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

maxmiler

Dave101t wrote: »

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....

This is so true, and the charges rack up even more after you buy an annuity. There are a lot of figures below, but stick with it as I think that this proves the BIG PENSION RIPOFF.

Search the BBC news website for this (as I can't post links):

"Experts calculate how big a lottery win would be needed"

Now concentrate on the 21 year old's figures. With a life expectancy of a further 66 years he will get £21,244 per year after tax if he puts £2,019,117 in an annuity.
If he were just to keep his £2million and use it up year by year the calculation is:
divide £2,019,117 by his life expectancy and you get £30,592 per year which would be tax free as it is his money. So between the annuity provider and the Inland Revenue you lose £9,348 per year.
BUT just invest your £2million at a modest 2.5% and your income is £50,000, which after tax is £41,200 per year. And you've still got your £2million.
So the conclusion I have reached is that if you want to LOSE £20,000 per year, buy an annuity.

I have a private pension into which I put £10,000 from my redundancy pay as I was advised that this was the right thing to do. Looking at its (lack of) growth over the last 15 years, and what I might get as an annuity I now wish that I'd just kept the cash.

Max

jamesd

maxmiller, choosing where to invest your redundancy money within your pension or outside it is up to you. This applies wherever you put the money - you still have to choose where to put it so you wouldn't have done any better or worse with it unless you choose different investments. It's not too late to look at those investments and consider changing them.

The difference with pensions is how much money it takes to build up the two million. It takes much more if you don't use a pension than if you do. All of your calculations are pointless because you should have started the pension one with the higher amount after tax relief.

Buying an annuity is often not the best of ideas. You don't need to buy an annuity with a pension, so why not just not do it?

dots_thots

I think it's a terrible idea for the following reasons...

1. Does anyone believe that with Britain's fiscal situation they'll even be a retirement age? They're already talking about pushing it back to 68. That is already a de facto broken promise and obligation default. I am 32 - what will it be in 35 years time? I'm being forced to save for a retirement that will never come.
   
   
2. Even if the pension pot is there, will I be able to get it? There are no guarantees it won't be raided like pension funds have been already. There's even talk of coercing pension funds to prop up failed banks!
   
   
3. Pensions are a huge PONZI scheme, paying out old people with new money. The government spent the pension money since all funds are essentially fungible.
   
   
4. Pensions effectively defer income-tax and allow you to earn your tax-free bracket from those funds later. But income tax started at 1% and is now 20% (and has been much higher) so anyone sold on the idea back then has been sold down the river. Does anyone seriously believe income tax will stay at 20% with our debt problems? There is something to be said for the old saying "a bird in the hand..." - and I get to use the money if I need it.
   
   
5. Anyone who's been investing in a pension over the last 10 years has seen a real decline even before the crash of 08. Even while nominal values have been rising, real purchasing power has declined. Any counter-argument that the stock market is cyclical is immaterial because you can't sell and switch into another asset class whenever you feel. You are locked in until retirement forces you to sell. Anyone simply saving under Sir Isaac Newton's classical gold standard would have beat these people hand's down.
   
   
6. I don't trust sterling, and I get stiffed for capital gains tax to avoid it and I get legal tender laws to force me to comply. Now, on top of that I'll be forced into schemes I do not trust. At the very least I should be able to invest in whatever I choose to, no special dispensation for UK related companies etc.
   
   
7. It's one thing to take taxes from people, but what gives the parliament the right to decide how I should spend my money. They are forcing me to pay commissions (because my pension fund is run by somebody and will use a broker to execute trades) to private companies against my will. Is that even lawful?
   
   
8. There is the law of unintended consequences. Legislating like this gives people a false sense of security and they will stop taking an interest in self-reliance, much like how the FSA and other regulatory agencies contributed to stopping people from doing real due diligence when investing. If a rating agency rates debt as AAA, "well, it must be safe because they are regulated by FSA/SEC etc." This will have the same effect. Boy, will they get a surprise later in life.

This scheme sounds like it's straight from the belly of Goldman Sachs or JP Morgan. Brokers get commissions regardless of performance. We used to be able to save for retirement, but debauchment of the currency by the government and the "criminal" BofE has forced savers to become speculators. As the baby-boomer generation pull their money from the stock market to move to bonds and pay for their retirement, what happens to my captive pension as stocks slide?

Is that the idea, to shore up the shortfall of money for wall street and the London financial district, to plug the gap?

Batchy

maxmiler wrote: »

This is so true, and the charges rack up even more after you buy an annuity. There are a lot of figures below, but stick with it as I think that this proves the BIG PENSION RIPOFF.

Search the BBC news website for this (as I can't post links):

"Experts calculate how big a lottery win would be needed"

Now concentrate on the 21 year old's figures. With a life expectancy of a further 66 years he will get £21,244 per year after tax if he puts £2,019,117 in an annuity.
If he were just to keep his £2million and use it up year by year the calculation is:
divide £2,019,117 by his life expectancy and you get £30,592 per year which would be tax free as it is his money. So between the annuity provider and the Inland Revenue you lose £9,348 per year.
BUT just invest your £2million at a modest 2.5% and your income is £50,000, which after tax is £41,200 per year. And you've still got your £2million.
So the conclusion I have reached is that if you want to LOSE £20,000 per year, buy an annuity.

I have a private pension into which I put £10,000 from my redundancy pay as I was advised that this was the right thing to do. Looking at its (lack of) growth over the last 15 years, and what I might get as an annuity I now wish that I'd just kept the cash.

