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Want a minimum wage income in retirement? You'll need to save £130k

You may receive £7,500 a year from the state pension but will it be enough to live on?


by Michelle McGagh on Jan 16, 2013 at 15:10

Want a minimum wage income in retirement? You'll need to save £130k

The government hopes that by introducing a flat-rate state pension, Brits will be encouraged to save more for their retirement, but do you know just how much you would need to save to receive an income equivalent to the minimum wage in old age?

The single-tier £144-a-week state pension will provide an income of £7,500 a year. This isn’t a lot especially when you consider that two-thirds of salary is the excepted rule for a comfortable retirement.

However, many people are underestimating just how much they would need to save in order to live comfortably in old age. To build the £7,500 a year state pension up to even £12,000 a year – the equivalent to the national minimum wage – you would need to save £130,000 into a pension, according to figures from AJ Bell.

In order to match the state pension with private savings, to generate a total income of £15,000, you would need to save £210,000.  

And you would need to save even more to generate a retirement income equivalent to the living wage of £16,400 as calculated by the Joseph Rowntree Foundation. Your pension pot would have to total £270,000 to top up the state pension to this amount.

AJ Bell marketing director Billy Mackay said the introduction of the flat-rate pension should not be an excuse not to save for retirement. He pointed out that the £144-a-week rate is the equivalent of just £3.84 an hour.

‘The proposed flat-rate pension makes it easier to plan for retirement and for savers to understand what they need to save, but it doesn’t remove the need to save.

‘You would need over £200,000 to fund the basic state pension if it didn’t exist, so this is a significant start. But £144-a-week is the equivalent of just £3.84 an hour – far below the minimum wage and well below the living wage.’

For savers who do not want to buy an annuity with their pension – essentially an insurance contract against living too long – there is the option of drawdown, where the pension pot remains invested and an income taken from it. However, Mackay said that in order to take advantage of drawdown a pensioner must have £20,000 of income, including the state pension.

‘The government insists on savers having an income of £20,000 per annum before they can opt for flexible drawdown. This suggests that they think you really need £20,000 a year to be confident of not having to rely on benefits,’ he said.

‘You need to build an additional pot of £380,000 to achieve that. These are big numbers so savers need to avoid the temptation to bury their head in the sand in the hope that the problem will somehow sort itself. The answer is to save what you can, from as early as you can, as effectively as you can.’

42 comments so far. Why not have your say?

Jeremy Bosk

Jan 16, 2013 at 16:24

Means testing will ensure that almost no one actually saves that much by retirement. Save more than £16,000 and you start to lose means tested benefits whenever you are unemployed for whatever reason - redundancy, time out for children etcetera. Government rhetoric about saving is just that, empty words. Those who misgovern this country plainly intend us to endure misery and squalor in our old age. Perhaps they hope we will despair and kill ourselves.

For many people now in their 60's £380,000 is as much as their entire lifetime's gross pay. My 1965 starting salary was £360 a year including London Weighting!

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Keith Hilton

Jan 16, 2013 at 16:46

Being able to plan is all well and good, but inevitably governments will move the goalposts in future!

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Jan 16, 2013 at 22:22

Jeremy, I believe that 16k level has been unchanged for more than 20 years, simply doing nothing they have allowed inflation to move the goalposts for them. I agree about governments but accumulative bodgeing and patching has left a mess that we may never get out of.

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Jeremy Bosk

Jan 17, 2013 at 04:39


Quite so. I have to hope that, once the politicians accept reality, growth will dig us out of the pit. I expect inflation will be engineered to help cut real terms debts, public and private. "Austerity" is the single biggest drag on our prospects, in the Euro Zone as well as here.

NB opposition to "austerity" is not the same as support for unlimited borrowing with no plans for repayment. Nor is it support for unplanned and purposeless spending.

