Can I just save myself for a Pension?

dunstonh

That is incorrect too. If you die before retirement, the whole value of the pension fund is paid to your nominated beneficiary. When you retire, you choose the annuity you want and you can pick a joint life annuity which pays out full amounts to both of you.
I see. I assumed this after using a website to calculate a pension.

The type of annuity you buy is your choice. Usually, generic websites tend to quote assuming 50% spouse option. Personal quotations can be arranged which show the annuity of your choice.

Oh right. So I save for 30 years and then go and buy a product..?
Why do they make it so complicated? Is it because of the timescales involved?

The pension is just the savings product to get you there. It matures when you decide to retire. You can then take upto 25% tax free and the remainder purchases an annuity. It is the annuity that provides the income in retirement.

The annuity rate is a bit like an interest rate. However, the annuity rate you get at retirement is set for life. Unlike interest rates which fluctuate. Annuities are there to ensure that you take an income.

It isnt really that complicated. One product gets you there, another provides the income. There are different types of pension and annuities but the idea is the same for most.

At the end of the day you need to build up a significant lump sum to provide an income in retirement. If it was today, you would need £150,000 to provide a £10k income. So, as long as you had saved £150k, it wouldnt really matter how you got there. Whether it was ISA, pension, sharesave...whatever.

However, different savings products have different tax advantages and pros and cons. The biggest advantage of the pension is the tax relief. Your direct debit would be £78 on a £100 contribution. Ideally you would still pay £100 and have the tax relief added on top. You will then not only get growth on your £100 but also on the tax relief added. Compound that over the years and it makes a big difference.

The investment side is a different issue. Whether it is an ISA or a pension you can decide to have none, some or all of it in the stockmarket. Generally, whatever investment areas are available for an ISA, they are also available for a pension.

If you were to pay £100pm into a pension and the same into an ISA and invest in the same area, the pension fund would be the higher of the two at the end of the day.

Ignore the issues mentioned like pension credit and minimum income guarantee as they will not be applicable to you and are a smokescreen. They are for people who have virtually no savings or investments and are designed to keep them just above poverty (£166pw for a couple). Your 30 years of putting £100pm aside (whatever method you choose) will keep you well above that.

deemy2004

Don't forget the process of annuitizing your fund will consume between 12%-15% of the the fund value

So after 3 decades of contributions, and some stock market growth your fund stands at say £150,000.

Now your thinking, nice...... £150k, 5% =£7,500

No Sir ! We want to clobber you with a 15% charge of the value of the fund BEFORE you get your 5% annuity !

Thats £22,500 !! - I for one would be fuming !!!

No keep your stinking 22% and give me 100% control over MY MONEY !.. Anytime, everytime, none of this ridiculous 60% of a poor annuity rate for your partner, but rather 100% all of the time ! for Anyone!

The whole pension area needs reform so that the money always is in the control of the individual... No forced to do x,y,z by a certain date business...

dunstonh

Now your thinking, nice...... £150k, 5% =£7,500

No Sir ! We want to clobber you with a 15% charge of the value of the fund BEFORE you get your 5% annuity !

What charge is that?

I did an open market option today for a 60 year old with 6.68% the annuity rate and no charge to pay on that.

deemy2004

Its the cost of going from your pension fund value just prior to retirement to an the annuity.

Yeh 6% is great if the VALUE is not also reduced.
I

Conclusions - Page 34

http://www.econ.bbk.ac.uk/wp/ewp/ewp0008.pdf

gustav

deemy2004 wrote:

No keep your stinking 22% and give me 100% control over MY MONEY !..

I quite agree.

However, very few people have the necessary self-control/willpower to not dip into their fund every Xmas, or when the daughter gets married, or when the washing machine breaks etc.... These people are better off having their savings stashed away in a (relatively) safe place.

dunstonh

I must be missing something here. If the pension fund value is £150k, then that is the amount that buys the annuity (after tax free lump sum taken). The annuity you purchase gives you x amount per annum. There has never been mention of any charge like you mention on any annuity i have set up.

iyiarz

I've asked my employer if I am entitled to join the company pension scheme.
I turned it down a few years ago. I think it was a Final Salary Pension.
I think its a Final Value scheme now, But the company pays into it as well as me.

When I reach retirement age and I have 'saved' all this money using a pension scheme, am I entitled to the money in the pot in 'cash' as it were?

Do I have to buy a product or can i invest it myself ?

Darryl

iyiarz wrote:

I've always been a bit wary of pensions.

Based upon the responses you've received so far, I'm not surprised! Seriously though, why are you wary of pensions?

As DD says, the tax relief you get on contributions are a big bonus if you're putting money away for your retirement (especially if you are a higher rate tax payer). These alone will increase your contributions by a minimum of 22% before any investment return. So, your £50 per month will be topped up by Gordon Brown to make it £64.10 per month. Then add any interest/return received to that!

As far as I see it, the only downside of pensions is that you can't access your retirement cash until you retire. Not neccessarily a bad thing in itself. If you did use it before then, you'd have less to live on in retirement. But, if you want more flexibility in terms of access to your cash, then ISAs may be the way to go.

If it is investment/stockmarket risks that you are wary of, this is a different consideration. As others have said, you can choose lower risk investments like bonds, gilts, etc. But these are not a low-risk as your plain savings deposit account.

Now, one thing I would add here is that cash ISAs aren't the only way to save into deposit accounts. My SIPP (self invested personal pension) allows me to save into a deposit account paying upto 4.5% gross interest p.a.
See: http://www.hargreaveslansdown.co.uk/SIPP/pop_cash.asp

So, you can have tax-free cash retirement savings, but in a pension with the benefits of tax-relief.

Hope this helps

Darryl.