Are we away with the fairies on our pension expectations?
WOULD you like a job that pays £1.3 million a year? That is just the average expected salary among children aged eight to 15, when they get their first job, according to a new survey by Halifax.
It's equal to nearly 38 times the average wage in the UK this year, proving that, unfortunately, our children are away with the fairies.
They also believe that schoolteachers, firefighters and postmen are earning well over £100,000 a year. Wouldn't we all be out delivering letters tomorrow?
However, you shouldn't be smiling. It's not just schoolchildren who have an exaggerated notion of what their future income will be. When it comes to adults, research has repeatedly shown that, as far as our pension expectations are concerned, we are overly optimistic.
Former pensions minister Steve Webb has just addressed this very topic, looking in particular at what we are expecting from our state pension when we retire.
Even if you look up your personal estimate on the ‘check state pension' section of the gov.uk website, you cannot be totally certain of what you are going to get. The Department of Work and Pensions (DWP) admitted a few years ago that one in ten of their online pension forecasts were wrong. They've been working on it since, and claim it's now down to 3 per cent, but still.
Your forecast is particularly likely to be wrong if you contracted out defined benefit pension membership and transferred from one scheme to another.
It's also crucial to make sure the records of your National Insurance contributions are complete. There are many cases where national insurance (NI) contributions, paid in good faith, have ‘gone missing' from people's records.
Mothers seem to be particularly likely to have missing contributions. If you took time off work to bring up your children, and were due NI credits for that time, well, often it just doesn't happen.
It's worth checking - we really need to keep on top of our state pension contributions, given the propensity of HMRC to get it wrong.
Now, the taxman loves his forms, and you can spot when he is getting it wrong when he introduces a special one to sort the problem. This problem's form number is CF411 – to have missing NI contributions restored to your record.
If, however, there are legitimate gaps in your NI contributions record, maybe you were off sick for a while or took a career break, there is plenty you can do to ‘catch up'. For anyone who has gaps that arose since 2016/17, for instance, you can make voluntary contributions to make up any shortfall you have incurred.
It's particularly good if you are self-employed paying Class 2 contributions, any top-ups you make are practically free money for your retirement. Even if you are paying standard Class 3 contributions, a once-off payment of £780 will often boost your annual pension in retirement by £250 a year – it's such a great deal. And it's not just for you! You can pay voluntary contributions to boost your spouse's state pension as well.
You also have to watch yourself if you are wanting to work beyond your official retirement age. If you decide to draw your state pension while you are still earning, you could get whacked to pay tax on it. In that case, you might want to consider deferring your state pension until you need it most.
Getting back to the optimistic expectations of our children in the Halifax survey, they said they believed a police officer earns around £165,000 a year (actual starting salary is £23k) and a schoolteacher earns £140,000 (actual starting salary is £23,740).
And Boris Johnson will be delighted to hear that children believe he is on £2.13 million (his actual salary is £158,754).
Is it possible that you are also over-optimistic, and need us to help you maximise your state pension income, to ensure you have a safe financial future?
Is it possible that you are – just a wee bit - ‘away with the fairies'?
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005 . Further information on Facebook at “Kennedy Independent Financial Advice Ltd” or at www.mkennedyfinancial.com