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[LC0112G]

As an aside, I'm convinced my current calculations are wrong. Every pension planner says I need £xyz p/a income for a comfortable lifestyle.  I consider my current lifestyle to be comfortable - I'm soon off on my 3rd foreign holiday in a villa this year, so can't be grumbling.

So how come my current (heavily played about with via salary sacrifice schemes, so see how little I can live on*) income be very significantly lower than what the pension providers' calculators say, and I still feel comfortable?

I'm convinced I've missed something very fundamental


*Done it this way, as we all know you spend what is left in your account

The illustrations given by pension companies assume all sorts of stuff that may or may not be relevant to you. The rules are set by the FCA, and mean that every company should give their illustration in a way that can be compared to others, so it's not the pension co's fault. This usually results in very low estimates based on low returns, such as annuities. An annuity provider must pay out even if you live to be 150, but the FCA assumptions are for a negative rate of return after inflation on you pot, and this means you need a big pot to sustain a small payout.

Annuities do have a place for those with no appetite for risk - you are basically paying the provider for a guaranteed income, so the risk is all theirs. However, if you are comfortable with some risk yourself then you can (probably!) achieve a better outcome by using one of the more recently introduced pension freedoms like drawdown. But, if you stuff it up then you could end up penniless in your old age - which is another reason to get an IFA involved particularly if the pots are large.

[Migv6 le Frog Fan]

Then blow the winnings on hookers, hard liquor  & coke.

You'd last a fickin day....if that....you stupid old bastard 

Yeah, but what a day. 

[TheBoy]

Actuaries can work out how much cash a company has to put into the 'pot' to pay your £X forever, but that value can vary massively day to day, week to week. YOu only 'own' the promise to pay £X.

I had a feeling I'd seen a "total value" type number on it somewhere, but can't see it now.  It does have a 25% TFLS figure on it though.

But, yes, you've confirmed that it isn't really going to happen.  Obviously at the time, I'll still ask the IFA, but will plan for not taking the 25% from that pension.

[TheBoy]

The illustrations given by pension companies assume all sorts of stuff that may or may not be relevant to you. The rules are set by the FCA, and mean that every company should give their illustration in a way that can be compared to others, so it's not the pension co's fault. This usually results in very low estimates based on low returns, such as annuities. An annuity provider must pay out even if you live to be 150, but the FCA assumptions are for a negative rate of return after inflation on you pot, and this means you need a big pot to sustain a small payout.

I was thinking along the lines of the "your need £40k pa for a comfortable lifestyle" type calculations, rather than the 4/6/8% growth figures on a pension pot.

Reality is, I've set my current income hitting my account to what my (index linked) DB would pay today + what a SP would pay today, and find I can live reasonably comfortable on that, and they a guaranteed income for life.  Thus I have to self fund income until I can take my DB at 60 (penalties are a tad high for taking early) and my SP at 67/68.  One of my DC's would easily cover that even with pessimistic growth, leaving my other DC for rainy day and big ticket items. Clearly the longer I work, the less I have to dip into that 1st DC.


But I can't help feeling I'm missed something

[LC0112G]

The illustrations given by pension companies assume all sorts of stuff that may or may not be relevant to you. The rules are set by the FCA, and mean that every company should give their illustration in a way that can be compared to others, so it's not the pension co's fault. This usually results in very low estimates based on low returns, such as annuities. An annuity provider must pay out even if you live to be 150, but the FCA assumptions are for a negative rate of return after inflation on you pot, and this means you need a big pot to sustain a small payout.

I was thinking along the lines of the "your need £40k pa for a comfortable lifestyle" type calculations, rather than the 4/6/8% growth figures on a pension pot.

Reality is, I've set my current income hitting my account to what my (index linked) DB would pay today + what a SP would pay today, and find I can live reasonably comfortable on that, and they a guaranteed income for life.  Thus I have to self fund income until I can take my DB at 60 (penalties are a tad high for taking early) and my SP at 67/68.  One of my DC's would easily cover that even with pessimistic growth, leaving my other DC for rainy day and big ticket items. Clearly the longer I work, the less I have to dip into that 1st DC.


But I can't help feeling I'm missed something

Ahh, I see. I'm not sure I'd trust those sort of predictors. I doubt they're truly representative, and the risk is that they're just there to 'scare' you into saving more for your retirement.

Only you really know what you'll need to live on in retirement. Some costs will go down - travelling to/from work, associated car maintenance etc. Other costs go up - as you age you will typically use more energy to keep your home warmer, and since you'll be home more often and for longer, the heating and leccy bills are likely to be more. Travel insurance gets more expensive for those month long world cruises to Austraila and back. I'm sure some of the old bu99ers on here can give you an idea of other things that get expensive.

[Sir Tigger KC]

The illustrations given by pension companies assume all sorts of stuff that may or may not be relevant to you. The rules are set by the FCA, and mean that every company should give their illustration in a way that can be compared to others, so it's not the pension co's fault. This usually results in very low estimates based on low returns, such as annuities. An annuity provider must pay out even if you live to be 150, but the FCA assumptions are for a negative rate of return after inflation on you pot, and this means you need a big pot to sustain a small payout.

I was thinking along the lines of the "your need £40k pa for a comfortable lifestyle" type calculations, rather than the 4/6/8% growth figures on a pension pot.

Reality is, I've set my current income hitting my account to what my (index linked) DB would pay today + what a SP would pay today, and find I can live reasonably comfortable on that, and they a guaranteed income for life.  Thus I have to self fund income until I can take my DB at 60 (penalties are a tad high for taking early) and my SP at 67/68.  One of my DC's would easily cover that even with pessimistic growth, leaving my other DC for rainy day and big ticket items. Clearly the longer I work, the less I have to dip into that 1st DC.


But I can't help feeling I'm missed something

Ahh, I see. I'm not sure I'd trust those sort of predictors. I doubt they're truly representative, and the risk is that they're just there to 'scare' you into saving more for your retirement.

Only you really know what you'll need to live on in retirement. Some costs will go down - travelling to/from work, associated car maintenance etc. Other costs go up - as you age you will typically use more energy to keep your home warmer, and since you'll be home more often and for longer, the heating and leccy bills are likely to be more. Travel insurance gets more expensive for those month long world cruises to Austraila and back. I'm sure some of the old bu99ers on here can give you an idea of other things that get expensive.

Are Werthers Originals expensive?