Think about your Retirement Income

Retirement can seem so far away

The stages of life all have different pressures – when you are at school, all you can think of, is leaving home and going to college. Then when you are at college, you start worrying about what job you’ll get. Add into the mix, partnerships, marriage, children. If / when you have children, conversations are around schools, parenting issues. Then it moves to how do you help fund your offspring college education, empty nest syndrome, and so on. Every month, you manage to spend your available income. You might put a little away for a rainy day, but often every available penny has a home.

Then you get to 45 or 50, raise your head and suddenly think – wow retirement isn’t that far away, what am I going to do? Here are some ideas – What Am You Going to Retire To?

And then your next thought is what are my pension prospects? Sorry, folks, but that might be too late! It is a fact of life, but money saved early, increases more than money saved at the last minute.

Here are a few things my husband and I have learnt on our pension journey.

Things don’t go according to plan

Both my husband and I worked for employers who offered Final Salary pensions. (Those gold plated schemes, where depending on how long you had worked for a company, you got so many 60ths or 80ths of your final salary. The pension is paid every month until you die. If you died, but your spouse was still alive, then generally they would also get half your pension). We thought we were safe. Retirement finances were basically sorted, something we didn’t have to worry about.

I was introduced to the concept of a secure pension when I was about 20, but I couldn’t work out why it was important. Now I understand… Our elderly neighbour Mrs C (probably then, about my age now), who was a widow of a policeman, previously army officer…,  married Mr I, a retired bank manager. Then the fun started. Mr I had to live at least 1 or 2 years after marriage until his pension benefits could be passed on., but she could lose part of her pension when they remarried… What a mess. My friend’s mother at that time was also existing on what was then known as a Widow’s pension. The state and big companies, really don’t care too much for their pensioners. (Yes, I know that is a generalisation, some may be fantastic, but in my experience, they are in the minority)

For my husband and I, our big wake-up call came when my husband was notified, about 2000/1, that his final salary (Defined Benefit) scheme was being frozen. All benefits to date would be frozen, and moving forward both he and his employer would make contributions into a fund, that would later be used to buy a pension income (Defined Contribution). So he would be paying the same, but no guaranteed income at the end, it depended on how much his investment would grow. Other companies across the UK were doing the same. Many companies were changing the rules for new entrants, or reducing the benefits to existing staff. Initially my company looked OK, but who knew what was round the corner. (As it turned out in just a few years, they reduced the salary increases that would be included in your pension, the age was increased from 60 to 65, unless you paid a 5% supplement, the amount extra you could pay in was restricted etc. Wake up time, for a lot of people)

Don’t put all your eggs in one basket!

Time out of work may (will) hurt your pension

When I had my first child I was 27. My employer ran a Final Salary Pension scheme. It was in the dark-ages – 1982. I was encouraged to give up my job (big financial mistake, subject of a post, another day..) So my pension was ‘frozen’, but I understood I could transfer it into another pension scheme in years to come.  In 1984, I went back to work part-time, but I was a temporary member of staff, so it wasn’t counted as ‘pensionable service’. (GAA, or HM if you ever read this – you know who you are! Thank you so much, not!)  However, we all live and learn. If we had this discussion today, the outcome would be very different, and I doubt I had the confidence to be assertive then!) In 1988 I went back full-time. I contacted the pension area within the company, to see if I could add in my earlier pensionable service. They said it wouldn’t make much difference. Big, big mistake. An even bigger mistake was not getting it in writing! Fast forward to 2001, I tried again, and because of the difference in my salary between 1982 and 2001, I was told it would not be accepted. So when I retired in 2011, I retired on 24 years service, instead of 36 years service. i.e. 40% of my salary, not 60%. A huge difference. And that was before I paid a discount for taking it early.

To those of you, in the UK, who have had time off with children, or as a carer. Check your National Insurance Record here

• make sure you have had your National Insurance years added in. (You are eligible until your child is 12 I believe, and you should be getting NI allowance as a carer)
• make sure you consider your pension when deciding to take maternity leave or leave your job. I know you are far more interested in the forthcoming baby, but it will help you later…

And if you are changing jobs

• ask your new company what type of pension they offer
• ask them what their policy is for including previous service from elsewhere
• don’t leave it too long. Some companies have a time-limit when you have to make any decisions by. A friend missed his company’s 12 month deadline for transfers, which was a definite mistake!

