Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • crazygal
    • By crazygal 6th Sep 17, 1:47 PM
    • 69Posts
    • 119Thanks
    crazygal
    Stupid question alert!!
    • #1
    • 6th Sep 17, 1:47 PM
    Stupid question alert!! 6th Sep 17 at 1:47 PM
    Please be gentle but my husband asked me a question yesterday and i couldn't answer it. He got his pension forecast (hes 40 years old, employed and pays into a private pension). The value of the fund is approx £50,000 at the moment and going forward it says he will get a pension of around £3000 per annum when he retires which is obviously not a great deal. He asked me why should he bother with a pension and why doesn't he just save the money in an ISA instead until he retires. He said the pension doesn't go to me if anything happened to him either and the cash would. What reason can i give him that a pension is a good idea versus saving the cash in an ISA/bank account?

    Thanks in advance and again apologies from a pension novice!
Page 1
    • atush
    • By atush 6th Sep 17, 2:32 PM
    • 16,334 Posts
    • 10,082 Thanks
    atush
    • #2
    • 6th Sep 17, 2:32 PM
    • #2
    • 6th Sep 17, 2:32 PM
    First off, if the figure of 3K is too low (and it will be low on purpose as a wort case scenario) it is logical to assume that rather than stopping it- you should pay in more.

    Second, Isas. What type? Cash? Would be worth a fraction of today, as it would be eroded by inflation. S&S isas? Sure they are good for retirement, but not as good as a pension. Useful for before age 55 if you are retiring really early.

    Look at your husbands pension. He pays in 80, which becomes 100 with the gift of tax relief Then his employer pays in 100. So he has 200 in his pension that cost him only 80. Pay 80 into into an ISA- it is only 80.

    So which is better, 80 or 200?
    • Malthusian
    • By Malthusian 6th Sep 17, 2:47 PM
    • 3,316 Posts
    • 5,055 Thanks
    Malthusian
    • #3
    • 6th Sep 17, 2:47 PM
    • #3
    • 6th Sep 17, 2:47 PM
    He said the pension doesn't go to me if anything happened to him either and the cash would.
    Originally posted by crazygal
    Really? The pension will go to whoever he has nominated as his beneficiary. (To be exact, the trustees of the pension scheme will pay out the fund value tax free at their discretion, but in practice, they will almost certainly follow his expression of wish.) In the absence of an expression of wish they would almost certainly pay it to the wife, unless there was another dependent with a compelling claim. Who has he nominated to receive his pension benefits if not you?
    • crazygal
    • By crazygal 6th Sep 17, 2:48 PM
    • 69 Posts
    • 119 Thanks
    crazygal
    • #4
    • 6th Sep 17, 2:48 PM
    • #4
    • 6th Sep 17, 2:48 PM
    Unfortunately his work only offer 1% and it's virtually nothing so he's set up his own private one paying in £68 a month
    • kidmugsy
    • By kidmugsy 6th Sep 17, 2:49 PM
    • 9,850 Posts
    • 6,644 Thanks
    kidmugsy
    • #5
    • 6th Sep 17, 2:49 PM
    • #5
    • 6th Sep 17, 2:49 PM
    ... The value of the fund is approx £50,000 at the moment and going forward it says he will get a pension of around £3000 per annum when he retires
    Originally posted by crazygal
    On what basis? That's to say: (i) Does it assume he'll keep contributing, or is it based only on the amount already there? (ii) Is the £3k p.a. index-linked i.e. is it suggesting that he'll get enough to be worth the same as 3k p.a. is today?

    which is obviously not a great deal. He asked me why should he bother with a pension and why doesn't he just save the money in an ISA instead until he retires.
    Originally posted by crazygal
    Depending on your answers to the questions above it looks a splendid deal to me. £50k, which because of the tax relief cost him a good bit less than £50k, will in due course yield 6% p.a. index-linked for the rest of his days. Where else does he imagine he can get a deal that good?

    He said the pension doesn't go to me if anything happened to him either and the cash would.
    Originally posted by crazygal
    Use your feminine wiles to find a palatable way of telling him he's talking tripe. Is he really planning to buy a single-life annuity? Spank his bottom!

