Pension fund going down the pan

bendix

savingforoz wrote: »

I understand your frustration, Bendix, I really do - and I'm embarrassed to admit that going back about 8 years or so, I was coming out with all this sort of nonsense as well. I remember thinking "well, if I can earn X% in a savings account, how come my pension fund managers can't do the same?" I just laugh when I think about that now. I'm by no means an expert these days, but feel confident enough managing my S & S ISA and my SIPP.

I think the problem may be that so many people are prone to short term thinking, always thinking about today rather than looking ahead to the future. As you say, it's not difficult to learn the basics and from that
starting point confidence grows in managing your financial affairs.

I'd be more understanding if the concepts were complicated. But they are not. What really frustrates me is not people's ignorance (which can be overcome), but their complete lack of interest. As dunstonh has eloquently stated elsewhere, the same people who makehalf-a***d comments on this forum, are celebrating gaining an extra 0.01% on an ISA elsewhere.

Sadly, we are a nation of financial illiterates.

bendix

The_Economist wrote: »

dunstonh wrote: »

So, are you saying that its better to do nothing and ensure you are poor in retirement?

No im not. But i still think private pensions are not great value for money. They can be very expensive for little return. Dont get me wrong i know there is a need and a place for pensions but what i've seen and heard i'm just not convinced. I will keep trying to do my home work on them and who knows maybe one day i will agree with people that think they are the best thing since sliced bread.

What do you mean they are expensive? What expense is attached to them, except for management fees which apply to any investment? When you sell a property, do you sell it for free or is it managed for free?

Honestly, I despair. You call yourself The Economist. I have a copy of that excellent publication in front of me. Frankly, there is more insight on the barcode on the front page, than you're showing in these posts.

dunstonh

No im not. But i still think private pensions are not great value for money. They can be very expensive for little return. Dont get me wrong i know there is a need and a place for pensions but what i've seen and heard i'm just not convinced. I will keep trying to do my home work on them and who knows maybe one day i will agree with people that think they are the best thing since sliced bread.

Stakeholder tend to have lower charges than savings accounts. One being explicit and the other being implicit. However, both have a charge.

Rate of return has nothing to do with the pension. If you put the same investments inside the pension or in an ISA or unwrapped you will get the same returns. The only difference is the tax and maturity process. If you put cash savings account into a pension you will get cash savings returns. If you go with a FTSE tracker you will get the returns on that. Nothing to do with the pension.

If you pick medium risk investments or higher then you will get the volatility that goes with it. That means sometimes cash would have been better and sometimes cash would have been worse. The longer you have the more likely that using risk based investments is better than using non risk based investments. Just as you get closer to retirement, you should reduce your risk based investments.

The 7% growth rate you qouted would that have to be year on year. If so is this realistic year on year.

The 7% figure is an average. As far as investment returns go then yes 7% is realistic for long term for medium risk or higher. You will get minus figures in there some years and big double digit figures in there other years (assuming asset mix that is appropriate for using the 7% projection figure).

Last year saw a bad year but lets look at the Aviva balanced managed fund.

YTD: 19.42%
2008: -22.87%
2007: 5.49%
2006: 10.45%
2005: 19.01%

And that fund tend to be just around the middle (just under if anything) and is your typical jack of all trades, master of none fund designed to be used by the lazy investor. You will never get best from it but you wont get worst either.

If you put a lump sum into ING Direct 5 years ago, it would be up 23.37% now. If you put the same lump sum into the above fund, it would be up 35.18% (Aviva's UK index tracking fund which is higher risk would be 35.01% up).

Those figures take into account one of the worst stockmarket drops in generations. If we looked at the values in October 07 then the bal managed fund would have been up 50.35%. ING was up 16% at the same time. If we look at the worst point in the crash, the fund was only up 2% compared 22% with ING.

However, none of that has to do with the pension. Thats all to do with investments you can pick.

DD4

Note to the OP and anyone else who is baffled by pensions...

I was in the same position when I joined MSE in Feb 2007 (My old username was "Dithering Dad"). I persevered and though I'm no expert I managed to pull all of my bits of old company pensions together into a single SIPP and I also managed to avoid the stockmarket crash and have all my pension in a cash fund when shares tumbled. I'm in positive territory with my SIPP and have been enjoying buying cheap funds and shares over the last 12 months. My pension plan started out at £75K when I asked my first pensions related question on this very board in May 2007. Today it stands at £96k.

