Pensions – Why are they so bad?

It’s that time of year when  I receive pension statements. I do wonder what the point of a pension is as every year their value may increase (a little) but their payout forecast just drops and drops each year.

This year my paid up personal pension is quoting a ‘massive’ £283 PER YEAR pension when I reach 60 – Wow that is really going to give me enough to live off! ** I did look at re-starting this pension but they want me to get a solicitor to sign off forms to prove my identity!? WTF ?! They know where I live, they have history on me and can check the DD details and ID check me electronically – I still pay contributions to them for something else – so why do I need to provide all this info, just so I can restart monthly payments as a fixed rate ( due to their rules(?) I can only pay in the amount that I was when I stopped it. Which is a pittance anyway).

I stopped it because it was a pension I took out when I first started working and my employer at the time did not have a pension scheme. I then moved job and wanted to join my new employer’s really good company scheme (it was a final salary!) – at that time you couldn’t have two pensions on the go so I had to stop this one. My final-salary pension is now deferred as I have left that employer and I know what that will pay out from 65, they currently guarantee me an annual value. Can I be sure it will still be there when I reach 65 – possibly not if BHS, Hoover, etc… are anything to go by?

The next pension statement was for my personal pension (a stakeholder) which I still contribute to, a small but regular payment. If I retire at 55 (I set the age to this when I opened it to give me flexibility to drawn from that age onwards if I wanted to), I will receive a whole £850 PER YEAR. Not even enough to pay my annual council tax never mind monthly living costs.

The next pension statement received is from my current employer pension scheme. Now, this scheme is a money-purchase – I don’t know anyone who has an active final-salary one now. It’s value is open to fluctuation and heavy interpretation anyway. If I continue to work for my present employer until I reach 65 (which I very much doubt – given the fact that I am looking to leave), I can potentially claim a pension of £3,000 PER YEAR.

I don’t get to claim my state pension until 67 due to the government changes, which could change again between now and then. I also cannot get a figure out of DWP either as due to opt-out years, my state pension value will have a deduction due to SERPs opt-out years, which they will not calculate until I actually reach state pension age. So all I know is that it will be less than £8k per year as I will have opt-out deductions.

That’s why I am so glad I am investing separately to gain some control over my future with savings via ISAs and a SIPP, I can see the value when I want to and do something about it. Well, at least try to do something about it! 🙂

 

Our Next Life

I was listening to Mad Fientist and the podcast with OurNextLife, it was great to hear their journey. Ok, its yet another US example, with the flexibility and opportunities that I am not sure really exist over here in the UK(?).

I read their post on their FI plan. It is interesting, when I was with my ex partner we had a plan that was shared, with shared dreams and adventures,  as we saved and paid off the mortgage and started to make some headway, his views changed. Our paths diverged, the plan became just my plan.

I now follow the plan on my own, I have a residential property that is mortgage free and a rental property that earns a little side income. I save regularly into an ISA and pensions, with the odd share purchase on the side. I used to save any bonus or windfalls that came my way rather than blow it on consumer trinkets until job insecurities resulted in job loses; I now have a job that pays nothing but a basic wage. My savings have helped me during those bad work situations and I am glad of that cushion, my emergency fund, I am lucky to be where I am.

It would be good to meet someone with the same goals, dreams and adventure ambitions but I think that is unlikely, so I crack on with my own journey following the plan. As I grow older my dreams of snowboarding the deeply snow covered hills fade away due to health issues, both my knees are pretty much shot now. Hopefully I can continue to cycle, hike and camp for a few more years.

I need to find my final goal, so looking at other options to fill my day once FI is achieved. I don’t want to end up working and retiring at NRA with bad health and look back at all the things I never achieved because I was too scared to jump or feared financial failure.

Living for work and only seeing work as my achievement and status in life is wrong. I think its the time of year, SAD strikes and I need to get some good doses of daylight and feel happier. Getting out in the garden and walking, cycling and feeling active is the goal.

I use to spend so much of my time as a child outside and I miss that freedom. The achievement of making and doing things ticks the boxes for me and I need to find outlets for this that could possibly provide a side hustle too. When I was a child, my view was to get a job earn lots of money so I could give it up and do my art and craft activities and not have to worry about the money. I could go horse riding, cycling, paint and draw and feel free.