    What reason can i give him that a pension is a good idea versus saving the cash in an ISA/bank account?
    Originally posted by crazygal
    (a) If his retirement is further off than a few years then saving in cash alone is a huge gamble. One burst of inflation and it could lose a lot of value. Even at the moment he'll not find a Cash ISA that isn't losing value compared to inflation. You need to diversify - some cash, some shares, some this, some that. Cash only would probably be a mistake.

    (b) Does he really wish to deny himself the wonderful tax deal on pensions? It sounds to me as if he's been listening to mutton-headed, know-nothing friends.
    • crazygal
    • By crazygal 6th Sep 17, 2:50 PM
    • 69 Posts
    • 119 Thanks
    crazygal
    • #6
    • 6th Sep 17, 2:50 PM
    • #6
    • 6th Sep 17, 2:50 PM
    He has nominated me as the beneficiary but he's read it that the pension just stops if anything happens to him and I get nothing - it's a complete minefield to us and I think we need to sit down with an IFA to be clear what's what
    • MallyGirl
    • By MallyGirl 6th Sep 17, 2:51 PM
    • 2,033 Posts
    • 6,863 Thanks
    MallyGirl
    • #7
    • 6th Sep 17, 2:51 PM
    • #7
    • 6th Sep 17, 2:51 PM
    but pension contributions are still tax free whereas ISAs aren't so there is an instant 20% difference there before you start.
    • crazygal
    • By crazygal 6th Sep 17, 2:52 PM
    • 69 Posts
    • 119 Thanks
    crazygal
    • #8
    • 6th Sep 17, 2:52 PM
    • #8
    • 6th Sep 17, 2:52 PM
    That's is precisely what he has been doing !!!
    • dunstonh
    • By dunstonh 6th Sep 17, 2:52 PM
    • 89,602 Posts
    • 56,085 Thanks
    dunstonh
    • #9
    • 6th Sep 17, 2:52 PM
    • #9
    • 6th Sep 17, 2:52 PM
    he value of the fund is approx £50,000 at the moment and going forward it says he will get a pension of around £3000 per annum when he retires which is obviously not a great deal.
    This suggests a failure in the understanding of the income projection assumptions. £50,000 at 65 can produce £3k. So, clearly its not going to still be £50k in 20 or so years time.

    The income projections understate the likely outcome. They use the worst combination of assumptions (that most people do not use - but there maybe someone that does) to generate an example figure. They also use growth rates that are significantly lower than long term averages and they then deduct 2.5% p.a. to give the figure in todays spending power.

    . He asked me why should he bother with a pension and why doesn't he just save the money in an ISA instead until he retires.
    If the same assumptions were put into the ISA, it would actually show the money going down and probably having near zero income in retirement.

    He said the pension doesn't go to me if anything happened to him either
    Does your husband not love you? He decides who it goes to by nominating the beneficiary. If its not you, who has he nominated?

    What reason can i give him that a pension is a good idea versus saving the cash in an ISA/bank account?
    Best reason is his complete lack of understanding. You should never make really important decisions on the basis of rubbish information and bad understanding.

    I do personally feel that the current assumptions on pensions have gone too far. Yes, the old 80s and early 90s projections were too high but now they have gone too far the other way and you often see ridiculous outcomes and your husband is not the first person to misunderstand these and come to the wrong conclusion.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • atush
    • By atush 6th Sep 17, 3:18 PM
    • 16,334 Posts
    • 10,082 Thanks
    atush
    Unfortunately his work only offer 1% and it's virtually nothing so he's set up his own private one paying in £68 a month
    Originally posted by crazygal
    So he in effect throwing AWAY 1% of his salary. So throwing away 200 for each 20K he earns. Not much, but better than nothing
    • crazygal
    • By crazygal 6th Sep 17, 3:36 PM
    • 69 Posts
    • 119 Thanks
    crazygal
    No he is in that one but has a private one too
    • Malthusian
    • By Malthusian 6th Sep 17, 3:41 PM
    • 3,316 Posts
    • 5,055 Thanks
    Malthusian
    He has nominated me as the beneficiary but he's read it that the pension just stops if anything happens to him and I get nothing
    Originally posted by crazygal
    Where on earth did he get that idea?

