Advice for first time pension planner

mickflynn39

People are far too quick to assume that simply making a minimal pension payment once a month entitles them to the moon on a stick. Then again, that seems to be the pervading mentality in the UK these days

I agree. However i would put the blame firmly at the door of the financial services industry.

mickflynn39

I think a big part of it is that paying into a pension from a young age helps to put people into the saving/investing mindset (while it won't guarantee them an easy retirement). I very much doubt that many people who say, skip paying into a pension until they're 35+ are investing the money elsewhere, for whatever reason they've probably not planning for their future at all..

I think most of them are just struggling to get by never mind thinking about a pension or other investments. The way the world is going retirement is going to be for the lucky ones (mostly who work in the public sector) and most other people are going to have to work for a lot longer than they ever envisaged.

Judwin

mickflynn39 wrote: »

I think you make my point beautifully even though inadvertently. It was you that quoted the bigger figures and anyway that is what people in the past were promised and were expecting. They've changed the rates because they've been found out by the likes of me. Surely you can see that my figure of 4% stacks up as they are now quoting 3-5%. Rest assured that my figures are accurate. They can be easily checked with a little detective work. Do you think I could get away with posting erroneous information on such a well informed forum? The truth is that we are being conned by the financial industry and need to wise up. I appreciate the stuff I'm posting is not what people want to hear but it is the truth to the best of my ability.

They weren't PROMISED anything. That's the mis-understanding many people have. The illustrations are 'what-ifs', guesses, estimations, and they make any number of assumptions that may or may not turn out to be correct.

I believe the illustration rates are set by the FSA, so the pension companies don't have a choice of the rates they use. Investment returns are lower now than they were in the 90's, and that's why the FSA lowered the illustration rates.

Ultimatley it's your choice what you invest in to provide for your retirement. You appear to have opted for a BTL. Might work, might not. Certainly not risk-free. Me - I'm going for a Pru pension and some riskier stuff in an S&S ISA.

edinburgher

and most other people are going to have to work for a lot longer than they ever envisaged.

Or save more more from a younger age, but I guess that's not as melodramatic

I think we'll just have to disagree about where the blame lies - I think a lot of the posters on this thread share some beliefs about self-determination, the need to plan etc. I think we just reach our conclusions down different avenues.

dtsazza

mickflynn39 wrote: »

I think personal pensions can have their place in a portfolio of investments. What I strongly disagree with is the mantra of the financial industry that unless you invest early and for many years you are going to be doomed to a life of poverty in retirement.

Well, it just comes down to returns at the end of the day. If you start investing later, and/or make smaller contributions, then the returns on your capital are going to have to be larger in order to achieve the same end result.

So regardless of what approach you take to making your money grow, starting early is always going to be a good idea.

mickflynn39 wrote: »

Once you've got this then you can look at other ways of topping up your investments to meet the inevitable shortfall that will be there if you believed what the financial industry were telling you. I've suggested a few other ways of making money in a previous post.

This is the crux of the issue - how to achieve adequate return(s) on capital in order to built up the pot that's required to retire in comfort. Having said that, it would require an alternative financial vehicle that could consistently generate better returns than the pension one is considering instead, and I don't think that such a vehicle exists in the general case.

Perhaps we have a different idea of what "pension" means, in the context of this thread. As far as I'm concerned, a pension is just a tax-efficient wrapper around some assets (usually, but not necessarily, shares/bonds). It makes no sense to say that the performance of pensions is bad, as it does to say that the performance of S&S ISAs are bad. If the returns are poor, it's the fault of the investment, not of the tax wrapper. Perhaps you think that fine wine, collectable postage stamps, or commercial property are a good investments? You can hold those in a SIPP.

If your point is that high street pension funds for retail (i.e. undereducated) customers often underperform and overcharge, then I agree with you. But the concept of investing for retirement, and doing so in a vehicle where your money is immediately multiplied by 25/67%, is hard to argue against.

The only real investment I can think that can't be held in a pension, is building up a portfolio of properties - though I'd consider the long-term prospects of the housing market even less secure than those of the equity markets. I'd also expect much lower returns, would get no tax multipliers going in, and would have to pay capital gains tax on all properties except one. In that light I can't see residential property being a competitive choice - sure, you might retire with £3m worth of properties, but that could have been worth £5m if you held it in equities.

mickflynn39

Perhaps we have a different idea of what "pension" means, in the context of this thread.

Most people view a pension as a source of income that will lead to a very happy retirement. This is the myth perpetuated by the financial services industry so they can get their hands on our cash. I just want to make people aware that the returns they lead people to believe they are going to get are fiction and the true returns on investment are not going to be anywhere near what's needed. The 90% of pensioners previously referred to have wasted their money as they would have got the same returns in pension credits and other benefits. Any honest financial advisor would have advised all these people that unless they increased their contributions considerably then there would be no real point investing in a pension. But 99% of them don't because they want to get their hands on commission which could be up to the first 2 years contributions.

jdobrowski

I'm a little overwhelmed by all the responses! I just checked back after posting last week expecting to find a couple of replies. Many thanks to everyone for posting your opinions, I really appreciate it. I'll be reading through (and having a good think about) all the comments this evening.

I'll certainly let you all know if I have any questions ;-)

Thanks again!

jdobrowski

I've just had a quick read through the above posts (more in-depth read coming later), but I've a quick question before I have a chance to do the maths. The industry average increase of 4% that's been quoted (whether you agree with it or not) - does this take into account the tax benefits you'll recieve if you're a higher rate tax payer?

If I can claim back 40% of my pension contributions, even if I get 0% growth, doesn't a pension out-grow any other financial product (even if I'm paying 20% tax on my post-retirement income)? Apologies for any naievety on this

dunstonh

If I can claim back 40% of my pension contributions, even if I get 0% growth, doesn't a pension out-grow any other financial product (even if I'm paying 20% tax on my post-retirement income)?

The same investment options are present on all other options. So, if you assume like for like across the board, then yes, for the provision of income, the pension will produce the highest amount. Note emphasis on the provision of income. Pensions are not good for the provision of capital. So, often you need to have multiple financial products.

jdobrowski

After some discussions with my company's COO today, it turns out they're looking into the introduction of a company pension. I think I'll hold off for a short while and see what comes of that, and continue my investigations again if it turns out to be non-contributory.

One further thing I need to consider is whether a pension is sensible while still saving for a house deposit. I'm about a year off having a decent deposit saved, so part of me thinks I should focus on that before focussing on the pension.

You've all given me a lot to think about, and a wealth of useful information to consider. Thankyou again to everyone who's posted, I really appreciate your advice.