According to Prudential, pension account holders are permitted to withdraw 25 percent of their pot each and ever year without a tax penalty. However this draw will adversely affect any state benefits that they may be entitled to or be in receipt of - except the State Pension.
That's a very good question, Malcolm. Pensions are a form of saving but there are much better vehicles available (in my estimation), for example managed investment portfolios. Anyone with substantial private pension pots will probably be hoping and praying that a future administration will not carry out its promise to raid pensions schemes (as did Gordon Brown) and remove their investment vehicles by nationalisation of key and profitable companies.
in my case I never had a private pension...and the only company pension scheme I was in allowed people who left within 5 years to get their contributions back..which I did. When my old dad died in 2016 I was the sole beneficiary of his estate..which was considerable. I put some towards a house purchase and the rest in a savings a/c. ..paying small interest. If I drew down the same equivalent of my state pension each year, the capital would see me out. My main concern is if I live long enough to have to go into a care home...the fees will just bleed me dry. But as my wife is a qualified care she could give up her job to look after me full time...and I would pay her. Incidentaly..my wife is currently on holiday back home. Her boss..the care home owner..messaged her pleading with her to take over as manager on her return. I've persuaded her to take it.
Most people start private saving too late in life, if you start saving early you can build up a fairly good fund over 40 years, the new pension freedoms make that saving an even better idea. Thirty years ago most financial planners would tell you to build up a pot of 100,000 the reason they advised this was that annuity rates were close to 10% or more so if you bought an annuity you would get 10,000 a year with an annual increase for inflation. Ten thousand was a good addition to the state pension and 100,000 was not an unattainable goal, that's what I planned for but annuity rates have collapsed over the last decade, even ten years ago you could still get 6% some providers even offered 7% but now it is closer to 3.5% it's hard to find out the exact numbers as everyone now wants your email or phone number before giving you a quote. The pension freedoms now provide a saver with much more flexible access to their fund and you are not now faced with the potential loss of your entire life savings as the result of dying early, as long as you don't buy an annuity you can leave the balance of your pension to your dependants. So yes it is still a really good idea to pay into a pension.
In my case,after speaking to my accountant for just 30 minutes,I decided to no longer subscribe to these pyramid schemes..My accountant charged me 35 Quid for that advice,,The Jewish bastard!! Can you imagine?
Pyramid schemes Where do you think businesses get their investment growth capital from, a large part of it is from Pension companies via funds that invest in corporate bonds, basically loans to businesses. How about we just trash the entire current and future economy of the world by not investing in Pensions. The government gives you 20% of your contribution to a pension as free money, you are not taxed on your contribution, so what's better having £100 saved in the bank on which you paid £20 tax and you're getting a rate of 0.5% interest or having £120 in a Pension fund which will likely grow 5% to 10% per annum over the long term?
What happens, will happen, pensions are a gamble whatever way you look at it but money just sitting in a bank account is a guaranteed loss. The primary gamble with a pension is the economic environment at or around about the time you need to start drawing on it, the current pension freedoms mitigate that risk as you no longer need to make a do or die choice at that moment. I have the choice of where to invest my funds, it doesn't have to be UK Equities or UK Bonds although it is invested through a UK based Pension company and currently about 60% of my investments are indeed in UK companies, I can change that in a few moments if I so choose.
the problem with pensions--as i see it--is nobody knows what strokes a goverment will pull in the future with all that dosh tied up that you cant get your own hands on. they have a bad track record with manipulating things beyond our control. for example--the dole. once upon a time if you lost your job--you could sign on the dole for a year--it was part of your NI contributions--it wasnt a lot--but it wasnt means tested. then one day--the govt of the day cut it in half--to 6 months. NI contributions werent reduced though...funny that. more recently--a friend of mine--age 63--has worked all her life--expecting to get her state pension at 60. that was the deal. shes still waiting...living off her savings. i get 1.1% interest on my savings--instant access. could do better if i tied it up for a year or 2. no thanks.