    To not understand pensions is fine, to make stuff up and say you're going to make yourself poorer on the grounds of stuff you've made up is another thing.
    • crazygal
    • By crazygal 6th Sep 17, 3:50 PM
    • 69 Posts
    • 119 Thanks
    crazygal
    He didn't make it up that was his understanding (probably incorrectly) of the documents he had infront of him. Like I said I think we will be better seeing an ifa face to face and having things explained in laymans terms to us that way our understanding can be (vastly) improved
    • steampowered
    • By steampowered 6th Sep 17, 3:57 PM
    • 1,906 Posts
    • 1,782 Thanks
    steampowered
    It sounds like sending your husband to see an IFA would be money well spent.
    • LHW99
    • By LHW99 6th Sep 17, 4:11 PM
    • 966 Posts
    • 814 Thanks
    LHW99
    He has nominated me as the beneficiary but he's read it that the pension just stops if anything happens to him and I get nothing
    A remaining DC pension pot goes to his nominated beneficiary on his death, full stop. You would only get nothing if he has drawn down and spent the lot first, in which case he wouldn't be getting anything either from that point on.
    • xylophone
    • By xylophone 6th Sep 17, 4:25 PM
    • 23,463 Posts
    • 13,639 Thanks
    xylophone
    Re your husband's workplace pension - see below re increasing contributions.

    http://www.thepensionsregulator.gov.uk/en/employers/phasing-increase-of-automatic-enrolment-contribution

    https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

    Which workplace pension scheme is he in?

    And the private scheme?

    He is sure that he has nominated you as his beneficiary on both?

    What are your own pension arrangements?

    Have you both obtained state pension statements?

    https://www.gov.uk/check-state-pension
    • westv
    • By westv 6th Sep 17, 4:36 PM
    • 4,351 Posts
    • 1,970 Thanks
    westv
    He didn't make it up that was his understanding (probably incorrectly) of the documents he had infront of him.
    Originally posted by crazygal
    My guess is the documents gave an estimated figure for an annuity taken at retirement with no provision for a surviving spouses pension. If that's the case ignore it.
    • sunnyjim1234
    • By sunnyjim1234 6th Sep 17, 5:13 PM
    • 28 Posts
    • 3 Thanks
    sunnyjim1234
    My guess is the documents gave an estimated figure for an annuity taken at retirement with no provision for a surviving spouses pension. If that's the case ignore it.
    Originally posted by westv
    My thoughts exactly.
    I have a small pot with the Pru. that I haven't paid into for several years. It is worth around 50k but guarantees to pay me an annual pension of a little over 4k at age 65.
    Sounded good to me, but on reading the small print this assumes that I purchase a flat rate single life annuity.
    So if I die before retiring, the fund could would pass to my nominated beneficiary, but if I was to purchase the annuity then obviously it would not. My wife is 10 yrs younger so obviously that annuity would be a non starter.
    Regards
    James
    • kidmugsy
    • By kidmugsy 6th Sep 17, 6:22 PM
    • 9,850 Posts
    • 6,644 Thanks
    kidmugsy
    My wife is 10 yrs younger so obviously that annuity would be a non starter.
    Originally posted by sunnyjim1234
    Not necessarily. How about taking the annuity and using part of it to pay contributions to a whole-of-life insurance policy that will pay out to your wife when you snuff it? You'd reconsider nearer the time, of course, but you can keep the idea in mind. You'd want a WOL policy that had fixed contributions.

    Or you could back up your future Pru pension by contributing now to a pension for your wife. The thing is to diversify.
    Last edited by kidmugsy; 06-09-2017 at 7:45 PM. Reason: typo
    • sunnyjim1234
    • By sunnyjim1234 6th Sep 17, 6:50 PM
    • 28 Posts
    • 3 Thanks
    sunnyjim1234
    Not necessarily. How about taking the annuity and using part of it to pay contributions to a whole-of-life insurance policy that will pay out too your wife when you snuff it? You'd reconsider nearer the time, of course, but you can keep the idea in mind. You'd want a WOL policy that had fixed contributions.

    Or you could back up your future Pru pension by contributing now to a pension for your wife. The thing is to diversify.
    Originally posted by kidmugsy
    Thank you for that suggestion, I will certainly keep it in mind.
    I am due to start drawdown in a few months time and have been thinking about drawing down an extra amount to pay £2880 into a pension for her in order to benefit from her personal allowance in the future.
    Many Thanks
    James
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

4,969Posts Today

8,729Users online

Martin's Twitter