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Anonymous 1 needed this 'off the record'

Jan 17, 2013 at 09:54

Before the introduction of the state pension in 1909 there was nothing, most old people lived and died in poverty. So what are you complaining about?

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Clive B

Jan 17, 2013 at 13:56

I think it's about time people stopped expecting "the government" (i.e. other taxpayers) to pick up the bill for everything and started planning on paying their own way when they can.

Specifically for pensions, I think the goverment should say "if you're going to be 18 on/after (say) 2015, save like crazy because we're not going to provide a pension for you".

Happy for there to be exceptions for people who are very badly off through no fault of their own, but that won't include "oh, I just decided not to work my whole life, didn't want to" or "wanted to spend all my money on my cars, houses, holidays, ensure I had no cash left so the taxpayers would fund me"

Odd how every time there's a bank holiday, the news is full of stories on how full the airports are with people jetting off abroad, but ask those same people how much they're saying for retirement and it's "oh, I don't have the money for that, the state should provide". Nope, think again.

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david madgett

Jan 17, 2013 at 16:12

"And you would need to save even more to generate a retirement income equivalent to the living wage of £16,400 as calculated by the Joseph Rowntree Foundation."

Does this 'living wage' include the need to pay for housing costs, eg, rent/mortgage? In which case many pensioners will have paid off their mortgage and therefore have no rent equivalent to pay from the £16400.

Also, is £16,400 the gross earnings necessary? If so, pensioners do not pay NI on their pension earnings.

If any pensions contributions are expected to be made from the £16,400, this would not be relevant to pensioners.

Most pensioners receive, at present, more generous income tax allowances than younger/working people.

Add to this the 'Winter Warmer' allowance, free TV licence, bus passes etc, on which no tax has to be paid.

Does the £16,400 include an element of having to pay to bring up dependent children (I'm not sure about this). Obviously this is not usually a relevant expense for pensioners.

Income-wise we're not comparing like with like.

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Dennis .

Jan 17, 2013 at 16:29

Don't get hung up on the fuel allowance, tv licence, bus passes etc. For two pensioners living together you are talking £150/ year each plus a few quid a week on bus fares (if they bother to use buses). Hardly going to make them rich is it?

ps Oh I forgot to add the £10 Xmas bonus.

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Clive B

Jan 17, 2013 at 17:17


Fair point, but what's the annual cost. This puts it at £3bn

That's part of the problem with politicians (of all parties). They're full not that (ok, that as well)...."heh, why don't I help that section of society, it doesn't cost much, say £3bn"...BUT it's never costed

We simply CAN'T keep handing out benefits that are neither paid for or needed.

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forestbhoy via mobile

Jan 17, 2013 at 23:37

Did the family history ,and you would see often about 150 years ago in the census "lives by own means" .......history does repeat itself,does it not ......???

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Jeremy Bosk

Jan 18, 2013 at 03:17


Did not "lives by own means" mean the same as "of independent means" i.e. rich enough not to need to work?

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Roger Bailey

Jan 20, 2013 at 10:03


The role of the State in pensions consistent with the NZS-style Citizen’s Pension

is described as follows3:

“…the ability to retire in a degree of personal comfort, without worry and

with dignity, is the least that citizens can expect in a modern, developed

economy… is also most they can expect. They cannot expect the state

to maintain in retirement the incomes people became accustomed to

during their working lives.”

The above statement was copied from a Pensions Policy Institute discussion paper dated 2004 titled “Citizens Pension: Lessons from New Zealand”, and I believe the UK should adopt the same attitude. Our pensions systems are broken.

The UK is proposing to introduce a Universal Pension in 2017 whereas NZ introduced theirs some 73 years ago.

It is scandalous that Ministers made a pact to protect Public Sector Pensions for the next 25 years when already these Public Sector workers have a comparably higher wage than those in the Private Sector and the Private Sector will need to continue subsidising these pensions and not receive similar pensions themselves. It does however appear that the pact does not cover taxation, because the Chancellors Autumn Statement did decrease some of the tax relief available, if only for the wealthier.