Stick with it and read up as much as you can about pensions, ISAs, funds and investing. You'll soon get the hang of it.

EdInvestor

bendix wrote: »

I'd be more understanding if the concepts were complicated. But they are not.

That's a ridiculous comment.The concepts underlying pensions are some of the most complex in personal finance.Virtually nobody understands the state second pension for instance..

Investment is not that difficult to grasp - and when it comes to the point, that's all you're doing with a pension, investing money for your retirement. Most people could prpobably cope with straightforward investment (eg in a stocks and shares ISA) with quite a short time of study.

But anyone who has ever started to look into the regulations covering pensions soon realises that they are a completely different ballgame.

It is not at all surprising that most people give up.

The_Economist

Hi Bendix i was lucky enough to see the Tonight program about pensions very interesting it was too. It kinda reinforces what i've thought all along.

dunstonh

The_Economist wrote: »

Hi Bendix i was lucky enough to see the Tonight program about pensions very interesting it was too. It kinda reinforces what i've thought all along.

Come on, its ITV. You dont expect an objective programme from ITV do you?

markr007

I think you're all wasting your breath. The OP has decided investments are a waste of time and will likely give up, thus condemning himself to a miserable retirement, and all to save himself a paltry £100 a month which - incidentally - is far too little for a 46 year old man to be contributing to a pension.

it all seems so futile somehow

You're wasting your breath dunstonh. People either get it, or they don't. My fear (having read these forums for the last few months) is that even those motivated enough to log onto MSE just don't get it, so what hope is there for the 99.99% of citizens who don't?

It's baffling. Truly baffling.

I'd be more understanding if the concepts were complicated. But they are not. What really frustrates me is not people's ignorance (which can be overcome), but their complete lack of interest. As dunstonh has eloquently stated elsewhere, the same people who makehalf-a***d comments on this forum, are celebrating gaining an extra 0.01% on an ISA elsewhere.

What frustrates me is comments like this.

Do you think comments like these are helpful to people who do need some guidance??? If you think the nation is financially illiterate then why not try and help people with the concepts rather than mouthing off. If it frustrates you so much then don't post. Given the number of posts you have and thanks, I am sure you have provided some excellent help to people and a valuable contribution to the forum. Why negate this by being rude?

As for my take on the pension policy debate, I don't think it's open and shut.

Financially, if you make it to retirement and live a long enough retirement then it's by far the best way to save. But if you don't then wouldn't it be nicer to have enjoyed that money or spent it travelling the world when you discover your terminally ill etc. Statistically you're more likely to make it to retirement than not but less likely to live a long enough retirement to mean you get value from an annuity. The tax savings will tilt it that way though.

Investing young also allows for a riskier and hopefully more profitable investment strategy.

I can understand younger people not wanting to risk putting money away that they can't touch for many years. It's human nature. We should afterall invest our money to maximise economic utility rather than purely wealth.

Another issue to consider is that most people are in net debt for the first 20-30 years of their working life so why not get a guaranteed return by paying back some debt. For some this can be a very high guaranteed return. The guarantee on this return as well as the good feeling gained from eroding debt makes this appealing.

In the end, the best solution is probably to diversify types of saving (and spending) in the same way you should diversify your investments. So don't save all your disposable income, live a little, but make sure you do save. Saving in some way is the biggest thing rather than where it is saved. This can then be diversified to debt repayment, isas and pension contributions.

:-)

bendix

markr007 wrote: »

Do you think comments like these are helpful to people who do need some guidance??? If you think the nation is financially illiterate then why not try and help people with the concepts rather than mouthing off. If it frustrates you so much then don't post.

Back at you.

With the greatest of respect, I am completely at liberty to post my views on an internet forum. No, they are not nice and fluffy and supportive of illiteracy because that is not my style - I would rather say it how it is.

When you've been round here a while, you will see dozens of these 'my pension is too small - how come my £20 a month pension savings plan is only going to give me £100 month in retirement - everyone is cheating me' threads.

You can explain patiently why that is, but if the people who post them can't work it out for themselves, what's the point? They still prefer to wail angrily at some imaginary scam, rather than look to where the real blame lies. Themselves.

bendix

The_Economist wrote: »

Hi Bendix i was lucky enough to see the Tonight program about pensions very interesting it was too. It kinda reinforces what i've thought all along.

Let me get this right. You call yourself The Economist, yet you get your pension education off shoddy ITV journalism designed to pander to the herd mentality.

Could I suggest you change your nick to Hello or Daily Sport, perhaps?