Debate House Prices
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Pension returns.
Comments
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vivatifosi wrote: »What are good reasons?
1) As Gen says, you can buy £1 for 60p as a HRTP.
Superficially attractive, but may not outweigh the negatives
2) Free money from employers.
Agreed, the one real benefit IMO
3) Anyone able to get in on a defined benefit scheme, whether final salary or career average is onto a good deal because the employer takes the risk.
Agreed, but defined benefit schemes are almost extinct in the private sector.
4) Saving for retirement, no matter what vehicle is used (pension, ISAs, dare I say it BTL investment) is a much better idea than not taking responsibility for saving and leaving things to chance.
Agreed. I'm just not sold on structured pension products.
As above........“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
Like you say though, the employer contribution is well worth having. Do the sums counting that as a return based on your personal contribution. How do the figures look then?
No, we agree about that. I contribute the level required to max out the employer contribution.
Just don't see the benefit beyond that for my personal circumstances.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »Yes, I know that, but given how poorly they perform, the risks of the goalposts being changed halfway through with tax, markets, etc, and the restrictions around buying an annuity, it still seems a crap deal to me.
I think the only people who should be in pensions are..
1) 40% tax payers who plan to be on the basic rate in retirement. In this case the tax relief is free money rather than a tax deferment.
2) Those whose employers are making contributions on their behalf
3) Those on final salary schemes
4) Those who can't be trusted not to dip into savings before retirement (that's a lot of people - take a look at the pensions board - most questions relate to getting money out of a pension before retirement).
The poor performance comment is a red herring. That's nothing to do with pensions that's down to poor investment choice. There's a vast array of investment options.
Restrictions around annuity purchase are also being eroded. There are many other options available.0 -
HAMISH_MCTAVISH wrote: »Yes, I know that, but given how poorly they perform, the risks of the goalposts being changed halfway through with tax, markets, etc, and the restrictions around buying an annuity, it still seems a crap deal to me.
Well I guess there are 2 things, pensions as a product and pensions as a wrapper to put a product in.
Pensions as a tax advantageous wrapper are always going to be subject to the vaguaries of politics. Over here, public sector workers might find that their 'super' (pension) is compulsarily invested into infrastructure projects soon for example.
Pensions as products are as good, or more often as bad, as any other investment product that comes out of the financial services industry. That returns are low comes as no surprise to me at all. If you invest in a SIPP or using low cost tracker funds you're more likely to come off ahead. Often you can't if you are in an employees scheme however.0 -
1) In the long term (30 years plus) they perform better than property.
2) The tax advantages for 40% payers are unmatched by anything else.
3) You are not allowed to take giant leveraged gambles on property prices.
4) You can better match you risk / reward ratio depending on your age.
5) the investment inside the pension wrapper is more liquid than property.US housing: it's not a bubble - Moneyweek Dec 12, 20050 -
HAMISH_MCTAVISH wrote: »So the average real return for the last decade was just 1.7%.
The average real return for the last 50 years was just 4.7%.
That seems pretty crap for a product that is supposed to have all these great tax advantages.....
Can somebody less sceptical about pensions than me please explain why this is such a great deal?
The return is on top of the boost given by tax relief on the individuals contribution.
What's the real rate of return on property at the moment?0 -
That seems pretty crap for a product that is supposed to have all these great tax advantages.....
Can somebody less sceptical about pensions than me please explain why this is such a great deal?
Pensions do not perform at all. They are just a tax wrapper for the investments you choose to put inside them. There are over 100,000 investment options available and an infinite number of variations.
Anyone that quotes "average performance of a pension" doesnt actually know what they are talking about.
Anyone using the last decade as a benchmark is just doing so to be bloody minded. It is recognised that the last decade was one of the worst in history for investment returns. Using the last decade is a bit like those stupid comments "since records began" that you hear in the media but then only find out that the records only began 10 years ago and have never included a recession in there so by default they would be bad.
If I picked the best performing investment over that period that would clearly be wrong and unfair. If I picked the worst it would be equally unfair. You could pick the biggest seller from 10 years ago. That has grown by 130.1% over 10 years. (Fidelity Special Situations). That equates to 8.7% p.a. average. However, that would be poor investing as no sensible person invests their money in just one thing.
note: the above figure is after the AMC of the fund and does not include tax relief.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
HAMISH_MCTAVISH wrote: »Yes, I know that, but given how poorly they perform, the risks of the goalposts being changed halfway through with tax, markets, etc, and the restrictions around buying an annuity, it still seems a crap deal to me.
Asides from that, a lot of the general distrust of pensions comes from looking at them the wrong way. It's an argument that's been said many times, but the pension bit itself really is just a tax wrapper. The only performance that comes from the pension, is the immediate rebate of tax, which is both great performance, and 100% reliable. Beyond that, the pension pot will rise and fall depending on the performance of the assets you've chosen to hold in it.
And there's the rub. Too often people choose "a pension" and expect it to magically show good growth without thinking about the investment side. Whereas ideally, you should be a approaching it from the prospect of "I have (say) £100k that I want to put aside for retirement. What do I want to invest this in to get the best return with an acceptable level of risk/diversification?" Once you know what you want to hold, only then should you think about how to hold it.
And with that said, it's almost undeniable that the best way to hold any pension-compatible assets is within a pension, thanks to the tax rebating. Of course, if your portfolio includes assets that can't be held within a pension (such as BTL houses), or which have even more attractive specialist wrappers available, then they shouldn't be held within a pension. Or if you think there's a decent chance you'll be in a position to retire before 55-60 and want flexibility of access, you'll need to weigh up the pros and cons (access vs. loss of tax incentives).
But those who "choose" to invest their whole pot in, say, Standard Life Balanced Managed II Lifestyle because they didn't make a specific choice, can't really complain about whatever returns they get. And they'd be wrong to blame the pension for underperforming, when it was their investments that underperformed. (And hey, if they'd decided to hold that fund outside of a pension they'd have an even smaller pot come retirement!)0 -
Actually, there's no longer any requirement to buy an annuity at any point.
On that point I think I have spotted some value, by buying a top up to my pension. Because if I buy enough additional pension to get up to a guaranteed 20k pension income. I could then opt for a flexible draw down pension over and above that 20k pension. Which I believe means that I could be investing into it and getting 40% tax relief, then take it all out at some point (in retirement) rather than buying an annuity.
It seems too good to be true though, maybe I am overlooking something?Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop0
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