It is time to call a halt to further contributions to these pensions whilst still paying out as promised, based on past contributions ( this includes the recently introduced auto- enrolled pensions which are now being phased in). Current Employer Contributions should be simply added to the employee’s salary and taxed in the normal way and let market forces determine eventual salary levels.

In FY 2011, the cost of tax relief on Occupational Pension Contributions was £39.6 billion and this will increase further due to auto-enrolment contributions. At the same time the National Debt was £910 billion. This equates to 23 years of this tax relief and is the main cause of this huge National Debt.

The fact that the new Universal Pension does not allow for Housing and Council Tax costs means that means testing of pensioners will still be required. This is abhorrent but can be avoided by turning the concept of means testing on its head e.g. by giving all pensioners an LHA and Council Tax allowance capped at say £600 per month per pensioner household and then withholding some of this from pensioners in receipt of an Occupational Pension. My very rough estimate of the cost of the giving this LHA /Council Tax allowance to all pensioners is 12 million x £400 per month x 12 = £57 billion per annum. The Universal Pension, in today’s money will cost 12 million x £144 x 52 = 90 billion app., so a total of £147 billion (about the same as the current cost of pensions) and approximately10% of GDP.

Bearing in mind that the current costs of State Pensions and Housing Benefits are 5.5% of GDP, Occupational Pensions a further 3.7 % and tax relief on contributions 2.7%, this totals 11.9% of GDP. 20/25 years down the line then, when Occupational Pensions will be almost extinct there will be a huge reduction in State Pension expense. In the interim, the extra expense of LHA/Council Tax allowance can be more than offset by the savings attributable to pensions contributions tax relief and withholding some of these allowances from current recipients of Occupational Pensions.

An alternative and simpler method to the above would be simply to raise the Basic State Pension by about 80 %.. It is projected that in 2015/2016 the Basic State Pension will cost £61.7 billion and Pension Credits and minor Benefits will cost £10.1 billion. If the pension is increased, these latter items can both be withdrawn. There will then be savings of £39.6 billion + £10.1 billion = £49.7 billion (80% of Basic State Pensions app.). Again there should also be some withholding of the increased pension from those in receipt of Occupational Pensions built up in the past because every taxpayer has subsidised these It should be fair though. This withholding should be used to reduce the National Debt.

To sum up then, the above proposals would provide the following benefits.

1. Payments for all pensioners which are sufficient to provide all living costs at a basic level and enables tax relief and employer contributions in the past to be more fairly re- distributed.

2. No need for means testing of pensioners except in abnormal situations.

3. More disposable income for those who are currently contributing to Occupational Pension schemes..

4. No more government involvement with second pensions. It will not be necessary..

5. Give everybody who has income in excess of their normal expenditure the freedom to save it or spend it in whichever way they want and when they want.

6. Encourage savings. Current Housing Benefit arrangements only discourage savings. There is simply no point for those with a modest income to save when they can spend their money and then get LHA/Council Tax Benefits paid by their Local Council. The use of ISA’s should continue, but be made more flexible and annual limits raised.

7. Give those who have bought their own house more disposable income. Under the current system they are severely disadvantaged by the fact that they cannot claim LHA etc even if they do not have much income in retirement. It costs money to maintain your own home whereas somebody renting has maintenance costs paid by their landlord.

8. Encourage more people to use their savings to buy their own home and by so doing, reduce the demand for rental property, driving down rents and therefore the cost of LHA’s.Current housing costs are disproportionately high when compared to current average incomes.

9. Remove the need for auto-enrolment or any other scheme that forces citizens/employers to contribute.

I also have some views on current perks to pensioners.

Winter Fuel Allowance- scrap this, but make sure the Universal Pension is sufficient to cover annual gas/electricity costs before they do it. It is only an unnecessary administrative expense..

