How much does the average retired person need to live off.

[Wynd]

Who said anything about 2016? The underperformance started much further back than that - from 2010 onwards based on that chart.

It could be argued it was implied. Id put the start of the FTSE's underperformance at 2008.

 

[Snow1964]

Yes, a very good point. I never paid into either SERPS or SSP as I was in final salary based schemes for my entire working life.

I expect there’ll be a few forum members like me who haven’t been fully aware of how SERPS or SSP operated, so did those schemes effectively allow a firm to provide an enhanced pension for staff by using the DWP, rather than a mainstream pension provider? Was there a period when they were compulsory if an employer didn’t run a pension scheme?

I suppose though, that the same issue of opaqueness applies? That is, if you‘re a journalist aiming to write a scary article about pensions in general it’s going to be tempting to ignore the possibility someone was in one of those schemes.

More important, if you were contracted out (which was common from mid 1980s to about 2016), you paid lower rate of NI, to allow you to contribute to private or company pension.

Go on the Government's NI record website, login with same Government gateway code you use for tax returns etc. You can apply for a code by entering NI number if you don't have one.

It will tell you how much state pension you will get based on contributions to date, and if you keep contributing until retirement age. Need 35 years (nearer 39 years if contracted out) to get £185/week. Once you reach the maximum £185 any further years contributions are effectively wasted and a gift to the Treasury.

Because of all the pension changes can buy the missing years (but have to do it by end March, as they are discontinuing option to buy missing old years). So important to do this in next few weeks to allow time to buy any shortfall.

Any shortfall years can be bought (known as class 3 voluntary NI), and the amount is equal to 3 years pension, so if you intend to live more than 3 years (and most live average of about 12 (male) - 15 years (female) after retiring, so is no brainer.

 

[Bishopstone]

Not so quick there! You need to go back a lot further than 2016.

Yes, the key driver of the American outperformance is their proliferation of high growth tech businesses, whilst the FTSE 100 includes, or included, such gems as Lloyds Bank, BT, and Marks & Spencer.

 

[swt_passenger]

More important, if you were contracted out (which was common from mid 1980s to about 2016), you paid lower rate of NI, to allow you to contribute to private or company pension.

Go on the Government's NI record website, login with same Government gateway code you use for tax returns etc. You can apply for a code by entering NI number if you don't have one.

It will tell you how much state pension you will get based on contributions to date, and if you keep contributing until retirement age. Need 35 years (nearer 39 years if contracted out) to get £185/week. Once you reach the maximum £185 any further years contributions are effectively wasted and a gift to the Treasury.

Because of all the pension changes can buy the missing years (but have to do it by end March, as they are discontinuing option to buy missing old years). So important to do this in next few weeks to allow time to buy any shortfall.

Any shortfall years can be bought (known as class 3 voluntary NI), and the amount is equal to 3 years pension, so if you intend to live more than 3 years (and most live average of about 12 (male) - 15 years (female) after retiring, so is no brainer.

Yes I knew about the reduced NI contributions, and the ability to get a forecast, although i believe it’s no longer accessible once your pension has started.

I can tell you however that in the years running up to just before my pension started, I had checked the forecast a few times, and I already had the exact 35 years contribution history, and at that time my forecast was significantly lower than the “full rate”. The forecast did not explain at all how my forecast amount was calculated. I don’t recall them ever explaining that buying in more years beyond 35 would make a significant difference, maybe it was lost in the small print somewhere.

I think it’s water under the bridge for me now. But your advice might help someone else to tweak their weekly rate upwards.

 

[najaB]

Yes, the key driver of the American outperformance is their proliferation of high growth tech businesses, whilst the FTSE 100 includes, or included, such gems as Lloyds Bank, BT, and Marks & Spencer.

But it's not like people stopped using banks, telecommunications or supermarkets, nor that businesses in those sectors haven't been very successful from 2010 onwards. There's a particular malaise affecting the UK which other countries seem to be somewhat immune to.

