Pension advice for a youngster please

dazcouz

Hi, could someone give me some advice please. I am currently 22 nearing 23 and have not set up a pension scheme yet. I have savings of £25k which I have saved on my own up over the past 3 years at work. My main goal was to build up a decent deposit to go on a flat. But was wondering whether it would be a good idea to start a pension. There is no pension scheme at work and to be honest I don't see myself staying there too much longer due to the very poor pay (£15k) and failed promises. My plan for a while is train up to be a train driver as it has been my dream for a while. Train drivers earn £30K plus and have a good pension scheme I believe as well. Anyway what would you do in my shoes? Thanks

McKneff

If you are saving up for a deposit for a flat keep that goal in mind.
If you put it into a pension then you cannot access it until you arf 65.

Start a pension by all means and it sensiible to do this at your age but
i wouldnt tie up your hard earned savings for that many years.
What would happen if you did this, still couldnt get a well paid job and
ended up renting for the rest of your life. Youd not be a happy bunny

peterbaker

My view for a youngster starting out?

Give pension schemes and life assurance a very wide berth unless
(1) Membership of the pension scheme is the only way that you can get substantial additional contributions paid for by your company i.e. substantial free money.
(2) Life assurance is of the pure protection variety i.e. don't use an insurance product for investment (even if it IS just protection you need, then do watch out for flakey cover under the heading "critical illness" and Income Protection covers - some insurers think it's fine to exclude your claim when you most need to make it).

The reason for my cynicism?

Over your working lifetime more promises will be broken about performance of financial products sold to you than you could possibly imagine.

Indeed, do call me an old cynic, but I have a loft full of broken promises paperwork. If the products had performed as sold, the whole lot would fit in one banker's box. It plainly doesn't e.g. AVIVA bribe for With Profits policyholders - apparently there's another 500 page guide on a website in the name of someone called a Policyholder Advocate who is paid by my Section 32 buyout pension policy provider to make me feel better because Aviva wish to muscle in on fund membership where I am a member. The fund was doing too well so they wanted some. They saw upstart French company AXA enter the UK market place and then get away with a similar ruse a few years ago.

It is actually suggested I might want to read it (the 500 pages) because I might need help deciding whether or not to accept the bribe. The original bloody contract was only a few pages and was supposed to be good until I retire. Why have I got to read a bunch of spiv bullsh*t just 5 years after I was railroaded into their policy in the first place when one of my Final Salary Pension schemes was would up by an unscrupulous employer that is still doing extremely nicely thank you?


Isn't the only word I need when someone offers a bribe the word "No" ?

So what's the 500 pages about? I can guess. Did I want it or even expect it when I started a pension? Don't be daft. It is an attempt to part me from money belonging to me and authored by some delusional office that is paid by the spivs but who say they are there to help ensure a good deal for me. Right. "Good" in the sense of "best of a bad job" type fashion maybe when you tout yourself as a drain-cleaner. But why do they even offer to get involved in helping a company offer a bribe?

That fund is a serious part of my pension. It is with a licensed insurance company pension provider, Aviva. They undertook to look after a particular With Profits fund into which I purchased membership. WIth Profit funds were always seen as low investment risk and much recommended. Johny-come-latelies in the financial services industry will say No No, they are medium or low to medium risk. And they don't recommend them. Why? Because you can't trust the licensed providers to run them honestly anymore.

If I am a member of a company through having purchased equity shares, if that company's future liabilities turn out to be less than forecast thus creating a surplus, the surplus does not belong to the company registrars or the company's auditors, it belongs to the owners of the company share capital i.e. the members. And if it is not to be reinvested, then it is to be distributed to members of the company not to the registrars or oher irks who provide administrative services to safeguard the funds only. Many limited company's are set up this way in order to share assets. They contain sinking funds to cover future liabilities and their main role is to safeguard an asset for the benefit of all current members and any future member who is prepared to buy a share at the going price. If any existing member who sells is happy with what he receives then he can't complain later if those that stayed in do rather nicely thank you.

Well in this case Aviva Norwich Union Commercial Union General Accident call them what you like aren't satisfied with just safeguarding our funds which have been doing rather nicely and which in my case was for my pension. Oh no, they want a slice of the action the greedy barstewards.

It is a total disgrace that such companies remain exclusively licensed as pension providers and that we cannot (with few exceptions) manage our own pension funds. Once upon a time you could trust them. What say you now?

