'Not got a pension? You will do in two years!' blog discussion

MSE_Martin

ormus wrote: »

my house is my pension and any investments ive made myself.
i can certainly pick better stocks than 99% of tosspot fund managers.

Couldn't think of a better argument for having a pension - you get tax advantages and can pick what shares you want

http://www.moneysavingexpert.com/savings/cheap-sipps

hugheskevi

There are a few things to be clear about here:

The 2% charge on contributions equates to an AMC of about 0.4%-0.5% for anyone saving for more than a few years, which will be the vast majority. It is only high amounts (1.5% etc) for those 1 year away from drawing pension. That is equivalent to a decent Stakeholder arranged efficiently using a fee-only IFA, but inferior to many products available.

It is not 8% of earnings, it is 8% of banded earnings, which for most will be 8% of earnings over about £5,500 by the time it comes in. Many of the target market will be saving very small amounts.

It takes until 2016 for the full contribution rates to be reached (they increase gradually).

Don't think in terms of wages, think in terms of remuneration. Employers are not going to increase the amount of employee remuneration, they will simply reallocate it in the long term (unless all of them are making supernormal profits). The way contributions increase gradually ensures that the pension contributions will be at the expense of lower pay increases in the medium/longer term, and probably in the short term.

Summary - an individual would almost certainly be best advised to stay in NEST if they have no other way of accessing an employer contribution. The pension isn't as good as many others, but it isn't designed to be - it has to accept everybody, even people who will pay in £10 per year for a couple of years then never contribute again, so you would be surprised if it could be designed to be as cheap as market leading products.

ormus

the tax advantages are another con and a scam. a marketing ploy.
the pension companies love it.

they can even change the rules when they want, with the governmments/courts blessing.
remember equitable life? the punters were "guaranteed" a 10% return.

that guarantee was worth the same as a double glazing companies warranty.

out_of_cash

the tax advantages are real and a benefit , but only if your backing the right horse.lol.

Dave101t

im 27 with no pension, ill be happy to comply with whatever is forced upon me, but even without the tax advantages of a pension, ive got 20K cash saved in 2 years, and its sat there looking at me....not locked away somewhere forever....

hugheskevi

ive got 20K cash saved in 2 years, and its sat there looking at me....not locked away somewhere forever....

If you are a higher rate tax-payer, that £20K would have had £13,000 of tax relief added to it in a pension.

In a pension, you could have invested it and benefitted from a strong market rally which you missed being in cash - add about another 20% to that £33,000 and that is £40,000.

So the moral is, a pound in the hand is worth two in a pension.

[the post is light-hearted, but the key point is that pensions are a great investment when used correctly - they are definately not right for a lot of people, but that doesn't mean they are wrong for everyone.]

bonzer

Any word on what the NEST pension will actually invest in? I assume it's going to be defined contributions?

Might be interesting to compare the cost of building a SIPP with as near as possible identical portfolio out of private sector products.

I agree with a default opt-in pension. I read a good book called Nudge, which was arguing this exact point. Basically it's saying that a good government should automatically opt people into things that are best for the typical person, but let you opt-out or switch if you think the decision is not specifically right for you. This is on the basis that many people can't figure out complex but important decisions or can't be bothered to deal with them and end up doing nothing. However those that can figure it out should be able to do what they like as government may have got it wrong in their specific circumstances.

jamesd

Martin, looks as though you used life expectancy at birth, a common mistake. Cohort life expectancy at age 65 is about 88 and rising. It's higher than at birth because all of the people who died before retirement lowered the at birth figure.

You shouldn't really be advocating NEST just because it's less bad than many others. I think that you should be advocating the best options out there. NEST isn't, except for those who can't meet the minimum monthly payments needed by the best private pensions.

An article on the most competitive pensions for employers to use for their employees would be a very good thing in this context, so employees could point their employer to an independent one stop shop that cuts the employer's workload. It's not just employees who get opted in, it's employers who don't want to spend the time finding something better. So help the employers to help the employees and you can do a lot of good by making it harder for the employer to just use NEST to be lazy.

Defaulting to being in is good psychology and recommended by the Pensions Commission based on success elsewhere in the world. But not so good if it's NEST, at least based on what's known so far.

NEST: 0.3% ongoing annual charge and 2% on money going it. Hargreaves Lansdown offers HSBC's UK all share tracker fund at 0.25% annual charge and 0% on money going in, so NEST that was introduced at the urging of the Pensions Commission to be cheaper than other pensions is more expensive than even one SIPP, let alone competitively sold personal pensions.

You can't transfer money out of NEST to a more competitive deal, even though you can for other workplace pensions.

Anyone considering having to pay into NEST should be asking their employer to set up a decent, competitive, low cost scheme instead. Or to pay into a personal pension that the employee sets up.

Still, I do like the idea of a default pension contributions and make large contributions myself... but not to NEST if I can find a better choice, and I can.

Dylanwing

There have been some interesting stories in Private Eye, and it looks like an enrichment scheme for a few dodgy character at the top of NEST, and probably be a pretty poorly performing scheme. Presumably, running a not for profit scheme, headed by reasonably paid people, to give maximum benefit to participants, is not an option! Tabloid scandal in a few year, I predict.

1984ReturnsForReal_2

Q: Why should I pay into a poorly managed scheme aimed at making a lot of other people rich & not me?

A: I shouldn't

Solution: I won't.