Pensions - Are They Really Worth Having?

deemy2004

netlang wrote:

I have been paying in £200 per month since 1997 and in 2000 paid in a lump sum of £10K. At a recent pension review with an IFA it would appear I have paid in more to the fund than the fund is currently worth today. I am now seriously considering other ways of saving for retirement.

Any suggestions?

Yeh, so much for 7% per annum... :rolleyes:

People MUST save for their retirement...

Obviosuly pension funds are run for the profit amd running costs of pension fund companies... secondary is to provide 'profitable' pensions for the contributors. They are not transparent enough... one year people are told they will get £20k a year on retirement, come rertirement they find its more than £2k !

Play safe ! Save at least £3k a year in a cash isa where you KNOW without a shadow of doubt you will have year and year growth.

ReportInvestor

dunstonh wrote:

Old rule of thumb is that every 5 years you delay your contributions, you have to double the contribution that you could have done 5 years earlier to receive the same benefit. ie. £50pm at 20 ,£100pm at 25, £200pm at 30, £400pm at 35, £800pm at 40.

This is wildly inaccurate and misleading. It is only correct if you assume 15% growth p.a. :eek:. (Cue wry laugh from Netlang.)

At a more realistic 7% you should add approximately 50% every five years to achieve a similar retirement income at 65, a massive difference.

So £50pm at 20 ,£75pm at 25, £113pm at 30, £169pm at 35, £254pm at 40 (not £800pm)

I can see how the "old rule of thumb" makes a good selling tool in the hands of an experienced IFA, but it should be dropped immediately to avoid charges of misselling.

EdInvestor

dunstonh wrote:

A pension is not an investment. It is a tax wrapper and defined maturity process which can contain investments of your choice.

A final salary company pension is a promise to pay a (more or less) guaranteed and defined income on retirement. A state pension is much the same.

This is what most people mean when they think of the word "pension".You put your money in, and out the other end comes the promised income.

But a private pension is not like this at all. It is both a tax wrapper and an investment. You put your money in and you have no idea at all what will come out the other end.

Private pension money is almost always invested mainly in the stockmarket. It is a risk-based investment. If you are not happy about taking risks,ask if there are other types of funds you can invest the pension money in which are safer - eg property funds, or perhaps bonds.Or, avoid private pensions altogether, save in cash or buy another house.

oceanblue_3

EdInvestor wrote:

If you are not happy about taking risks,ask if there are other types of funds you can invest the pension money in which are safer - eg property funds, or perhaps bonds.Or, avoid private pensions altogether, save in cash or buy another house. [/b]

This is a misleading over-simplification: investors in both property funds and bond funds have experienced capital losses in recent years.

Once again, please explain how cash deposits are more suitable than personal pensions for generating income in life after work. You constantly cite this a your preferred route, yet you don't go on to explain how it works.

EdInvestor

Once again, please explain how cash deposits are more suitable than personal pensions for generating income in life after work. You constantly cite this a your preferred route, yet you don't go on to explain how it works.

No I don't. You've got the wrong person. But these days it is a route. Cash is not risky and most pension investments are risky as you say. And since the returns on pensions are expected to be so low (7%), and the charges are often quite high(2%) then cash increasingly looks like a good alternative.

Make sure you save your cash in an ISA, as deemy says, so you get the tax relief, up to 3k a year is allowed.:)

Paying off debt also gives a good return after you've exhausted your ISA tax free savings allowance as it's not taxable and again of course there's no risk.

littld

I'm another who has paid into a pension each month for several years and the value is less than I put in.

While I appreciate that many feel the stockmarket will rise (becuase it always has before), there are no guarrantees.

Past performance is not a guide to future returns.

I fully expect the value of my pension fund to fall over the lifetime as the stockmarket fails to perform and the fund manager takes his cut every year.

I remain to be convinced that I will really benefit from any of these savings.

If future performance is less than 2% p.a. and the annual management charge is 1% p.a. and we have inflation then it's not looking good, is it?

macca64

deemy2004 wrote:

Yeh, so much for 7% per annum... :rolleyes:

People MUST save for their retirement...

Obviosuly pension funds are run for the profit amd running costs of pension fund companies... secondary is to provide 'profitable' pensions for the contributors. They are not transparent enough... one year people are told they will get £20k a year on retirement, come rertirement they find its more than £2k !

Play safe ! Save at least £3k a year in a cash isa where you KNOW without a shadow of doubt you will have year and year growth.

I don't understand why you think a cash ISA is a good investment for retirement?? Yes you can get 5% interest, but this is obviously variable. Consider a pension fund where you pay £78 and get £100 invested in the pension after tax relief (assuming basic rate tax payer). If you invest in less risky areas like bonds or gilts, you could considerably outperform a cash ISA. Obviously the stock market has considerably out performed other asset classes over the years.

But with 42 years to retirement at 65, I don't mind investing my pension contributions in the stock market.

But as they say, each to his/her own.

oceanblue_3

EdInvestor wrote:

No I don't. You've got the wrong person. But these days it is a route. Cash is not risky and most pension investments are risky as you say. And since the returns on pensions are expected to be so low (7%), and the charges are often quite high(2%) then cash increasingly looks like a good alternative.

You make a number of assumptions here that are not borne out by my own experience: low-cost SIPP's, for example, come nowhere near 2%.

EdInvestor wrote:

Make sure you save your cash in an ISA, as deemy says, so you get the tax relief, up to 3k a year is allowed.:)

With respect, Ed, if we all have to rely upon one MSE poster for our strategic planning, then we're done for!

EdInvestor wrote:

Paying off debt also gives a good return after you've exhausted your ISA tax free savings allowance as it's not taxable and again of course there's no risk.

I agree; this is one of the first recommendations I make. However, I usually suggest the removal of debt first because of its higher rate of growth.

So.....let's say you have £100,000.00 in a Cash ISA at age 65, and you've just given up work: how does this provide you with a useful income for the rest of your life?

macca64

littld wrote:

I'm another who has paid into a pension each month for several years and the value is less than I put in.

While I appreciate that many feel the stockmarket will rise (becuase it always has before), there are no guarrantees.

Past performance is not a guide to future returns.

I fully expect the value of my pension fund to fall over the lifetime as the stockmarket fails to perform and the fund manager takes his cut every year.

I remain to be convinced that I will really benefit from any of these savings.

If future performance is less than 2% p.a. and the annual management charge is 1% p.a. and we have inflation then it's not looking good, is it?

Surely if you expect it fall, surely you should stop contributing to it?? Or switch your investments to a different asset class??

I'd doubt that future performance will be less than 2% before charges, if you invest in the right areas, but that's just my opinion. Don't forget the dividend yield on the FTSE 100 is approx 3%+

macca64

Forgot to add - don't forget that ISA rules can change and they may not be around in another 20 years time. But then again pension rules can change as well!!!