And regardless

• Consider growing your salary. Some years ago, because I realised my pension was going to be badly affected by my time off. (I don’t regret a minute of it, and I would loved to have been able to afford even more time off…), I decided my choice was to improve my base salary that my pension would be calculated on. I did an MBA (college fees covered by my company, however all the extra hour of effort were totally my own!) Even my MBA dissertation was on something my employers would (and did indeed) benefit from.  So, comparing myself to some of my peers, ultimately I did OK. my equivalent in 1995, retired on a similar pension to me, but he had 35 years service as opposed to my 24 years. The difference was, I consciously chose to ‘climb the ladder’, ‘follow the cash’ for about 10 years. It worked, sort of. But at the end of it, all I could think of, was getting out! But as for the ‘high risers’, I was way behind!

Make the most of what the State offers you, but don’t rely on it.

As I write this in 2019, I am still three years away from collecting my UK state pension. There is a bit of an outcry at they minute in the UK about Women’s State pension. (see below) But in general, if you have 35 years of National Insurance Contributions, you will get around £150 p.week. (£600 p month). Now that really isn’t a lot. Heating, cooking and lighting takes around £80 (and that is being careful. Add in car insurance and house insurance, another £40 a month, TV, phone, cable another £50 a month. Council tax (as a single person in a small house, with reductions) £100 a month. That alone leaves £330 a month to put petrol in your car (a necessity in many places), feed yourself, and pay other things I have omitted from the previous list. Put it this way, there is absolutely no room for saving for any emergency.

As for Social Security in the US, I have read many posts about how hard it is to survive, even if you are really frugal, and I don’t think any other country is particularly generous.

So Let me say that again

Don’t Rely on the State

Rules can and do change.

Some years ago the UK government started trying to align state pensions for both women and men. All women born 1951 onwards were impacted, but the impact has been felt most by those born 1954 / 1955. I am one of those people.  So instead of getting my state pension at 60, I have to wait until I’m 66. It has inspired a whole movement,  WASPI (Women Against State Pension Inequality). Fortunately for me, I am not dependent on that missing income but many people are. For me, it was only part of my inflation planning!

Over the next few years, that age will increase from age 66 to 68, and it is expected it will be 70 and possibly beyond. More and more people are living longer, the state has many calls on its purse. I suspect before very long the government will start means testing this pension.

Don’t rely on the state!

Keep Track of all your pensions

In general, it is now relatively rare to work for the same employer from leaving school / college until you retire. So, if you have had 4 or 5 jobs, you have several pensions to keep track of. Make sure you keep those companies updated with any name/address change.

If you’ve lost contact with the pension provider in UK, you can use the government Pension Tracing Service.

If your new scheme allows it, you might be able to merge in your previous workplace pension. There are a lot of considerations in this, and I would recommend taking professional advice. If you are in the UK, the Financial Conduct Authority maintains a list of of registered Financial advisers here.  Ask around your family, colleagues and friends. One or two will have personal recommendations for you to consider.

Avoid Cashing in Your Pension

I’m not sure you can do still do this in the UK if you are under 55, but many years ago (before we were married!), my husband cashed in his pension with a previous company to pay a bill for a roof repair. Definitely not a good financial move! And please don’t listen to someone, telling you ‘Transfer your pension here’ we’ll be able to give you some of the money early, just fill in these forms etc. There is a huge amount of fraudulent activity out there, often leaving you with tax liabilities and/or no money. Do take proper financial advice, using someone who is registered with the Financial authorities. If you’re in the UK, see the link above for registered financial advisers.

Finally

If you take the time early on and review your position when an event happens (changing jobs, having a family etc). Then review your position 20, 10 and 5 years before you want to retire, you will probably be in a good position.

However, all is not lost, if you do leave it very late. Even at 55, with a severe tightening of your belt, you can save fast & furious. One of our best moves was 2 years from retirement when we put ourselves on a pension diet. We effectively lived on what would be our proposed pension. Everything else was saved, mostly into our pension pots. It had 2 advantages – firstly we knew we would be able to live comfortably on our proposed income and the second was that it enhanced our savings nicely!

All the best

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