Free bus passes – keep these as it will enable the bus companies to keep overall ticket prices down for everybody. There is no point in having buses running half empty. Pensioners should be encouraged to use public transport rather than cars.

TV licences.- These should be abolished for everybody. A TV is nowadays one of life’s necessities. It is unfair that a pensioner or even a University student for that matter should pay the same as a family with perhaps half a dozen TV’s. The proceeds of 4 billion mainly go to the BBC. Perhaps the BBC should either be privatised or at least, considering their excesses, have their income drastically reduced to cover only services that are vital to the Country. The BBC’s costs should then come from general taxation.

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Jeremy Bosk

Jan 20, 2013 at 11:13

Roger Bailey

I mostly agree with your summary points 1 to 7 and point 9.

Point 8 is mistaken because the reason for high rents is a shortage of housing (for sale or rent) in areas where there are jobs. Only an increased availability of housing in those areas or an increased availability of jobs in areas where there is a housing surplus will solve the problem. Discussion of how to attain either of these options is for another time.

You state that public sector workers are overpaid relative to the private sector and have high pensions paid for by less prosperous private sector workers. You are talking averages here and they are misleading. There are a lot of well paid public sector workers, mainly because the average public sector worker is better educated - think teachers and nurses. There are also a lot of poorly paid public sector workers, mainly those without qualifications or skills. Fewer than there used to be because most of the unskilled work has been privatised / outsourced so the people who work in school canteens or clean local authority offices are now - by a stroke of the pen - low paid private sector workers instead of low paid public sector workers.

The answer to lower paid people (public or private sector) subsidising the pensions of the higher paid (public or private) is to take the lower paid out of the tax system and make up for it by raising taxes on the well to do. A major problem in this country is ludicrously high pay differentials.

Opinions differ as to the worth of the BBC. I value it. The commercial channels barely bother to pretend to inform and educate. Their news is generally inferior, their drama is almost entirely low brow. If ITV did not exist, it would not be necessary to invent it. I agree that most of BBC1 is populist trash as are substantial parts of the other channels - but compared to the commercial channels, their content is vastly superior.

Then you come to BBC Radio. Radio Three is priceless for music that is largely unavailable elsewhere (free of charge and free of advertising) and for intelligent drama and commentary. Radio Four is full of excellent documentaries and interesting drama. Radio Four news is better than the radio alternatives.Radio Four Extra is full of good drama. Radio Two has some quality music.

The BBC and, to a lesser extent, Sky News and Channel 4 News hold the vermin who misgovern us to account better than most of the newspapers.

The honest reporting of the World Service is valued by those who care about truth all over the world.

I am against abolition of the licence fee because its abolition would further increase the BBC's dependence on the politicians. Whatever sins of omission and commission the BBC has ever made, they pale into insignificance beside the crimes of the politicians. We need a strong and independent BBC.

Anyone pushing to have the BBC destroyed is pushing an agenda which can only be described as extremely right wing and authoritarian. One that is against the national interest.

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Harry Brooks

Jan 20, 2013 at 12:15

Forget the politics; just look at the maths —

Let's make some assumptions, for the sake of argument:

- people are 21 in 2015 and work until they are 70

- inflation averages 2% throughout that time

- wages and the state pension also rise at 2% per annum

- investments return an average of 4% at the end of that time...

1. Someone working continuously on the minimum wage would have a

final salary of approx. £30,305. The state pension will be £20,142

so that will be 2/3 of final salary. To make it up to the full final salary,

that person would need a personal pension pot of £254,050 delivering

4% = £10,162 + £20,142 = £30,304.

To achieve that pension pot they would need to save an average of £3,629

every year...

