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How one relative’s pension plight taught me to save the hard way

The inspiration behind Monevator.com is a family member close to my heart. He retired a few years ago at 64 years of age.

He’d managed to retire a year early. He’d wanted out for a decade beforehand, but he couldn’t afford to leave.

If money was tight, why did he cut and run at 64, instead of sticking it out until 65? I’d love to say that at 64 he suddenly discovered his inner hippy, or better yet a winning lottery ticket down the back of the sofa.

Alas, he had been diagnosed with cancer. He realised that he didn’t want to spend another day working in a job he was sick of, to contribute to a pension he might never see.

I’m really proud of his decision, but could he have decided to do it earlier? Could he have retired at 60? Or 55? Or even 50?

Perhaps, but only really if he’d taken a different route to retirement – the sort of route explored on Monevator.com.

Most of my relative’s savings were in the company pension scheme – often a lucrative perk these days, but also a ball-and-chain, tying him to his job. He had little control over the money he’d squirreled away with the company over the years. And the government also imposes further restrictions on pensions in return for the tax relief they entitle you to.

Even when he retired, my relative was not able to get full control over his life. He couldn’t buy the seaside cottage he wants – the housing market ran away from him in the final years while he was paying extra into his pension. He couldn’t invest freely with his pension money – he had to buy an annuity. He thus can’t even get at most of his money – which he spent 35 years working for and saving, remember – despite the question mark over whether he’ll live long enough to spend it.

My relative played the game fair and square, but it sometimes seems the rules were set against him. I believe the only way to ensure a winning result is to make sure you’re not just playing well, but to make sure you’re in the right game – one where you can make up your own rules, and determine where possible when the final whistle blows. That’s the philosophy behind this website.

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{ 4 comments… add one }
  • 1 Lee September 16, 2009, 11:51 pm

    This is a superb article, thank you. It really drives home the importance of doing things by your own self-imposed rules, rather than someone elses. I had considered re-entering my employer pension scheme, but this has settled it for me.

    I’m staying out.

  • 2 The Investor September 17, 2009, 6:18 pm

    Glad you liked it Lee. But careful regarding company pension schemes!

    If you company is putting money into it (or matching your contributions) that’s an automatic return that’s hard to beat and may well be worth the sacrifice of freedom. Your call.

    I definitely wouldn’t put all your eggs into one basket though.

    My relative could have built up lots of additional investment outside of the scheme, but instead he did what were then called voluntary contributions within it. If he did it outside, he could have retired earlier on that investment and waited for his (smaller) pension to kick in later.

  • 3 Thomas Jones October 9, 2010, 2:17 pm

    To make people aware, it is possible to access you pension, in full, if you are diagnosed with an illness and not expected to live more than 12 months.

    You would need a medical certificate to attest to this and if in an occupational scheme the scheme rules need to permit such access.

    I apprecaite this is cold comfort but it is an option particulalry if someone’s struggling financially.

    The above option isn’t available if you are already taking benefits i.e. an annuity or in drawdown (unsecured pension).

  • 4 The Investor October 9, 2010, 2:44 pm

    Thanks Thomas, good info. My relatives case was a longer term insidious cancer, plus a desire to jump through some final salary hoops to ensure his wife would be reasonably provided for.

    He did leave work early in the end, but he’d have gone far sooner if essentially he’d had a self-invested ‘pot’ under his control.

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