private pensions whats the point??

peter1000

Please can somebody please tell me why its worth starting a private pension then?What with all the those people who were told to leave final salary schemes and go into the private pensions in the 80's and 90's then they had to be compensated for being mis-sold,so why would anybody want to start one of these schemes from scratch?the returns on annuties from what i have seen dont look good to me,500 to 600 pounds per 10000 grand of pension saved.So if your lucky enough to save over 100 grand,most working people thats a dream,as just paying all the bills is bad enough.When you draw the pension your taxed on it anyway,makes more sense to save via isa's to me or buy property,I wonder how many pension funds went down the pan with the financial crash in recent years or in ideal world we could work in local goverment the police or fire brigade or be a train driver as they get looked after(gold plated pensions)why the rest of us can go to hell in a hand cart,this country is very unfair with its pensions,why should the above get so well rewarded and the rest stuck in the private sector get offered the usual private schemes that are crap...........

zygurat789

You only have to save £100 per month, indexed at a constant 4% pa and assuming a growth rate of 5% for less than 24 years to achieve a fund of £80,000 (tax relief makes it up to £100,000 which is why the pension is taxed).
When you get to 65 the personal allowance goes up to nearly £10,000 so the tax won't be quite that bad.
I have recently seen a quote for £650pa per £10000.

So apart from working for the state, not so easy today as thousands of LG employees are finding out, what would your solution be?

Aegis

peter1000 wrote: »

Please can somebody please tell me why its worth starting a private pension then?

To generate an income in retirement on top of state pensions, occupational pensions and

What with all the those people who were told to leave final salary schemes and go into the private pensions in the 80's and 90's then they had to be compensated for being mis-sold,so why would anybody want to start one of these schemes from scratch?

The problem there is the fact that final salary pensions generally have better guarantees, therefore they will be better for most people with a low-ish attitude to risk. It doesn't mean that all pensions are bad, and it especially has no meaning when you compare the pensions available in the 80s and 90s to the pensions available today. Very different products, not much different to ISAs in terms of the investments you can make.

the returns on annuties from what i have seen dont look good to me,500 to 600 pounds per 10000 grand of pension saved.

You don't have to take an annuity if you don't want one.

So if your lucky enough to save over 100 grand,most working people thats a dream,as just paying all the bills is bad enough.When you draw the pension your taxed on it anyway

True, but you get tax relief on the way in and a tax-free lump sum, so you still end up ahead on a tax calculation. You benefit even more if you make deposits to your pension as a higher rate taxpayer and draw the benefits as a basic rate (or even non) taxpayer.

,makes more sense to save via isa's to me or buy property

Those are certainly other options, however the ISAs are limited in terms of maximum contributions and property concentrates your risk much more than investing via funds, so these strategies aren't for everyone.

,I wonder how many pension funds went down the pan with the financial crash in recent years

Most would have done. Most, however, have probably made back everything they lost already.

or in ideal world we could work in local goverment the police or fire brigade or be a train driver as they get looked after(gold plated pensions)why the rest of us can go to hell in a hand cart,this country is very unfair with its pensions,why should the above get so well rewarded and the rest stuck in the private sector get offered the usual private schemes that are crap...........

Private sector pensions can be amazing. The freedom to invest your own pension funds means you can, with some risk, get more out of your pension than a final salary pension would offer.

dunstonh

Please can somebody please tell me why its worth starting a private pension then?

pretty obvious. To save towards retirement income provision.

What with all the those people who were told to leave final salary schemes and go into the private pensions in the 80's and 90's then they had to be compensated for being mis-sold

That ocurred between 1988 and 1993. A 5 year period 20 years ago. The redress payments put it right.

so why would anybody want to start one of these schemes from scratch?

The same reason you save or invest any money.

the returns on annuties from what i have seen dont look good to me

well dont buy an annuity if you dont want it.

So if your lucky enough to save over 100 grand,most working people thats a dream,as just paying all the bills is bad enough.

If you cant save £100k in your working life then the problem is not the pension but your budget or your mindset.

When you draw the pension your taxed on it anyway,makes more sense to save via isa's to me or buy property

property is taxed on income and growth (on sale). Pension income is taxable above the personal allowance. a couple earning £20k a year in retirement could have their income totally tax free. ISAs and pensions share the same investment options. However, for income provision, the pension beats the ISA even if the income is taxable at basic rate.

,I wonder how many pension funds went down the pan with the financial crash in recent years

No need to wonder. The answer is none. It has never happened.

the rest stuck in the private sector get offered the usual private schemes that are crap...........

You need to stop reading the newspapers and have less of a negative frame of mind. You could also do with learning and understanding the subject before having such an opinion. For example, you say you should use ISAs yet pensions and ISAs are very similar. if you slagg off pensions then you have to slagg off ISAs

The pension tax wrapper has its faults but the fact it that any provision, whether it be pension, ISA, unwrapped or whatever is only as good as what you pay into it. If you pay peanuts into it then you will get peanuts out at the other end. Doesnt matter what tax wrapper you use.

peter1000

I only said isa's as you can get your money back,maybe buy a proprty with it ect,better than 25% like with a pension.......

purch

Please can somebody please tell me why its worth starting a private pension then?

It is not worth you starting a private pension.

There you go, problem solved.

jem16

peter1000 wrote: »

I only said isa's as you can get your money back,maybe buy a proprty with it ect,better than 25% like with a pension.......