2. Someone working continuously on the current average UK wage (£26,500)

would have a final salary of approx. £71,327. The state pension will be only

£20,142; less than 1/3 of final salary. To make it up to 2/3 (£47,551) they

would require a personal pension pot of: £685,225 (at 4% return). To make it

up to their full final salary, they would need a pension pot of £1,783,175

delivering 4%. To achieve a pension pot of that size they would need to

save a lot more than their entire annual salary, every year.

You might argue about the percentages but, overall, it looks impossible and, therefore, horrifying for future generations retiring.

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Harry Brooks

Jan 20, 2013 at 12:16

Sorry about the dreadful spacing above. I hope you get the message anyway.

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Roger Bailey

Jan 20, 2013 at 12:56

Jeremy Bosk

I agree with the points you make but think you have misinterpreted some of my points. I am not comparing average salaries, but like for like. Also the susidising of people who have occupational pensions by those who don't., due to employer contributions and tax relief on these.. According to one other article I read (I think it was by either by UKIP or the PPI), the differential between the average like for like salaries of public sector workers and private sector workers was estimated to be 16%.. Twenty years ago it might have been the other way around. Hence the reduction of a new PC's salary from £23k to £19k..

Housing costs are affected by many things,not least immigration but as you say , that is for discussion another day.

My other point was aimed at TV licences. They just aren' fair or necessary. If the government decide that it is in the Interests of the UK to keep the BBC in the public sector and all it's activites are required, that's fine by me. Just fund them from General Taxation


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Roger Bailey

Jan 20, 2013 at 13:20

What portion of the licence fee revenue is spent on collection costs?

The cost of collection continues to fall and is now at 3.4% (£124.4 million) of the total licence fee revenue (£3.7 billion) in 2010/11. As shown in the TV Licensing Costs of Collection chart below, the costs of collection covers call centres, field force, detection and over the counter services, communications including reminders and information campaigns, postage and administration and contract management.

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Jeremy Bosk

Jan 20, 2013 at 14:16

Roger Bailey

Sorry for mistaking your points. I agree that some public sector salaries are silly, as are many private sector salaries, especially at the top. I would like to see a serious compression of pay differentials.

I agree that immigration pushes up demand for housing and thus its price. The question is: do the immigrants benefit the country more than they cost?

I believe that depends on:

whether they bring scarce skills or do work that the natives will not;

whether they are active in the labour market, especially the females of various ethnic / religious groups;

their general willingness to fit in.

I agree that TV licences are effectively a form of regressive taxation, a poll tax. I support them only because the price is usually fixed for a number of years which limits the number of occasions on which the BBC can be bullied and blackmailed by the politicians. If you could guarantee the BBC's independence from malign politicians, I would not object to another means of financing the BBC. Although, the cost of TV licence collection actually compares very favourably with most other taxes, especially when you consider the cost to employers of income tax collection via PAYE.

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Roger Bailey

Jan 20, 2013 at 15:45

Jeremy Bosk

Of course immigrants, both skilled and unskilled bring benefits to the UK but only if immigration is controlled. At the present time we have open borders to EU nationals and high unemployment, and therefore need to limit the number of immigrants in the Country, but we can't. For pay differentials to be compressed there must be less competition for the lower paid jobs and more competition for the better paid jobs so that the wages for the lower paid rise and wages at the top fall. Problem is they don't fall at the top until the bosses bankrupt their companies and everyone in their company loses their jobs.

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Jan 20, 2013 at 17:08

What is going on here- most of the later comments are quite detailed and considered, even the rebuttal are couched in civilised language.. this is no way to conduct an on line discussion. Oh forgot.. perhaps the usual contributors were watching football over the last day or 3.

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Jeremy Bosk

Jan 20, 2013 at 19:04

Roger Bailey

There are not a fixed number of jobs for which immigrants and natives compete. There are skills shortages in many fields and many geographical locations. Bring in some unique skills - scientists and engineers for example - and a great many other jobs are created in support roles.

Not all the native unemployed are either employable or capable of being made employable.

Google "lump of labour fallacy".

