Martin Lewis sets out simple pension formula for retirement saving
Martin Lewis’ show last night, told me two things matter to most people; the first is what you save and the second is how much you get out at the other end- when you retire. In an hour of talking about pensions , matters such as investment, let alone “de-risking” or “lifestyle”never got a mention.
Infact he started by talking of the three super powers of pensions
- The superpower; Tax relief that puts a pound in your pension and only costs you 80p (less if you pay higher tax
- The super-duper power; employer’s money that boosts your 100p to 160p
- The super doper pooper power; of salary sacrifice that could turn your 160p into 168p (but the Government may be limiting this to the first £2,000 you pay each year. Losing this in 2029’s “not that bad – it’s just a bit on top”.
Martin Lewis had a host of advisers including our old friend Charlotte Jackson explaining MoneyHelper and Pensions Wise to great applause from Martin.
Nick Hutchins a financial adviser who advertised Vanguard and AJ Bell to transfer your pots (he said this just after an advert from Pensions Bee!) and this was the nearest the show came to offering product advice!
Andrew Pye of Just started a little nervously but came into his own when Martin talked of annuities
Charlene Young, another financial adviser who claimed to be a drama queen.
It was all good fun and we had the rule of thumb from Martin – telling us how much we ought to pay into our pensions to retire in comfort. This from Lucy Leeson of the Independent
Martin Lewis has shared the pension “rule of thumb” when it comes to saving for your retirement.
During a pension special of The Martin Lewis Money Show on Tuesday (5 May), the financial guru took a question from a viewer called Daryl, who asked what a person should be paying into their pension.
He said:
“Let me give you the rule of thumb that scares the pants of everybody. Take the age when you start putting into your pension, so in your case 30, halve it, that’s 15 ,and that’s how much of your income you want going in for the rest of your life for a decent retirement
He added: “The earlier you start, the better retirement you are going to have.”
So we went on through the questions of the audience, dominated by the subject of pensions tracing. A woman had written in saying that she’d followed Martin’s advice and found a £45,000 pension. Martin advertised http://www.Gretel.co.uk , set up by the pensions industry to help us find our lost pots which add up to £30bn (Martin told us).
Then we were on to the Arctic roll
How you cut the arctic roll gives Martin analogies for the tax treatment your money coming out at the other end is taxed. We has plenty of technical information on how to avoid losing tax relief while in receipt of a portion of your pots (annual allowance) and we moved into the world of “drawdown” (another word for pension according to the guru).
I have to say, the brilliance of the superpowers of money going in , got a little dimmed as we tried to get through the culinary world of arctic rolls. I was lost and so I suspect were most of us. Was this Martin’s fault or have we just failed to get a pension system that people understand?
In all this, the idea of an annuity seemed quite a good one, especially at today’s rates (cue quiet advert from Andrew Pye of Just). Martin made the brilliant point that people find it easier to spend their pot if its a pension- psychologically it’s hard to drawdown.
There was even a question on how to get your money if you’ve less than twelve months to live (Charlotte Jackson, being very clear about this – if MoneyHelper is as good as her – I’m off for some more help!).
Martin finished with one piece of advice he was allowed to give “take guidance from MoneyHelper and if you’ve got enough money to worry about IHT from an unused pot, you are rich enough to pay for advice.
It was an enervating hour and makes me wonder why I go to Conferences . Thanks Martin Lewis for reminding me it’s what goes in that determines what comes out. From Superpowers to Arctic Rolls , I was hooked!
I watched the programme last night and while I would agree most of it provided very good advice, I was concerned about his artic role analogy.
Martin appeared to suggest you should squeeze as much as you can to get the interesting bit, the strawberry ice cream aka tax free lump sum, out as soon as possible and leave the uninteresting bit, the sponge aka income in later life, until later. He suggested that that this was more attractive than waiting to have larger slices including both the strawberry ice cream and sponge in that later life.
The problem we appear to be facing as a nation is that the sponge slices in later life are too small to feed us. We need to bolster them and not shrink them.
While taking the tax free lump sum up front may be appropriate in some circumstances such as paying off a mortgage and therefore leaving more of the future income slices for personal consumption, by shrinking the mix you are reducing not only the size of the future slices but also their capacity to grow larger as time goes by and inflation eats into them.
My past experience with DB pension schemes with lump sums available by commuting annual pension was that a significant proportion of those eligible (say a quarter) did not elect to take the lump sum, preferring to bolster their inflation protected annual pension, even in the knowledge that it was all fully taxable on receipt.