You're thinking of cash ISAs which are no use for long term planning due to inflation risk.

If using ISAs you would need to use S&S ISAs.

As to property - what do you plan to do with it?

purch

:rotfl:

The OP just sent me an abusive PM :eek:

I think he must be a sad bitter and twisted individual.

This is the 3rd thread he's started whining about how much better off everyone else has it.

I don't know why anyone would bother answering it.

:rotfl:

zygurat789

purch wrote: »

:rotfl:

The OP just sent me an abusive PM :eek:

I think he must be a sad bitter and twisted individual.

This is the 3rd thread he's started whining about how much better off everyone else has it.

I don't know why anyone would bother answering it.

:rotfl:

I've not had mine yet

casey_junior

Aegis wrote: »

T It doesn't mean that all pensions are bad, and it especially has no meaning when you compare the pensions available in the 80s and 90s to the pensions available today.

In 20 to 30 years, you will be saying that the pensions that you're selling then have no comparison to the crap that was sold in the noughties! Same old bull.

hugheskevi

Okay, criticising the orginal post is like shooting fish in a barrel for most of the posters on the board.

Here is an expansion of the points made (I like playing Devil's Advocate - to be clear to readers, I am not in any way suggesting that it isn't probably a good idea to invest in a pension for most people). I thought it could lead to a more stimulating debate

Please can somebody please tell me why its worth starting a private pension then?

Unless you are a higher-rate taxpayer, have access to salary sacrifice or would be missing out on an employer contribution if you didn't make a contribution, there isn't much incentive.

Without any of these characteristics, it may well be better to put money into a S+S ISA, moving the money into a pension close to retirement - that retains the best of both worlds, flexibility and tax relief.

What with all the those people who were told to leave final salary schemes and go into the private pensions in the 80's and 90's then they had to be compensated for being mis-sold,so why would anybody want to start one of these schemes from scratch?

Pensions have been dogged with issue after issue, many of which make for snappy headlines and have led to a significant loss of trust in the pension brand.

The detail of mis-selling, Maxwell, Equitable Life, Financial Assistance Scheme, high charges and ACT/Dividend Tax Credit are poorly understand by most, but people know that bad things happened to pensions in the past, and that not unreasonably makes people reluctant to commit what will eventually build up to be a very large amount of cash.

The next thing to add to the long line of issues seems to be the switch from RPI to CPI for defined benefit pensions. You should certainly ensure that you fully understand the risks involved - any type of pension brings with it some degree of investment risk, provider risk, govt. policy risk, etc, and you can't ever be sure what might happen in the future.

the returns on annuties from what i have seen dont look good to me,500 to 600 pounds per 10000 grand of pension saved.

It rather depends on what you term a good return to be. Insurers have to invest the funds conservatively, and basing assumed returns on gilts, annuity rates don't look awful.

But effectively investing 100% in gilts and corporate bonds at age 60 is very risk averse, when you can expect to live a further 25 years. A more balanced investment portfolio seems much more sensible.

Of course, such a portfolio isn't available to those with small pension pots in practice (prohibitive due to fees, and it is questionable whether you afford to take any risk when you are so dependent on the income) and lower pension pots are unlikely to have alternative products marketed at them, so most won't even be aware of the alternatives to annuities. So really, there are not any realistic alternatives to annuitisation for many people.

So if your lucky enough to save over 100 grand,most working people thats a dream,as just paying all the bills is bad enough.

Saving is simply income less expenditure. Only the very poorest can legitimately claim they cannot save, the rest are choosing to spend more than the minimum. And few people receive the minimum possible all their life.

But you have to acknowledge human nature is generally not to voluntarily choose to consume less than possible amongst a lot of people. And advertising preys on weaknesses to exacerbate them.

Why have a system which relies on individual's choosing to voluntarily do something which does not come naturally to many? You know that a lot of people will fail to do so. Even the forthcoming employer reforms will only provide a bare minimum income in retirement, so the system will still rely on people doing more than the minimum, which we know many won't do.

When you draw the pension your taxed on it anyway,makes more sense to save via isa's to me or buy property

Basic rate tax-payers get 20% income tax relief, but as soon as income reaches £10,000 you pay 20% when you take the pension. Okay, you get 25% tax free, but given the position of the economy the basic rate of tax may well be rather more than 20%.

In the worst case, National Insurance and income tax could be combined and you could end up paying 32% - speculation certainly, but it has to be acknowledged as a possibility, and talk of abolition of the tax-free lump sum is commonplace every couple of years. It all shows that you can't be sure of the deal you will get at retirement, yet still have to commit money into the system which you can't get back if the rules change.

Even under the current system you effectively pay 30% pay on income between £24,000 and £29,000 - a higher rate of tax than the tax relief received for a basic rate taxpayer.

I wonder how many pension funds went down the pan with the financial crash in recent years

According to the PPF report here, 46,000 individuals receive PPF benefits, and a further 193,000 individuals are in schemes in assessment. All of these would have been members of schemes which have started to wind-up after 2005. Many of these will have unexpectedly lost 10% of their pension, as well as a lot of indexation. These were pensions which most would have thought were guaranteed and didn't realise could be lost.

In addition to the quarter of a million affected here, about half that number lost their pensions prior to the establishment of the PPF, and now get their reduced pension under the Financial Assistance Scheme.