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Roger Bailey

Jan 20, 2013 at 20:53

Jeremy Bosk

Of course, you are stating the obvious. In 1972 the unemployment rate was 3.4% and now it is about 8%, so clearly there is likely to be many more "employable and capable of being employed" uk citizens available at present, so control of immigration numbers/skills is essential if we are to give uk citizens a good chance to get a job rather than have to live on benefits.We are due to open our doors to 29 million Romanians and Bulgarians on 1/1/2014.. The average gross wage in Bulgaria is 200 Euros a month. I dread to think what will happen to the UK labour market after that. Will the government feel they can reduce the minimum wage to £1 per hour?

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Jeremy Bosk

Jan 20, 2013 at 23:52

Roger Bailey

I doubt that employers will cut wages of the lowest paid to the point where people end up starving and homeless - if only because people dying of cold and hunger do not work well. There is a shortage of jobs for the unskilled and uneducated. Machines and computers do most of the work such people used to do. The presence or absence of immigrants will not make a difference to the unemployable.

The only jobs the unskilled can now do are those like street sweeping that must be done locally. Everything else will move to wherever the work can be done most cheaply after allowing for transport costs etcetera. So if an employer wants to hire unskilled workers and pay low wages, the employer has already taken the jobs to Vietnam or Romania.

I think the effect of allowing free movement of Romanians and Bulgarians will be marginal.

Additionally there are many unemployable because they are considered too old, have criminal records, have drug and alcohol problems or are psychologically unstable. Disabled people are frequently not considered to be employable by potential employers. That last is intended as a description of some employer beliefs rather than actual fact.

If we, as a country, are concerned about jobs for the unemployed, we need to improve the education and training systems, improve the rehabilitation of substance abusers and ex prisoners and get the economy growing again.

Alternatively, we should accept that most of the population actually do nothing essential but get paid for doing it. The necessities of life can be provided for all by a tenth of the present workforce aided by machines and computers. Let the machines earn the money and pay a decent dole to the humans. People who want to keep busy can mow old people's lawns or do voluntary conservation work.

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Gordon Lewis via mobile

Jan 21, 2013 at 18:25

Has no one noticed how factually incorrect this article is about drawdown?

You do not need £20k of income before you can consider normal drawdown which is what most people will want to consider. Those that can do flexible this article has little relevance.

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Jeremy Bosk

Jan 21, 2013 at 23:06

Interestingly, the farmers are worried that there will be a shortage of Romanian and Bulgarian fruit pickers. They will now be able to look for permanent jobs in Germany, France and Italy - not just the UK.

The pressure on maternity services and schools from (mainly) Polish born women is likely to ease off as they age. In the meantime they will be working and paying taxes to keep the retired Brits.

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Brian Pearson

Jan 22, 2013 at 08:40

OMG! If I did the basic math on the sums in the article, to achieve the national minimum gross wage of 12k, after taking into consideration the state pension of £7,500, you would need to find £130K to fund the difference of £4.5K! This means that if you took out an annuity, for every £100K you would get way less than £3K, which means that (at £3K) you would have to live for 33.33 years after retirement JUSt to get your money back. What a con!

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Roger Bailey

Jan 22, 2013 at 09:00

Jeremy Bosk

Maybe they could be replaced by some of our unemployed. Maybe if those on jobseekers allownace and housing benefits were allowed to work up 6 months per year in seasonal jobs without losing housing benefits and just lose jobseekers allowance for these 6 months, both they and the government would be better off.

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Roger Bailey

Jan 22, 2013 at 09:07

Brian Pearson

Regarding the OFT investigation on DC pensions. My view is below.

The result of the investigation will be that they are no good. A £100k pot currently provides a 65 year old with a single life,level, no guarantee annuity of $5824 per year. Considering average life expectancy for a 65 year old is currently 80, that means, over 15 years you will get back £87360. £100k in a cash ISA paying interest of 3% would enable you to withdraw £8132 per year before depleting the account in 15 years.