Once upon a time you got a grant to go to University if you were poor, that went. Anyone that put off saving into a pension lost out big time regardless of rule changes. I was enrolled into a pension scheme by Scottish Power (SSEB in 1985) my contribution was zero apart from the 'contracted out' component, I only worked for them for 5 years, and left on a final salary of about £14,500 a year, the transfer value of that pension today is £61,000. I was enrolled into another pension by my employer BCT in 1993 I was only with them for 3 years, total contributions were 11,000 again I didn't make those contributions from my salary and again I was contracted out of SERPS, that one is worth £45,000 today and has been in a very secure fund with a 4% annual guarantee. A couple of years after I started my own business I started a private pension, I'm still paying into that and I am now paying in a vast amount of money 34% of my salary basically because it would otherwise be taxed. When I started saving into a personal pension in 1993 (Group Personal Pension) I knew that I could never touch that money until retirement, I don't even think you could get at it at age 50 at that point, since then they changed the rules to allow access to personal pensions first at age 50 and then they changed that to age 55 meantime the government stole a year from me by increasing my state pension age to 66, that's the same as £9000 extra tax, it's £9000 I wont get before I die which I could have reasonably expected to get when I first started working. Pension saving is long term saving, the rules may change but it is still saving the same as saving in a bank account except that there is some risk that you could lose some money, but your bank could also go bust and you could also lose some money if you have more than the government guarantee amount in one single bank. The way the government stole 6 years from women was scandalous I agree, that's a huge amount of money they lost, my eldest daughter's mum could be retired now under the old rules but instead she has to slave away for another 6 years, she has no private pension provision. The population is getting older no government can or will get away with drastic changes to pension legislation, they will tinker, they might remove the tax breaks on saving eventually so all the more reason to save now, the government might end up screwing you but if you don't save you are at the mercy of what they might do eventually to the state pension and other benefits.
I should have commented earlier, this only applies to retirement accounts, and it is not 25% of the pot it is 25% of a tranche of a pension pot. pot = £300,000 first tranche take a £40,000 tranche at 25% tax free, pot now = £260,000, remaining crystallised pot = £30,000, funds withdrawn = £10,000 second tranche take a £40,000 second tranche at 25% tax free, pot now = £220,000, remaining crystallised pot = £60,000, funds withdrawn = £20,000 total third tranche take a £40,000 third tranche at 25% tax free, pot now = £180,000, remaining crystallised pot = £90,000, funds withdrawn = £30,000 total and so on. This is not a year by year thing you could take a tranche multiple times in one year. total remaining funds for each tranche first tranche £290,000 second tranche £280,000 third tranche £270,000 If each tranche was taken a year apart the remaining money would have grown substantially in the meantime even 3% growth per annum would see you left with a lot more than the £270,000 number I mention above. Once your uncrystallised funds reach zero you can no longer take money tax free and you have to take income from the remaining crystallised funds, you could get away with this approach for about 7 years for a pot of this size and at the end of it you would still have a lot of money to leave to your loved ones, probably pretty close to the £300,000 you started with, I'll run a quick calculation in a few minutes to get the exact number. Here you go a simplistic calculation, there are simplistic assumptions like 3% annual growth and these are just numbers not accounting for inflation. (edit: the spreadsheet below tries to add in some inflation) It assumes that you take 3% extra every year tax free, if you start year one at age 66 with 10,000 state pension then 20,000 a year is not a bad income. And you are still left with a decent pot at year 7 at which time you have to pay tax as you are then in drawdown but by then the tax allowance will be much larger so you will still pay very little tax. The red one is a negative number in reality you can't take tax free cash at this rate after year 6. The key point is where the uncrystallised funds = 0 and this version of the spreadsheet does not properly account for that it wasn't meant to.
i can well see the state pension becoming a means tested benefit. so anyone with a workplace or private pension will be hit--savings too will be taken into consideration. of course--it will be set in place a few years before..so the goverment in office can engineer a general election so the next government carries the can. nothing new there of course.
Yes I agree, they will try, although I don't agree that parties conspire together to pass the blame, they do so independently within their own frameworks to achieve their own goals. They (any party) will come up with this whiz bang scheme, it will last 5 minutes before they realise that the massive aging demographic population will remove them. Realistically there are other issues on the horizon, they will all be faced with automation, all parties I mean, AI and further Robotics in industry, pensions pale in comparison to that problem.
I wish you luck with your pension investment strategy. Mine as you know is quite different to yours. Have you sorted out your private golf club membership for you golden years yet?
Story from 2017. The British state pension is now worst in the developed world as it has fallen below Mexico and Chile, data shows. An average worker entering the UK workforce today can expect to receive less than a third (29 per cent) of their final working salary as a basic pension income after tax, according to a report published every two years by the Organisation for Economic Co-operation and Development. This is a reduction of around 40 per cent of what their equivalents who entered the labour market back in 2002 could have expected to receive as a percentage (47.6 per cent) of their final salary. Since the study began the UK has consistently ranked low on the list, ranking below Chile and Mexico last year, however it has never come last before. The reason for the UK falling to the bottom of the league table is down to the earnings-related element of the state pension being removed along with the introduction of the new flat-rate pension, the OECD said. https://www.telegraph.co.uk/news/2017/12/05/uk-state-pensions-ranked-worst-developed-world/
Yes it's crap it's always been crap, but its a hell of a lot more than a pensioner in Mexico or Chile gets Average daily wage in Chile is about 13 quid Mexico even less, ranking by value might be a better idea.
