Penalised for putting a 'bit by for your old age' no longer

jamesd

When would you like to have started your regular retirement investing to match a claim of no compound growth? Which investments would you like to have used and in which markets?

Perhaps you'd like to have started in early 2009 when the situation was bad in the US and UK markets and the press was saying how bad things were?

The reason I asked about regular investing is that unless you pick your start time, investment type and market with some care you're going to find that there has been compounding growth for a decade. The FTSE 100 UK market index is up by more than 50% over the last ten years when dividends are included.

There certainly are periods when there's negative growth for equities but those don't persist over the sort of timescales that we're discussing for retirement planning. Remember that only taking 18 years for there to be a 99% chance of a lump sum beating cash. It's shorter for regular investments than for lump sums because the lump sum invested at the bad part of the 18 years would be accompanied by those at the good parts.

RenovationMan

Graham_Devon wrote: »

We are going through a real period now, where everything you state above, such as compounding growth, hasn't played out, due to QE.

What you say is normally the case, but isn't a given, as today shows.

Sorry Graham, I don't know what you're talking about. Are you saying that QE means that no pensions are growing? Can you explain why you think QE impacts pension investments?

Graham_Devon

RenovationMan wrote: »

Sorry Graham, I don't know what you're talking about. Are you saying that QE means that no pensions are growing? Can you explain why you think QE impacts pension investments?

I didn't say no pensions are growing.

I didn't say there was never any growth over x amount of years.

I said you cannot rely on growth, in terms of what you stated, at 4%, and that we have seen growth from the last few years wiped out.

QE on pensions:
http://www.thisismoney.co.uk/money/pensions/article-2141327/Pensions-deficit-swells-216-8bn-QE-takes-toll.html?ito=feeds-newsxml

http://www.myfinances.co.uk/pensions/2012/04/21/has-qe-harmed-pensions

RenovationMan

Graham_Devon wrote: »

I didn't say no pensions are growing.

I didn't say there was never any growth over x amount of years.

I said you cannot rely on growth, in terms of what you stated, at 4%, and that we have seen growth from the last few years wiped out.

QE on pensions:
http://www.thisismoney.co.uk/money/pensions/article-2141327/Pensions-deficit-swells-216-8bn-QE-takes-toll.html?ito=feeds-newsxml

http://www.myfinances.co.uk/pensions/2012/04/21/has-qe-harmed-pensions

What are talking about?

I said:

"Except he wouldn't be paying in £50 per month for life, his payments should increase in line with his earnings and be a percentage of his income.

As jamesd has already pointed out, the pension would be subject to investment growth, compounding over decades, hence the reason it's always better to start a pension ASAP (and not 'once my mortgage has been paid off' ala many MFWers)."

Where did I mention 4% in that?

As to your assertion about growth. Your first link was about final salary pensions, which are company pensions nothing to do with the type of pension we are discussing. As far as the individual is concerned, growth is irrelevent because the benefit is defined. The second link was about how QE had reduced annuity values and also nothing to do with what we are discussing here.

RenovationMan

p.s. I haven't seen growth wiped out on my pension. I am global with my funds and so while some UK funds have gone down, my overseas ones have gone up. Even in the UK, some of my funds and shares are doing well. It's called a balanced and diversified portfolio. If you invest all of your pension in a FTSE 100 tracker, then no wonder you're not seeing growth - though it did push 6000 the other week.

i8change

How can we afford to subsidise the Irish Government and their more generous State Pension to the tune of £7 Billion?

http://uk.reuters.com/article/2010/11/22/uk-ireland-britain-osborne-idUKTRE6AL1E820101122

http://www.citizensinformation.ie/en/social_welfare/social_welfare_payments/older_and_retired_people/state_pension_contributory.html

No wonder the Pensions Commision described our State Pension as "amongst the least generous in the developed world!"

jamesd

Graham_Devon, perhaps you don't realise just what QE has done. It has increased the value of investments in gilts and high quality corporate bonds. At the same time the yield (interest rate) has gone down because the income is fixed so higher price means lower yield. What this means is that people who have invested for retirement in gilts and high quality corporate bonds are sitting on very nice profits at the moment due to the price increases. QE = good for bond owners.

QE is bad for companies with final salary pensions only if the regulator forces them to pay in more money. As a temporary thing it'll produce deficits for a while because the cost of buying bonds to pay out the pension income will be higher. This doesn't allow for whether there are any retired members, nor how many, it's just a calculation of potential future liabilities assuming nothing changes. The companies typically hold a mixture of investments and the ones with the youngest members will probably have more equities and less in bonds so are likely to show higher potential deficits because they will gain less from the value increase in bonds they already hold but will have more to buy later. The sensible ones will try to avoid having to pay in more just due to variations like this and instead will try to look to buy when the investments they are buying are cheap.

jamesd

i8change wrote: »

No wonder the Pensions Commision described our State Pension as "amongst the least generous in the developed world!"

Where did it say that? I'm asking because I did a text search for that phrase in the First, Second and Final Reports and found no matches. I also found no matches for the phrase "least generous" in the Final Report.

What it did say, in a more complete quote on page 38 of the Second Report, was*:

"The UK pensions system appeared in the past to work well because one of the least generous state pension systems in the developed world was complemented by the most developed system of voluntary private funded pensions. This rosy picture always hid multiple inadequacies relating to specific groups of people, but on average the system worked, with the percentage of GDP transferred to pensioners comparable to other countries."

Bold added by me - it's important because the UK system is a mixture of state and private pension provision. It then went on to discuss the potentially negative effect of changes to employer pensions that could mean lower pensions if employees don't choose to save more for their own retirements. Later, on page 200 it said:

"The UK’s PAYG state pension system is and will remain (even with our proposals) one of the least generous in the developed world: a poverty prevention rather than income replacement system."

Where "generous" really means "higher payouts provided by higher taxes on everyone".

That choice is something I value - I like people being able to choose just how much of their income they spend now and how much to put away for later. I like providing the basic minimum via the state so that everyone is protected from absolute poverty. And I like that more than forcing everyone to pay higher taxes or forcing average and higher earners to pay the same NI and get lower benefits because their money is being used to increase subsidies for those who chose to have more spending at younger ages.

* A similar statement is in the First Report.

chucky

RenovationMan wrote: »

That's the trouble, thrugilmir and his ilk only work in absolutes, everything is either black or white or is dismissed and ignored.

It becomes impossible to debate/discuss anything with them because the underlying basis for their arguments is a demi-religious belief in the natural order of finances and no matter what the evidence is before them their 'faith' tells them to ignore it. You might as well try and persuade the pope that there is no God.

It's becoming more and more apparent that the usual suspects struggle with a lot of what is discussed in this forum. They're best ignored.

i8change

Originally Posted by jamesd
Where did it say that? I'm asking because I did a text search for that phrase in the First, Second and Final Reports and found no matches. I also found no matches for the phrase "least generous" in the Final Report.

It's here under 1. The inherited system:-

http://books.google.co.uk/books?id=aS-D_5X776kC&pg=PA58&lpg=PA58&dq=Pensions+commision+%22among+the+least+generous+in+the+developed+world%22&source=bl&ots=NrsJvue4rP&sig=mpIs_7lJjJk5LXX7d-XJYDgEilk&hl=en&sa=X&ei=EgSxT-jlEoXz8QPq25nQCQ&ved=0CFUQ6AEwAg#v=onepage&q&f=false

Also "Clearly less generous than the continental European systems" as they put it.