Every day that passes whilst my pension funds built up over 30 years are being managed by spivs in the City is a day when I should probably be better off spending my time now stopping them stealing it and trying to bring it back under my own control than going to work and blindly trusting them to look after it while my mind is elsewhere.

I should probably from the outset always have saved up and invested in buy-to-let properties like the Mediterraneans have always done - I'd be retired now on a far better deal than I can ever expect from being a member of a pension scheme held with an insurance company. Over a long period e.g. for pensions purposes, property is just as good as any other market. Better probably.

I am sure you get my drift. Keep a lookout over your shoulder before buying anything you can't control.

bristol_pilot

I agree with the other posters. At your age and with your level of income you have far more important priorities than a pension. If your employer offers a pension scheme AND contributes to it then it is worth joining to get the free money from the employer. Other than that, I would forget about pensions unless and untill you become a higher-rate taxpayer, when the tax relief may make it worthwhile for you.

Also, I think that you should look for another job because £15k is pretty low for a 23 year old and tbh I think you have done really well to have saved anything at all on that wage.

ciano125

You've done fantastically well to save up that amount on your wage, well done indeed.

However, you are also right to be thinking about your retirement. Personally, I wouldn't listen to anyone who says not to save up for your retirement until you are older, the earlier you start the better, simple as. I think you should speak to a financial advisor though. They will be able to explain all the various options to you.

You should have a balanced portfolio, look to invest in unit trusts perhaps, you can pick different types which have different levels of risk. Also once you do get a mortgage, try and pay it off as quickly as possible, it'll save you loads in interest, even as little as £100 a month makes a big difference. I'd also give flats a wide berth as well, due to the huge numbers available, it might be difficult to sell on when you want to move, that's my opinion anyway.

Bottom line though, keep saving for your retirement, but focus on other things as well.

dunstonh

When you are young you can afford to start with a relatively small amount and as long as you index link that contribution so it remains at that level in real terms you can end up with a very good pension in retirement. The longer you leave it the shorter timescale you have and the larger the monthly contribution will be when you eventually start.

So, putting off may help you now but you will have to pay more later.

Some people can be negative towards pensions, either based on legacy issues which no longer apply or misinformation thrown out by the media. Some people are just naturally jaded and cynical regardless. So always be a bit wary of that. Modern pensions have never been better for cost or options. However, as a tax wrapper they are not perfect and do have negatives as well as positives but the fact remains that for provision of income in retirement, no other tax wrapper beats a pension using like for like investments.

peterbaker

Some folks naturally jaded or cynical? Gawd help us

That's life that does that

I was a youngster once with a completely open mind.

What Dunstonh says about pensions is of course with insurance company providers in mind.

Apart from the dodgy tax bit (who's going to guarantee that for 40 years?) then all he is really advocating is the power of compounding ... which of course is a necessary feature of more or less any serious investment for investment's sake, except insurance company investment products apparently where the value of your fund always seems to go down when they get the slightest chance but will of course recover in the long term (probably too late to be of any use to you but quite likely to line the pockets of their shareholders at some future date). You won't see the insurance company's "management charge" go down when they fail to manage to get your money to grow though.

I tell you, I can see a day not far away where a few decent cases may have been brought through the courts and we could see massive levies put on so called 'fund managers' who have spectacularly failed to manage even a bunk up in a brothel, and even if they aren't made to make up for their neglect I can see a day when they are ordered to repay management charges for effectively driving our funds into the ditch more often than not during the current millennium.

These outfits don't even provide decent internet systems so you can monitor your funds from one year to the next let alone one banking day to the next. They are deliberately secretive about it.

In a market where today's investment market winners are employing top technology to spot trends microseconds before competitors do and to execute "flash" deals microseconds ahead of the less well equipped, why oh why cant AXA and Aviva and the rest give me electronic access to all my products? Their customer websites are 1990s technology.

I am sure they dont want us to be aware of what's happening to our own money until we can do nothing about it. They want our funds in order to make profits for themselves and could not give a monkeys about our need for information.

And they gleefully tell us that their are tax advantages to their "wrappers".

Who the hell wants a wrapper? Give me the Cadbury's full strength every time, not just a sniff of something it has been sitting in on the shelf where I can't even make sure it hasn't gone mouldy or melted or the rats have been at it :mad:

Edit:Just been watching David Norgrove - the Pensions Regulator(sic) - talking to Robert Peston on BBC News. What a jaded performance - he looks more like a daren't say boo to a goose in the chancel churchwarden, than regulator of a multibillion pound business being driven deliberately off all the expected rails by corporate greed initiatives. I am sure dear David once had his day, including a stint selling trousers at M&S he claims, but really, no-one has ever heard of him. He is so back-office he is almost the last thing they put out at night at Downing Street before Mrs Thatcher's cat! So what reassurance are we to get from such a grey suit on such a serious subject?