 

[Bishopstone]

But it's not like people stopped using banks, telecommunications or supermarkets, nor that businesses in those sectors haven't been very successful from 2010 onwards. There's a particular malaise affecting the UK which other countries seem to be somewhat immune to.

Lloyds, BT and M&S have been a lot less successful than Apple, Meta and Google, by any financial measure!

Why the UK (and much of Europe) haven’t grown listed tech businesses comparable to the US giants is a separate, interesting but off-topic question.

 

[DelayRepay]

One thing that seems to be increasingly popular with my colleagues is to reduce their working hours, rather than retiring completely. I have two older colleagues who both moved from being full time to job-sharing (one works three days and the other two days), and a couple of others who dropped from five to four days. I also know a few people who retired early but supplement their income with occasional contracting or consultancy work. I'd like to be able to do something like this, and perhaps when my mortgage is paid off I will be in a position to do so. Fortunately I work in an industry where part time working, and short term contracts are quite common.

Has anyone mentioned that where you live affects how much you need to live on.?

Living here in the South East means prices are much higher but income such as state pensions or private pensions are the same where ever you live in the country. I am always interested that when I travel around the country and see much lower prices for anything from transport fares to food much cheaper than the South East.

I live in the South East, but am from Yorkshire originally and my family and closest friends all still live in Yorkshire.

My plan has always been to move back to Yorkshire when I retire, with the hope of making a profit due to the differential in house prices and the general lower costs in the North compared to the South East. I'm not relying on this profit to fund my retirement, and my main motivation to moving north is being closer to family and friends, but any financial benefit will be very welcome.

 

[PeterC]

All together, I had an improved lifestyle at a lower cost. The consequence was a wardrobe full of suits, Lewins shirts and ties, none of which seem to come out except for attending funerals.

Sounds like my wardrobe.

One big shift is not payong National Insurance. I haven't done the arithmetic but I feel the difference at the end of the month.

With the mortgage paid off and no four figure season ticket to fund my disposable income has been pretty well unchanged.

 

[Foxhunter]

As someone who has completed the work to retirement transition I think the topic has been well covered.

All I'll add is that if you are able to save some of your income in the last few years prior to your retirement, then the drop when you retire does not feel as large; as well as the reduction in costs already mentioned, you simply stop saving but continue your lifestyle.

Apologies if it's already been covered - I haven't noticed - but there are people in their sixties with parents in their eighties and nineties dieing and leaving an inheritance in the form of a house. Even with one or two siblings, this can yield a tax free sum greater than a pension pot. More than once I've heard of parents dieing and then seen a new car on the drive or a departure on a world cruise a few months later.

And then, of course, there is equity release. Judging by the number of tv adverts there is quite a lot of this going on. But obviously not a route that is open to all.

 

[Dai Corner]

I'll second the advice to be in a job with a defined benefit pension, save a significant amount (at least what your mortgage cost once it's paid off) and reduce your weekly/annual hours a few years before you plan to retire so you get used to having less coming in.

I retired at 56, some ten years 'early' and manage fine on a pension not quite large enough to pay income tax. Once my state pension kicks in during my 66th year that should cover all the bills and groceries and my occupational pension will be my disposable income. I have no kids to leave anything to do my aim is to die with just enough to cover my funeral costs. The trouble is knowing when that will be!

My main grumble at the moment is that inflation is reducing the value of my savings by almost as much as my annual pension. I hope this or future Governments will bring back index-linked National Savings.

As I think somebody else said, there is a potential timebomb whereby those who don't own a home outright by the time they retire face paying rent throughout their lives out of an inadequately funded pension. In my local authority area, at least, I believe there is an entitlement to social housing from age 60. That's going to run out as the aforementioned people reach that age.

 

[najaB]

I'll second the advice to be in a job with a defined benefit pension, save a significant amount (at least what your mortgage cost once it's paid off) and reduce your weekly/annual hours a few years before you plan to retire so you get used to having less coming in.

Not so easy to achieve these days. Are any defined benefit schemes still open to new joiners?

 

[Alfonso]

Not so easy to achieve these days. Are any defined benefit schemes still open to new joiners?

