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

Thrugelmir

gravitytolls wrote: »

There are quite a lot of folk who are never in a position to save adequately for their old age, it's nothing to do with being frivolous.

The fact you need to save a £100k to generate a £5k pension speaks for itself.

That's more than many spend on buying their home.

jamesd

Speaks in what way, though, when all it takes is around £11 a week for a whole working life or twice that for half of one? Minimum wage is £243.20 for a forty hour week, gross, and it's around 4.5% of that.

Thrugelmir

jamesd wrote: »

Speaks in what way, though, when all it takes is around £11 a week for a whole working life or twice that for half of one? Minimum wage is £243.20 for a forty hour week, gross, and it's around 4.5% of that.

Somebody at 18 retiring at 67 paying £50 a month. Would only have a pension of around £300 per month at retirement.

jamesd

Not when the money paid in increases with inflation and grows at 4% plus inflation, retiring at a state pension age of 69. That produces approximately the £5,000 in today's money a year result.

RenovationMan

Thrugelmir wrote: »

Somebody at 18 retiring at 67 paying £50 a month. Would only have a pension of around £300 per month at retirement.

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).

Thrugelmir

jamesd wrote: »

Not when the money paid in increases with inflation and grows at 4% plus inflation, retiring at a state pension age of 69. That produces approximately the £5,000 in today's money a year result.

Which investment guarantees a return 4% above inflation. After allowance for management fees as well?

Also many people are suffering a decline in earnings (disposable income). As basic wage rises are failing to keep up with inflation.

Linda_D_2

jamesd wrote: »

Depends somewhat on what's adequate but I'd agree that it's hard for someone on JSA for life to save a lot for retirement.

Someone on JSA will be looking forward to retirement as they will get an income increase due to the state pension being a lot more than JSA.

jamesd

Thrugelmir wrote: »

Which investment guarantees a return 4% above inflation. After allowance for management fees as well?

Neither the state pensions nor any investment, nor the level of means tested benefits offers a completely guaranteed result. according to the Barclays Capital 2011 Equity Gilt Study the average return on share investments in the UK market was 5.1% plus inflation over the 111 years to the end of 2010. That's still not a guarantee, results are highly variable. Nor is it a recommendation to use the UK market, particularly not for most investments. Cash accounts returned 1% over inflation over the same period.

The same study found that over all 18 year periods in the study there was a 99% chance that using shares would beat using cash. that increases as the holding time increases. Since retirement investing is long term and most payments will be more than 18 years from retirement it follows that the past result implies - but doesn't guarantee - that equity investment is likely to outperform cash.

Thrugelmir wrote: »

Also many people are suffering a decline in earnings (disposable income). As basic wage rises are failing to keep up with inflation.

This is true for many in the short term but the long term trend is for wages to grow at RPI+1%.

None of this is guaranteed.

RenovationMan

jamesd wrote: »

None of this is guaranteed.

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.

Graham_Devon

RenovationMan wrote: »

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).

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.