Why would any sane person want to pay into a DC pension where they cannot touch their pot until they are 55.. Over the period 2000to 2010 I invested into both index tracker ISA's and cash ISA's. Their performance was almost identical. I don't think a pension fund will perform any better considering their high costs/charges.

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Brian Pearson

Jan 22, 2013 at 09:24

Interesting points Roger and well made. In fact, anyone with a pension pot which allows them to take out £100K and invest it, using your calculations, could have £8132 from their ISA and the new flat rate state pension of £7500 giving them £15,632 per annum AND they have not drawn any income from the remaining pension pot. Sounds like a plan to me and when I come to take my pension, I will withdraw the max and do things this way. I do understand the ISA saving limits, but would suggest that whatever the interest rate at this time, that they invest in this vehicle owing to its flexibility. Even if it does not keep up with inflation.

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Jeremy Bosk

Jan 22, 2013 at 10:09

Roger Bailey

I agree with your points about the various poverty trap disincentives which exist to stop unemployed British people doing the seasonal fruit picking and a lot of other jobs.

There remains a problem that very few people as a percentage of the population are able and willing to do the work. You have to be young and fit. It also helps to be unattached with no spouse or children.

I suspect that most of the Romanians and Bulgarians also have farming backgrounds and are used to the work. Very few Brits have any agricultural or horticultural experience.

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Roger Bailey

Jan 22, 2013 at 11:41

Jeremy Bosk

As youth unemployment is around 1 million, I think that there are plenty amongst them who are able and willing to work. Plenty of University students seek this work both home and abroad and expererience is not required. Iff the unemployed are single, fit and able,and otherwise unattached they should be obliged to do this work if they want to keep receiving Housing Benefits provided Job Centres find suitable opportunities.

I feel that many unemployed would be quite willing to do this work if it was out of their area if they kept their Housing Benefits.

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Jan 22, 2013 at 17:59

Roger - the sanity check for paying into a DC scheme is the fact that the employer pays into it too. My employer will not pay that money into an ISA instead. So for example if at a cost of £300 to a 40% taxpayer £500 goes in the pot (tax relief etc) and if the employer matches the £300 then we get £800 going in the pot at a cost of £300 to the employee. Now we start to even the calculation up. Of course once the groundswell of poison towards tax relief reaches critical mass then whoever the chancellor is at that time will change the rules and make DC even less appealing by reducing or removing tax relief. It will happen one day but that is another discussion.

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Roger Bailey

Jan 22, 2013 at 19:00


I should have been more precise and referred to the new self enrolment DC scheme where by 2018 the employers will have to pay in 3% of contributions.Ignoring tax relief you would need 4% to match what you would receive, taking the Cash Isa route. As you can see from my earlier post, I suggest that no tax relief should be given on contributions and these savings used to increase the Basic State Pension by 80%. I also suggest that no further contributions are allowed into existing schemes and the value of the employers contributions simply be added to the employees salary.

I am baffled as to why the government have introduced self enrolment as surely the reason for introducing the Universal Pension is so that you only have one State Pension. They may not be administering it themselves but they are enforcing it.

Supposedly, the introduction of self enrolment was inspired by the Kiwi Saver scheme which is very popular over in NZ. This was introduced to encourage long term savings, not pensions. With this scheme the whole pot is available when you reach 65 and you are not required to take out an annuity. You also have limited access before then e.g. to buy a first home, when you are very sick, if you emigrate permanently or have severe financial hardship.

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Jan 22, 2013 at 23:45

Roger, my guess re auto enrolment was to boost, by a small amount, the pension of future retirees so that the state would not have to put its hands in my pockets so much to make the pensions up to some subsistence level of existence. This will of course be a fat chance after successive governments tinker around with it over the coming decades.