Teachers, local government, civil service all have defined benefit schemes, often based on average rather than final salary

 

[jfollows]

Not so easy to achieve these days. Are any defined benefit schemes still open to new joiners?

https://www.civilservicepensionsche...-scheme-guide-general-information-section-01/ is a career average, defined benefit pension scheme which supersedes the previous scheme - nuvos - to which I contributed when working 2008-2015. Career average (as Alfonso said) means you build up an entitlement each year (nuvos was 2.3% of pensionable earnings, alpha is 2.32%), which is cumulative, rather than having your pension determined solely on your final salary. For me, it was better but for people who start at the bottom and work their way through the ranks it's potentially less generous. Normal pension age is the later of 65 and the state pension age, which is a slight variation on the previous scheme I'm a deferred member of in which normal pension age is 65 regardless of the state pension age.
Anyway, it's probably a good deal if you have a job which entitles you to join it. Some of my former colleagues with long service moaned about some of the changes imposed on them a few years ago and I decided not to tell them that they were relatively lucky even so.
I worked for 7 years under such a scheme and will get a pension of around £10,000/year from 65. I could choose to take it earlier but I won't. I might take part of it as a tax-free lump sum but currently don't plan to, but there is flexibility.

 

[DelW]

One thing that seems to be increasingly popular with my colleagues is to reduce their working hours, rather than retiring completely. I have two older colleagues who both moved from being full time to job-sharing (one works three days and the other two days), and a couple of others who dropped from five to four days. I also know a few people who retired early but supplement their income with occasional contracting or consultancy work. I'd like to be able to do something like this, and perhaps when my mortgage is paid off I will be in a position to do so. Fortunately I work in an industry where part time working, and short term contracts are quite common.

I found that very beneficial. For the last four or five years that I worked, I did a three day week (normally but not always Tu/W/Th), which my employer was willing to allow as the demand for the work I did was dropping due to changes in the business's target market. It made for an easy transition towards retirement and allowed me a better social life, and in the end I carried on to age 67 which I wouldn't have done had I still been full time. By that stage the workload had dropped still further, so they paid me statutory redundancy and outsourced what was left.

 

[Haywain]

Not so easy to achieve these days. Are any defined benefit schemes still open to new joiners?

The Railway Pension Scheme.

 

[Dai Corner]

Between us, my employers and I contributed about 18% of my salary to my pension schemes.

I wonder how many defined contribution schemes are that well funded?

 

[oldman]

Not so easy to achieve these days. Are any defined benefit schemes still open to new joiners?

The university scheme USS now limits defined benefit to the first £40000 of earnings. Beyond that contributions go into money purchase.

 

[najaB]

Thanks all for the responses.

I did a little Google-fu after posting and it appears that only ~10% of DB schemes are open to new joiners, ~48% are close to new accruals (existing members keep any benefits they have already but don't get any further increases), ~38% are closed to new members and ~4% are being wound up.

DB defined benefit annual report | The Pensions Regulator

Annual report on defined benefit (DB) occupational pension schemes registered with The Pensions Regulator (TPR), including those also providing defined contribution (DC) benefits.

www.thepensionsregulator.gov.uk

 

[Dai Corner]

Thanks all for the responses.

I did a little Google-fu after posting and it appears that only ~10% of DB schemes are open to new joiners, ~48% are close to new accruals (existing members keep any benefits they have already but don't get any further increases), ~38% are closed to new members and ~4% are being wound up.

DB defined benefit annual report | The Pensions Regulator

Annual report on defined benefit (DB) occupational pension schemes registered with The Pensions Regulator (TPR), including those also providing defined contribution (DC) benefits.

www.thepensionsregulator.gov.uk

The unknown future liability of a defined benefit pension scheme is one that employers not ultimately backed by the taxpayer are unable to take on, unfortunately.

When I was made redundant from my first employer the ability to transfer my pension to the Local Government scheme was a significant factor in choosing my second (and last).