His last comment to Peston "Our generation has done very well and now we look forward to it being paid for by your generation". What a smug patronising !!!!!!. Sack him now!

dunstonh

Apart from the dodgy tax bit (who's going to guarantee that for 40 years?)

Tax relief is on contributions. if tax relief stops then you stop the contributions. There really is no need for a guarantee.

then all he is really advocating is the power of compounding

I didnt see any reference to compounding in my post. There isnt any on the tax relief. Although they will be on the investments but that applies equally to any tax wrapper.

except insurance company investment products apparently where the value of your fund always seems to go down when they get the slightest chance but will of course recover in the long term (probably too late to be of any use to you but quite likely to line the pockets of their shareholders at some future date). You won't see the insurance company's "management charge" go down when they fail to manage to get your money to grow though.

See what I mean about cynical.

These outfits don't even provide decent internet systems so you can monitor your funds from one year to the next let alone one banking day to the next. They are deliberately secretive about it.

Yet virtually all retail unit linked funds have published data available.

In a market where today's investment market winners are employing top technology to spot trends microseconds before competitors do and to execute "flash" deals microseconds ahead of the less well equipped, why oh why cant AXA and Aviva and the rest give me electronic access to all my products? Their customer websites are 1990s technology.

Many providers do have that sort of access to date. Aviva and AXA are probably the two examples that dont. Their problems are of course that they have been active in buying so many companies over the years that they have too many legacy systems. Aviva have something like 9 computer systems on the go at once for different policies. Many of which were designed 30 years ago and the data on them cannot be made available via the web.

See what I mean about legacy issues.

I am sure they dont want us to be aware of what's happening to our own money until we can do nothing about it.

Except you can.

You can choose to be in control and choose products, providers and/or investments that give you the service levels and info you want or you can choose not to and then post cynical posts about it. If you dont like what you have then change it. There are plenty out there that do exactly the things you want them to do.

peterbaker

Oh come on dear DunstonH

Who can we trust? You again are suggesting that I have somehow ended up with special case legacy issues in EXACTLY the same way that the Chief Medical Officer seems to think it's a natural death when Swine Flu victims had underlying health issues (e.g. I suppose, medicinally controlled asthma as in 1 in 7 schoolchildren, or when they'd at some stage been under the doc for something else before they got it!).

I don't have legacy issues, the hugely acquisitive greedy corporates like Aviva have legacy issues; issues which they decline to fix despite years having passed since the takeovers. Let me remind you why Aviva and AXA got a mention:

Aviva is Commercial Union, General Accident, Norwich Union and probably a bunch of others I have forgotten all rolled up into one mega-outfit. Those takeovers occurred in the early 1990s well into my pensionable career and the pensionable careers of many others who are seriously p*ssed off right now.

AXA appeared as an upstart in the UK general insurance markets in the 1980s, also well into my pensionable career. They were borne out of the merger of two or more nationalised French companies if my memory serves and initially they mucked around with Motor Insurance in UK and small business insurance, I think. Then at some stage they took over Sun Life and Equity and Law in late 80s early 90s and like all financial services companies they then went ferral with the advent of unit-linked products and ultimately drove endowments of all types deliberately into the ditch. It wasn't misselling by salesmen, it was breach of promise by the board members.

The internet became a commercially viable channel for providing customer information on tap by about 2000. Some companies as you say do obligingly provide access via this technology. However, why can't the biggest? That 2000 date actually corresponded with a tendency for unscrupulous employers and pension fund trustees wearing two hats to start the trend of bailing out of proper pension provision. We started o hear phrase like "Your pension is not part of your employment contract" and large parts of the IFA fraternity were seeking corporate opportunities to tear down Defined Benefit Schemes and sell cheapo Money Purchase arrangements which required no ongoing commitment from employers. I grew sick of the misleading illustrations and presentations by so called IFAs who tried to tell us that Money Purchase might even be better than the old schemes. The majority of members swallowed it of course. Because most pensionable workers cannot imagine the level of corruption that actually exists.

