! Like that's going to happen.

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James Button

Mar 05, 2012 at 17:37

The primary question is:

Save for retirement in a 'pension,


Save outside of a 'Pension'

Fo a higher-rate tax payer the answer used to be (almost) easy

It was only the lower paid who had to do very careful calculations,

only to have the government change the 'rules'

Now - if you get employer contributions that match yours it's probably worth saving in a pension pot (Until the next government change)

SIPP holder - lose 10% of dividends - pay fees based on the pension pot size, pay fees for an annuity that pays about the same as the current saver rate (So die within 25 years and you don't even get your capital back)

OR - suffer the GAD limits that apply the same sort of limits - annual pension limited to the interest you can get, and then pay 55% on any capital ( all of it?) left when you die.

And - didn't the government stop you using the SIPP funds to but residential property - so you cannot enven put your money there anymore

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Mar 05, 2012 at 18:13

@james - The answer is simple: you need to do both, the pension for the tax advantages and the ISAs (and unwrapped investments) for flexibility.

My projections suggest that at retirement we'll have 46% in pensions, 18% in ISAs, and 36% unwrapped, with about half of the latter being my 25% PCLS (nee tax free lump sum.)

Take away either pensions or ISAs and my plans would look grim, so I'm mighty glad we have both weapons in our arsenal.

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dereklkl;l hdjkaK;LL'a

Mar 05, 2012 at 18:14

To suggest that people need to save a "minimum" of a million pounds for a decent pension is living in cloud cookoo land and merely acts as a disincentive for the population to save at all.

It seem to suggest that that IFAs live in a world of their own, completely divorced from the rest of the population!!!

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Mar 05, 2012 at 21:07

It is possible for an average bloke to amass around £500,000 in a savings pot. I've done it, but it's very difficult. I think you need 3 factors

(1) Live frugally.

(2) Invest wisely.

(3) A lot of luck & nerve

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Mar 05, 2012 at 21:50

John Paul Getty said the three rules for success were, 1) Rise early, 2) Work hard, 3) Strike Oil.

It really is that simple, so please stop bleating.


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The ssinnic

Mar 05, 2012 at 22:59

Unless you are a constant, i.e. always HR taxpayer, the tax relief is a red herring! They give relief when you pay in.Then they tax the income when there is a payout, so if you actually compare what you could pay into an isa (with no tax relief on the payout) with a tax free roll up fund (like an exempt PFund) and take income from the resulting isa fund you will probably be better off. And no constant Gov. interference and freedom from constant tax changes ( mostly so far as far as isas are concerned).

In a nutshell: saving the same amount in an isa is probably better than saving into a pf. The resulting flexibility is probably worth more than being in a locked up fund.

I've a decent pf which is to some degree a burden in as much as there are so many rules to worry about when compared with the flexibilty of an isa fund...e.g you can take out what you wish when you wish etc.. no GAD rules , no max fund limits....boring!

OK You pension specialists..shoot me down!!

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Mar 06, 2012 at 07:47

Pensions are a no-brained if you're a HR tax payer and/or your employer also contributes and/or you can contribute via salary sacrifice and/or you're already maxed out on ISAs.

If none of the above are true, then pensions get a little bit more marginal, but even a BR tax payer will win because of PCLS and because they will probably still be within their age related personal allowance in retirement.

BR tax payers are also more likely to be tempted to dip into their ISAs to pay the milkman: a pension that's locked away until at least age 55 is probably a good idea unless someone really can resist temptation.

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Peter Young Engineer

Mar 06, 2012 at 08:19

The problem for most people is that:-

a) they have a life to live, ie: buy a house, bring up a family, hold down a job etc. These are their priorities. When you are young, retirement is a long way off, there are more pressing needs now.

b) they (include me) are not financial wizards or even interested in being such so the complexity of managing and worrying about investments is beyond them (and me).

They need a simple effective means of providing a pension. It seems to me that the Government should ensure such a scheme is provided, and it has, the problem is that it is not compulsory and that is the error.

If something is not compulsory then many will not comply, even if it is in their best interests. Today the whole system is a mess and this provides an excuse to do nothing. It is amazing how large numbers are plodding towards retirement with no provision (heads in the sand).

There will be too many for the state to bale them out.

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Mar 06, 2012 at 10:33

Probably the biggest current factor in pension planning is the artificial and abysmal interest rates such that annuities are very expensive. And with the West continuing to run huge trade deficits, currencies will steadily slide leading to constant inflation. So anyone who takes out a fixed rate annuity to-day is likely to suffer from a double whammy.

I deferred retirement as my annuity was less than half that projected 15 years ago, but each year, although I am older, the annuity I can get decreases. Therefore I continue to work part time (too old to be consideed for a good full time job), topping up with some use of savings and wait for interest rates to recover, which they will do some day

If you want a decent pension, then my advice is to be a public employee, especially in the police or fire service ! Then the taxpayer has to worry about your future - not you. Few of the public understand the equivalent capital these jobs are awarded on "retirement".

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Mar 06, 2012 at 17:02

On 29 November 2011 the Government announced that the increase from 66 to 67 will be bought forward from 2034 to 2026. People born on or after 6 April 1960 but before 6 April 1961 will have an SPA between 66 and 67. People born on or after 6 April 1961 will have an SPA of 67 or higher. This proposed change is not expected to be finalised until the end of 2012 or beginning of 2013.

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Mar 06, 2012 at 17:32

Peter Young Engineer

Agree with most of your sentiment here BUT check out the fees on NEST(I assume you are referring to NEST) before you approve it as a pension saving vehicle. Not pretty.

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Apr 08, 2012 at 18:05

These figures being bandied about on this page are quite beyond the hopes and dreams of the average citizen. When you read that one in four homes is in fuel poverty and we are worried about the nutrition of some children it makes it even more ridiculous.

It also strikes me that whatever you try and do to safeguard your future government will pull the rug out from beneath you by stealth taxes.

I am afraid to say that Government and the financial services industry are living in a fantasy land. I pity the young!!


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