 

[jfollows]

https://www.retirementlivingstandards.org.uk/ gives some figures for annual pension amounts:
Minimum standard of living: £12,800 single, £19,900 couple
Moderate standard of living: £23,300 single, £34,000 couple
Comfortable standard of living: £37,300 single, £54,500 couple
Noting that full state pension for 2023-24 is £10,600

 

[birchesgreen]

Blimey i live pretty comfortable on a lot less than that figure above!

 

[swt_passenger]

https://www.retirementlivingstandards.org.uk/ gives some figures for annual pension amounts:
Minimum standard of living: £12,800 single, £19,900 couple
Moderate standard of living: £23,300 single, £34,000 couple
Comfortable standard of living: £37,300 single, £54,500 couple
Noting that full state pension for 2023-24 is £10,600

The Times had an article using the same figures last week, but they emphasised something called the “Pensions and Lifetime Savings Association”.

I think theres some surprising assumptions made, such as £1500 pa for clothes? I think that would cover me for a decade…

 

[westv]

Blimey i live pretty comfortable on a lot less than that figure above!

It all depends how one defines comfortable. In general someone who is happy with Richmond sausages might be able to be comfortable on a lot less than someone who only buys them from Fortnum and Masons.

 

[spyinthesky]

I too am going to be comfortably moderate or is it moderately comfortable?

 

[Dai Corner]

Blimey i live pretty comfortable on a lot less than that figure above!

Ditto

I think theres some surprising assumptions made, such as £1500 pa for clothes? I think that would cover me for a decade…

£15 is nearer the mark for me. Things like socks coming free as Christmas or birthday presents.

The Times had an article using the same figures last week, but they quoted something called the “Pensions and Lifetime Savings Association”.

Ah. Presumably they have a vested interest in getting people to save.

 

[jfollows]

https://www.plsa.co.uk/press-centre...s-add-almost-20-to-minimum-cost-of-retirement is probably the place the Times article referred to, it gives more information, and specifically

• to reach the "Moderate" pension level a couple needs a pension fund of 2x£121,000 (it says "£121,000 each" which I find confusing and misleading)
• to reach the "Comfortable" pension level a couple needs a pension fund of 2x£328,000

based on an annuity rate of £6,200 per £100,000.
These figures are additional pension sums built up which supplement the full state pension from state retirement age.
The figures seem to me to imply, for example, ~£41,000 pension for the "comfortable" couple amounts plus £10,600 each for the full state pension, I can't make them add up better than this.

 

[birchesgreen]

I was referring to the moderate figure as well...

 

[jfollows]

It all depends how one defines comfortable. In general someone who is happy with Richmond sausages might be able to be comfortable on a lot less than someone who only buys them from Fortnum and Masons.

Yes, in my experience I found that it depended on what I'd become accustomed to earning and spending, and we've discussed already that a number of expenditure items go away. There can't be a "moderate" or "comfortable" amount applicable to everyone. If I'd said I was living "comfortably" when I was working, then I found that I was able to live to about the same standard when retired on two-thirds of the taxable income I'd become accustomed to, but other peoples' experience will vary.

 

[DelW]

I think theres some surprising assumptions made, such as £1500 pa for clothes? I think that would cover me for a decade…

[Beware, gender stereotype approaching ...]

Maybe it's an average, £150 pa for men and £2850 pa for women ... based on some I know anyway. Especially now it's just a few taps on a screen, and the parcel arrives at the door a couple of days later.

[Please stand back, this gender stereotype is now departing]

 

[Dr Day]

£6,200 per £100,000.

Feel a bit on the high side compared with the £4-£5k figure referenced in https://www.thetimes.co.uk/money-me... you're wondering,for an annuity or drawdown?

It slightly surprises me in simple terms if I've understood correctly that the maximum income anyone can have from a pension (using an annuity) given the effective £1m pot limit is around £40-60k (on which tax is still payable). Sure for the vast majority of us that would be absolutely fine, and we wouldn't have that much saved up anyway, but it does feel a bit of a constraint for the very top earners - including those within the railway industry. Hence driving investments in property simply as an alternative place to put savings once pension fund contributions have maxed out. Or premature retirement as per comment on GPs earlier.