And as for virtually all retail unit linked funds having published data available why would I as a mere pensionable worker want to have to put on my strongest reading glasses and ferret through a newspaper and draw my own graphs to get a clue on day to day fund performance? That surely is a dated 20th Century hobby and not something for the modern man to truly base his retirement decisions upon?

And to prevent a tendency to cynicism, why should I now have to do my own fund management when for thirty years experts have been taking a fee to do it for me and asuring me it woud be great when it plainly is nothing of the sort?

Surely we pensionable workers have better things to do than to become more expert at the business of investment than the experts we are forced to pay via management fees on our pension contributions/funds? You boys and girls would soon be out of work if we did, eh?

This is quite definitely nothing personal, DDH, as you now I have often found your posts of great value, but do you know the most overused yet useless phrase in the English language so far this new millennium?

It's this: "Seek advice from your financial advisor" :rolleyes:

dunstonh

I don't have legacy issues, the hugely acquisitive greedy corporates like Aviva have legacy issues; issues which they decline to fix despite years having passed since the takeovers. Let me remind you why Aviva and AXA got a mention:

It sounds like you do. If you have unit linked investments then you would have all the data you need to make an informed choice about the investments. It sounds like you have a legacy with profits fund and information on those is very poor.

Some companies as you say do obligingly provide access via this technology. However, why can't the biggest?

We have heard figures quoted in the billions as to what it would cost Aviva to move to a single system. Smaller, modern companies can move much quicker and their software is much newer. Older insurers often react as fast as a supertanker on these things.

large parts of the IFA fraternity were seeking corporate opportunities to tear down Defined Benefit Schemes and sell cheapo Money Purchase arrangements which required no ongoing commitment from employers.

I wouldnt say large parts. However, a number of companies did actively seek out those companies that were looking to reduce their liability.

I grew sick of the misleading illustrations and presentations by so called IFAs who tried to tell us that Money Purchase might even be better than the old schemes.

The illustrations used for the last 10 years or so have sensible projection rates. They are achievable and realistic. Although personally I think they should be presented more in line with the level of risk of the investments. A low risk portfolio is always going to have problems getting the higher rate and it ought to say it on there. There are some cases where the money purchase scheme can be better than the defined benefit. How someone presents the pros and cons is something I cannot comment on as I wasnt there.

And as for virtually all retail unit linked funds having published data available why would I as a mere pensionable worker want to have to put on my strongest reading glasses and ferret through a newspaper and draw my own graphs to get a clue on day to day fund performance? That surely is a dated 20th Century hobby and not something for the modern man to truly base his retirement decisions upon?

You complain that the data wasnt available. Now you know it is you complain that you wouldnt bother. For those that are not bothered and want to be lazy investors then there are options available to you. They wont be the best. They wont be the worst but I dont think anyone can really afford to not take an interest periodically. If they dont want to DIY then they can always use an IFA. They have that choice.

And to prevent a tendency to cynicism, why should I now have to do my own fund management when for thirty years experts have been taking a fee to do it for me and asuring me it woud be great when it plainly is nothing of the sort?

Fund managers cannot buck trends. The last 10 years has been one of the worst investment periods in generations. Returns on basic investments will reflect that.

Surely we pensionable workers have better things to do than to become more expert at the business of investment than the experts we are forced to pay via management fees on our pension contributions/funds? You boys and girls would soon be out of work if we did, eh?

You either need to DIY or have an active IFA or be invested in an investment strategy/fund that is fluid and able to adapt. if you stick in an old fashioned single sector fund or old with profits fund then you are never going to end up happy with the result. You need to take an interest or have some take an interest for you. The fund managers will only act within their remit of their fund. So, if you stick yourself 100% into a UK Equity fund then you will get UK equity levels of performance. You wont get the growth that has been seen in Asia or the lower volatility of corp bonds/gilts. If you want those you need to invest in them. Modern options give you that choice but either you or your adviser needs to make those choices.

This is quite definitely nothing personal, DDH, as you now I have often found your posts of great value, but do you know the most overused yet useless phrase in the English language so far this new millennium?

It's this: "Seek advice from your financial advisor" :rolleyes:

I know its not and its a good discussion and you are representative of a lot of people out there.

The old home service insurance companies were a double edged sword. They were very good at getting people to pay into pensions and do regular savings plans. These things typically have to be "sold" and are not bought. Problem was that the products they sold were expensive and in many cases absolute rubbish by todays standards. Now we have much better options at lower cost but less people buy them. Many because they still view modern products in the same way as the old ones.