Year-End Review

Its nearly the end of the tax year and I am reviewing what to do for the best with my finances, I should use up all the allowances available to me and move my FI fund around to get the best deals and make the money work for me. Compared to last year my FI fund is down due to drops in the share market. I have money sitting in savings accounts being eroded by inflation so moving them across into ISAs and pensions where – ok I cannot get at the money until I am 55  – it will have the potential to earn a better return that a savings account.

My consolidated SIPP account is already starting to grow. My first pension transfer is now invested and rising in price. The second pension transfer completed this week so I can now schedule that to be invested in some Vanguard funds to hopefully over the long-term give me a better return. I am looking to adjust my pension saving to be 20% of my salary. Again it is the mantra of setting up the DDs so that the money goes before you have a chance to spend it. I also save into my employer scheme and they pay 5% into it too so that is also helping to grow my pension funds. At the moment the biggest winner for me this year has been my pension funds which have increased as a % ratio of my FI fund.

My saver mentality is winning the day so just need to crack on with activities to block out the negative thoughts rumbling in my head. Onward and upward…..

SIPP Transfer

I have taken the plunge and opened a SIPP after procrastinating for a while.

I have now filled in the online forms to get two old company  DC pensions transferred into it so these can form the basis of my new plan. One has already transferred and is about to be invested so only out of the market for a very short time, a matter of a few days in fact, pretty impressive.

A monthly regular payment has also been setup so that I can pump money into these as other tax efficient paths are now full. The SIPP can be accessed from age 55 so this means that I can access the old DC funds at an earlier age than originally permitted.

I have picked some funds and will use these as a basic selection for my DCs with another set of funds used for my regular monthly contributions. My intention is to add occasional additional payments (I don’t get bonuses like I use to – in fact what is a bonus?) and either buy shares or funds to balance the portfolio.

I have also been focused by listening to Tim Ferriss podcasts as he interviewed Mr MM and it was great to be reminded of what I am aiming to achieve, choices!

I now need to re-organise my spreadsheets and get focused on FI savings as my HP fund is unbalanced and hit hard by the market fluctuations. I am running at a -4% drop as I hold too many old employer shares which have dropped since Jan due to market sector downgrades. I should have sold some last year and moved this cash into other shares. My bad!

 

 

2016 Pension Summary

Its that time of year when I receive my pension statements, yet again they are depressing reading.

For yet another successive year, the ‘paid-up’ schemes are going down and the new revised plan targets using their new ‘calculators’ show my pension dropping. What is even worse this time round is that my old personal pension (which I can transfer and lose 9% of its value in ‘actuary fees’) is the most depressing reading. They are quoting a growth rate of 2.4% and an inflation rate of 2.5% … in other words …  a negative growth rate – no wonder we are so disillusioned with the financial services industry.

I am considering moving this to a SIPP and taking the hit of the 9% loss in transfer value and try and make this up by new contributions (I cannot re-open this scheme in its current form, its ‘paid-up’, so it is stuck in this strange limbo where I cannot do anything but watch it being eaten away by inflation and their scheme ‘administration fees’).

I am not surprised by the lack of trust in the pension arena when you see money saved just disappear in charges and locked in policies which restrict what you can do with them. Because it is an old scheme, they will not support the new pension reforms and I would need to transfer this to another scheme to gain any access to the new pension freedoms (losing my 9% in fees in the process!). This shows how these freedoms have not really made any difference to those people who heard the messages at an early age and started schemes as soon as they started their working lives over 20 years ago.

I am glad I am monitoring these schemes, what if I had just left them and not monitored them? I could just be the ‘head in the sands’ type person hoping that the pension company was doing the right thing and that the scheme was growing and that when I reach my retirement age I would have some money – well – based on the current forecast, I doubt I would have much left to take. Its a sad state of affairs when the general public are so unknowing and trusting of these financial institutions to look after and grow your money for you. People need to take more interest in their financial affairs and keep an eye on these so called experts.