I have read your objections to tax relief before and grant that there is some merit in your suggestions. But as I look after number one I can only assume that I would be a net loser from such a scheme, one does not volunteer to pay more to get less.

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Mar 16, 2013 at 12:33

I'm a responsible person who puts more than I can afford into a pension but the whole pensions industry seems complex. Apart from the government moving the goalposts. Every site I look at calculates a different return. I.e. To attain the minimum wage of £12,000 per annum ( an addition of £4,500 to the state pension) would require an additional £130,000 of pension savings. This is at odds with other sites that talk of £100,000 buying £5000 per annum at annuity rates of 5% ?????????????????????

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Jeremy Bosk

Mar 16, 2013 at 13:27


The amount you might get from a hypothetical lump sum in future depends on:

future interest rates;

whether or not it is a fixed rate annuity or inflation linked;

whether or not you have an impaired life (likely to die young) or not;

where you live (inner city residents die sooner);

lifestyle (are you fat, a heavy drinker, smoker etcetera);

whether you are getting a single life or joint (including spouse) annuity

and so on.

Nobody knows the future course of interest rates except that at some time they are almost certain to go up.

So ask your GP how long you can expect to live, pick an interest rate and do your sums. There are on line annuity calculators, just ask a search engine.

Then shop around because different insurance companies will quote different rates due to the different weighting they give each of the factors I have listed.

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Mar 17, 2013 at 12:11

... and of course another factor is the age at which you wish to start an annuity. I tend to look at the rates available for an index-linked pension. They hurt my eyes but on the other hand I like to know where I really stand.

A couple of years ago, it was said that £35,000 was needed in a pension pot, to buy £1,000 of index-linked annual income. I would guess that that would be from about age 65. If annuity rates have worsened since then, even more would be needed.

It is interesting to do the calculation backwards, to see how much would be needed now, in a pension pot, to fund the highest tax-payer funded pensions.

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Harry Brooks

Mar 17, 2013 at 13:02

Annuities look increasingly like a bad choice. The rates are now between 5 and 6% for a healthy non-smoker at 65. If you want escalation, it drops to 4 point something. Joint life rates are even lower. But you know all this. Have any of you considered a SIPP? They are more flexible, you can draw our more than an annuity will pay — up to a limit set by the government — (or you can draw none at all in some years if you don't need to) — and there are post mortem tax advantages for your surviving spouse. But you will need professional advice.

And, as loads of people have said, recently, another option is the tax-efficient ISA. The obvious problem with these is that you can only put in £11,520 a year so, one needs to start early. You can't suddenly bang in a load of cash, stocks, funds, etc., that you've already got elsewhere. If you're near to retirement age, it's too late to aggregate a big enough sum in an ISA, though I'd say it's still worthwhile having one.

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Mar 17, 2013 at 13:41

I am happy with ISAs and SIPPS but confused about age 75 and flexible drawdown rules if there is no secure income of £20,000 which (if the above numbers are right) would require a pot of £700,000 in addition.

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Keith Hilton

Mar 17, 2013 at 14:27

dd - current Level annuity rates at age 74 are about 7.2%, therefore to achieve a £20,000 annuity, at that age, would require a pension pot of £277,778.

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Harry Brooks

Mar 17, 2013 at 14:46

dd — I'm a long way from being an expert on the subject so, I can't lay out the rules for you. But there are loads of websites that explain it all pretty well. The thing about the income is that you can draw a maximum of 120% of the annuity rate (I think it's due to go up to this level later this year — have a look at: Have a look at:, as well). Also, although there's a 55% tax hit on the pot you leave if you die after making drawdowns, your spouse can (I think) avoid the tax if she just carries on taking the same drawdown as you were. But you need to check that; as I said, I'm not a pro at this stuff. There's a reasonable explanation of SIPPs at: And Which have a good one at:

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Mar 17, 2013 at 15:07

Many thanks, Keith and Harry. Very helpful! dd.

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