Max

Great, but where does a 21 year old come up with a 2m fund?
very rare, pensions are for earners, not prince's/princess's, ladys and lords. So you get to take advantage of tax breaks.

Pensions are great

you invest in a ISA it grows and can buy an annuity (which would be taxed)

you invest in a pension invest in the same funds which grows as the ISA with 20% or even 40% added on top to start, and you buy an annuity (which would be taxed).

The major difference is you can't take it out its not accessible, but on the same level the major bonus is it can't be touched. You could go bankrupt and keep intact the pension in full, it can't be used as a deposit for your house etc, etc,etc.

jamesd

dots_thots, the idea is to cause lower income earners to have this pension topping up their state pension so that they will no longer have a low enough income for it to be necessary to pay out Pension Credit to them.

You do appear to have some outdated ideas about what you can do with pensions, though. There's no requirement that you invest only in UK companies, just companies on one of many exchanges around the world. Switching asset classes is trivial in modern pensions as well, just sell one fund and buy another in the different asset class.

The idea that anyone who has been investing in pensions over the last ten years has seen a decline isn't close to accurate. Just stick in regular monthly contributions into a UK equity fund and they would probably be up, not down. Or if you prefer a lump sum, they could presumably have been up by buying index-linked gilts or gold. You're blaming the pension for the investment choices and it's not the pension's fault, the individual gets to make their investment choices. If you don't like the results, choose different investments.

dots_thots

jamesd wrote: »

You do appear to have some outdated ideas about what you can do with pensions, though. There's no requirement that you invest only in UK companies, just companies on one of many exchanges around the world. Switching asset classes is trivial in modern pensions as well, just sell one fund and buy another in the different asset class.

I didn't say you couldn't, I merely stated you should be able to.

jamesd wrote: »

The idea that anyone who has been investing in pensions over the last ten years has seen a decline isn't close to accurate. Just stick in regular monthly contributions into a UK equity fund and they would probably be up, not down. Or if you prefer a lump sum, they could presumably have been up by buying index-linked gilts or gold. You're blaming the pension for the investment choices and it's not the pension's fault, the individual gets to make their investment choices. If you don't like the results, choose different investments.

I take your point about investment types and I guess if it is run like a trading ISA where all the decisions are made by me then that limits my problems somewhat.

But actually there are two sides to this. If you're the type to take control of your own affairs, why do you need a pension at all? - it doesn't mitigate the risk of you having no cash upon retirement because I could have lost it all picking bad investments. Simply having a pension doesn't guarantee anything in this case.

My reference to bad performance over 10 years is much more accurate when focussing on funds - and that's the point. People who aren't gonna take control themselves will rely on funds or fund managers to gamble for them. The evidence of fund and index under-performance when taking into account expenses is vast and fairly conclusive imho. Diversification and Buy and hold is a misconception.

If they really want people to save for retirement why not have a savings account for people redeemable when you retire instead? It could save in tangible assets that have proven to hold value, or even hold a 50:50 balance of counter-weight assets, so the average is pretty constant. We could even reform the currency to a gold standard and save that!!!

I don't trust paper currencies so I have to invest in tangibles and in many cases that means ETFs, which have counterparty risk.

The whole pension argument presumes that investing means you'll end up with more money at the end of the day, which is fallacious. My point is that gambling isn't saving and the only people guaranteed to make money are the brokers.

Pension investing has turned savers into gamblers and I may be forced to start investing in my pension - right into the headwind of the baby boomers selling theirs to live.

Oh and index-linked gilts are fine if you believe government measures of inflation are accurate :rotfl:

jamesd

dots_thots, you know about ETF counterparty risk and used that fungible word that most won't even recognise so it's pretty likely that you know the flaws in most of the points you made.

dots_thots

After doing some more digging it does look like I may be able to opt-out although I can't get a definitive answer. Can anyone confirm this for definite?

If this is the case, I've got my knickers in a twist over nothing!!! I just don't like be coerced, it's all about choice.

1maia

What will happen in my case? I don't earn enough to pay for a pension, i'm stuck in the cycle of temporary jobs and benefits. My current contract is one month long, renewed at the end of each month, my employer nearly went bankrupt recently anyway. Suppose this continues for the next 30 years (hell, but possible). I might have pensions with 50-odd employers. I move constantly, due to short rent contracts, so how can i prove i am 'X, of Y address' and claim all 50 teeny weeny pensions? Suppose half go bankrupt and i only have 25? Am i eligible, since my employer classes me as 'temporary 12 hours a week': in fact i work full time and my contract is always renewed, i'm a normal worker except in name: but people with 20 hour contracts get more holiday entitlement etc than me although they only work 20hrs/week so maybe it's the same with pensions - benefits start below 16hrs/week, so i could be ineligible - anyone know? Thanks a lot.

1maia

Also, can I ask a general question? When I was young I was a fervent christian and despised material things, so i spent several years of my life doing voluntary work (the lowpaid live-in kind) and i although i worked, i never made a full tax year, (i often didn't sign on when i was eligible) so i have about 2 year's contributions although i'm 38. I did my back in completely doing carework, it hurts always, i never went to the doctor (i thought it was a punishment from god, don't get me started on what i now think of my younger self!) so have no idea what the problem is. Although i do unskilled manual labour i'm certainly not going to be able to at 68. I'm doing a master's at the open university but it's fair to say i've never been very bright so i never get good jobs as i'm ok but the competition is always better than me. I earn 3-5k a year. I would like to save to a pension but rent takes most of my income, even over 90%, just for a bedsit with no kitchen. What would be the best way to start a pension? When i have finished my OU course i will be £120/month better off and able to start - all ideas gratefully considered:)