Looking overall at the final salary schemes that used to exist. Now that companies are globally owned, it doesn’t take much for a global parent to dump a company and leave the pension scheme in a mess. I have a final salary scheme which is now deferred and should pay out a guaranteed sum when I reach retirement – but will it? If the company is bought by a foreign parent then asset stripped by a foreign parent, anything could happen. The number of large UK corporations that have gone bust after years of successful operation due to global pressures.

My current employer was a long-standing manufacturing employer and has lots of history but it has shrunk over the recent years as global competition has picked up and it has now fallen victim to the foreign buyout and now has a foreign parent that has no interest in the history or any loyalty to is past or present employees. This also means you cannot guarantee that a long-standing UK company will still exist in years to come as they are under global rules of operation and need to provide the profits and sales growth expected by their foreign parents and if they don’t succeed (even though they are doing well in the UK market) they will be dropped like a hot brick. The results of this can cause what would be a good UK company into administration and resulting in the end of an era.

 

 

January 2016 – Update

The end of January already, where has this month gone? It has flown by and I have been buzzing around trying to get things in order.

I have paid my tax bill for the previous tax year, so I should be OK until the next request for tax information. This tax year has been a bit of an odd one as I have not been working for 6 months of it so I will have a strange set of details to submit for this year.

I have received my new employer pension welcome pack this weekend and I have made my first payment into this new pension account. Now that means yet another employer pension account is open, I now have two paid up money purchase accounts from two previous employers that have fund values below £1000. Once the charges have eaten into them over the next few years, they will be worth nothing and will be closed. One has done well since it was frozen over a year ago (up 3%), but the other has lost 8% over the past year based on the statement I received in the post last Friday. My only choice is to find a way of consolidating them and then use that as a basis to invest more money, so I am looking into the options available for me to transfer into a SIPP. This should also gain me access to a draw down plan if I want one in later years.

I have other personal pensions and a deferred final-salary pension which I will leave untouched. So I have a minefield of pension pots spread around. I dread to think what it will be like for future generations were job security is low, therefore job moves are frequent and the auto-enrollment merrily places them into pension schemes which will have short contribution windows as employees move on. Having lots of small pots of money will make it harder to grow and manage.

Until a few years ago, I had only worked for 2 employers in my whole working life, in the past few years due to redundancies and company implosions, I have totted up another 4 employers within 3 years, so I have now worked for 6 employers during my working life. 4 employers in 3 years sounds bad to me. That makes me sound like a right job hopper but the fortunes of an employer are not that grand at the moment. (I used to know a guy who moved jobs every 3 years to gain a pay rise).

I meanwhile, have been battling with finding a local job that will pay me anything remotely near my previous salary, never mind get a salary increase. It just goes to show how the market for work is challenging and getting harder by the day. With more people looking for work, salaries are reducing as its an employers market.

I didn’t expect to work for the same employer for the whole of my working life but I did expect some job security but that seems to be pretty thin on the ground. I thought it maybe just the sector I work in but overheard a conversation in a queue the other day between two guys discussing the consultations currently going on; their company has just been bought up by a multinational and they are now looking to ‘consolidate’ the global workforce. These guys seem to think that means their orders and workbook will go abroad and their site closed and the land sold off for redevelopment – probably residential – as land next to their site is already being developed and new residential housing built. The outcome for them does sound bleak and if it happens then it will place another set of highly skilled people out of work. There are no local jobs for their skill set once this site closes so they will likely have to move or commute large distances to find any comparable work. The one guy said he had moved up to this site when the last company merger took place so has no idea where to go next, as this time the work will go abroad.

I will continue to save and be as frugal as I can so that I can work on make a permanent jump away from the worker cell. The job openings for me locally are drying up too so it will not be long before I will be in their shoes.

This month I have received a pay cheque (Whoop, whoop!!) and I have also received some dividends and had some outgoings in the form of my tax bill. My investments this month have continued to drop and I am down 2% from the start of the month and I am glad that I have moved back into a saving role rather than a withdrawing role. I intent hanging on to my current job for as long as I can and save as much as I can.

My freedom session gave me time to work on my budgets and really work at getting better at saving money. I have also broken some poor habits, I very rarely buy processed and ready meals now. When I was working I would, laziness I guess, rather than cook. Now, I actually enjoy making my meals and the last thing I want to do is buy a take-out or ready meal. I have not bought a lunch at work yet, I’ve been taking in my own! It has worked out cheaper than buying (having free tea and coffee help!) and I just need to work on the exercise part of my plan. I need to get some walks in during my lunch break and be more chilled in my attitude to work.

 

 

 

Pensions -the new tax target

Well, all I keep hearing at the moment is the talk on the government tweaking of the Pension taxation. Now, if the tax reclaim limits are going to change to a flat rate value then that will be annoying.

In previous years I have been a high rate taxpayer so have been able to claim back additional tax for my pension contributions on my tax return.  This year due to my ‘freedom session’ I have not triggered the higher rate tax threshold so will be treated as a basic taxpayer. Now if the government change the rates quickly, i.e. in the tax year 2016/2017. Then I will not be able to push some lump sums into my pension before it disappears as I should qualify as a higher rate taxpayer in the next tax year. That will be an annoy twist to my ‘freedom session’.

I have also stopped looking at the share/fund prices as the values are dropping. Once I get my first pay cheque I can look to invest in some cheaper shares and funds, while I await that I will hang on and see if the prices continue to drop, meanwhile I continue to drip feed monthly payments into my fund NISA.  I am trying to increase my dividend share portfolio and getting a good price for additional shares is my plan this year.

It will be interesting to see how this year runs. According to TEA’s FI-o-meter  I should be FI within a year. It feels like the OMY syndrome but my falling net worth means that the threshold just keeping ticking along from ” I’m there ” to ” Oh, not quite there yet ” to ” still… Oh, not quite there yet “.

My idea behind my FI fund is to enable me to be free from “having to work”, I can then work because I want to rather than because I need to. I can then look at working just for the fun of it. Yes, working for fun! What a comment…radical thinking there. It normally is only quoted by the idle rich. I am not rich by any means, just looking for independence from the work treadmill.

 

 

 

First week in a new Camp

Well, I have survived my first week in a new camp. OK, I call it a prison camp as it is work for ‘The Man’ after all but the place is actually really nice compared to my previous camp.

Maybe its the ‘newbie’ feeling but the other inmates seem friendly and open, there appears to be no hidden agendas and no office politics surfacing that is immediately obvious. The camp is very old school, with a small but busy team of people and everyone knows each other and works like a big family. Now, there could be some shake ups in the offing at the senior level soon but hopefully this will not result in an oppressive regime coming in. Its been a busy week and I haven’t really had a chance to get to know my office inmates well yet, I am one of four newbies and so we can share the experiences of being new and finding our way around and understanding the procedures and practices.

It has been a bit of a shock to the system having to get up for work but the routine, once I get into it will be great and having the novelty of clocking off at 4pm on a Friday is a new one for me!

I will be glad when I receive my first pay as my investment funds are getting quite a pounding from the market turmoil. My net worth is down about £16k this month due to the drop in the markets. That’s after receiving some dividends and misc income (online survey & topcashback payouts).

I have also received my missing pension statement and details on how to restart the policy. It now appears that to restart it I need to verify my identify so need to find a bank/accountant/solicitor to vouch for me as part of the policy restart request. Great! I work all week now so the only way I could possibly do this is by trying to find a bank that is open on Saturday that I hold an account with who may oblige in providing this ID witness verification. I don’t have any accountant/solicitor friends. All this to prevent money laundering and fraud. I am only trying to restart an existing policy. I may just leave it and just invest more in other accounts such as NISAs and individual shares. They could probably earn me more income and growth than the pension fund has and will, plus I would have easier access to the funds if I needed them.

As part of my New Year resolutions, I have started to download a set of podcasts to listen to and its great, there have been some interesting casts and I am really enjoying the switch off from mainstream news and TV. It enables me to continue to listen to some of the programs I had found while I was free from the camp. I am trying to maintain some of the freedom activities and blend them into my working life so that I get a better work/life balance and stop being the workaholic that I had been in years gone by. Its part of my goals to relax more and stop being so compliant to ‘The Man’s demands on my time. It will be interesting to review this after a few months.

In the meantime I will continue to practice my new routines and see how my finances look at the end of the month especially after I have paid my tax bill, its a nice Christmas ‘gift’ from HMRC – the letter arriving during the Christmas week detailing the tax due for payment by the end of January.