# MSE News: Young people 'confused by pensions'

• Forumite Posts: 89 Forumite
If you can save your ISA cash allowance each year, you'll have a 300k pot at the end which at 5% is 15,000 a year
to get 300k is 53 years of the 5640 every year
Or, if assuming 5% interest maybe only a little over 26 years

5% interest can't be too far fetched? In the current lowest interest rates ever a fixed isa can be up to 4.5%?
Even at 4.5% interest it's only 30 years

I guess all i'm going to do is keep trying to save into my ISA and treat it as my pension. Is there some truth to what i've said?
• Forumite Posts: 16,628
Forumite
ScotlandM wrote: »
If you can save your ISA cash allowance each year, you'll have a 300k pot at the end which at 5% is 15,000 a year
to get 300k is 53 years of the 5640 every year
Or, if assuming 5% interest maybe only a little over 26 years

5% interest can't be too far fetched? In the current lowest interest rates ever a fixed isa can be up to 4.5%?
Even at 4.5% interest it's only 30 years

I guess all i'm going to do is keep trying to save into my ISA and treat it as my pension. Is there some truth to what i've said?

Now do your calculations assuming say 2.5% inflation.
• Forumite Posts: 2,905
Forumite
Supposing you got £300,000 in 25 years. How much would that be in real term. Sure, the nominal value is £300,000 but if the inflation is 2%, then in 25 years, the real value would be just £186,516 or so if my calculation is right. (Or if we use Linton's percentage, then £165,862)

Cheers

Joe
• Forumite Posts: 89 Forumite
Can't in be in Physics where we just ignore air resistance?

Ok, yes infalation that would pretty much torpedo it
• Forumite Posts: 114,328
Forumite
5% interest can't be too far fetched? In the current lowest interest rates ever a fixed isa can be up to 4.5%?
Even at 4.5% interest it's only 30 years

Historically, cash interest rates more or less match inflation as an average. So, you are not actually getting any real growth.

The second problem comes when you draw the interest as income. You cease to get any growth and inflation begins to erode the cash value. £300k would have the spending power of £195k within 10 years and as the interest will no longer be sufficient to survive on then you would likely see an erosion of capital needed. By 20 years, the erosion would be significant and a spiral of withdrawals would see the capital probably gone a few years after that.

The same contribution into a pension ignoring any growth would give you a pot of £373,650 due to tax relief. So, that's £73,650 more than the ISA. If you invest just to get a 2.5% above inflation increase then you end up with a pot of £780,831. More than double the cash ISA.

So, even if the investments within the pension dont give you stellar growth but average growth then still end up with much more than a cash ISA.

For reference, even a bog standard balanced managed fund from Aviva has beaten cash savings over the last decade. if you got base +3 on cash then you would have got 80.52% return over 10 years. Aviva Balanced managed fund got 96.36%. Thats a decade considered extremely poor for investing in historical terms (it includes the dot.com crash and the credit crunch and global recession. two events of a scale you typically only see once every 25-30 years. Not twice in a decade).
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.
• Forumite Posts: 42,677
Forumite
if you can save your ISA cash allowance each year,

If you should fall on hard times pre retirement, those isa savings which you regard as your pension will have to be spent before you become eligible for means tested benefits.
• Posts: 6,554 Forumite
The state WANTs you to pay your own way, for EVERYTHING.
Plus the NHS, army, HMRC, etc.

The state wants you to amass a huge pot of money so it doesn't have to pay for your old age. The pension pot is continuously eroded by commission and management fees,
and then the absurd thing is you get maybe half of it back, (£100k=£5k annuity, live ten years, get £50k), and the annuity company gets the fruit of your life's hardwork for a few keystrokes on the computer.

If you don't want to be a burden on society, you can do it much more easily by spending what you have, when you want, and checking into a Euthanasia Clinic when you are done.

I would far rather spend the £100k from 68 to 73,
and then hop it in a Euthanarium, then drag out a lingering nightmare in poverty.
• Forumite Posts: 16,628
Forumite
Pincher wrote: »
The state WANTs you to pay your own way, for EVERYTHING.
Plus the NHS, army, HMRC, etc.

The state wants you to amass a huge pot of money so it doesn't have to pay for your old age. The pension pot is continuously eroded by commission and management fees,
and then the absurd thing is you get maybe half of it back, (£100k=£5k annuity, live ten years, get £50k), and the annuity company gets the fruit of your life's hardwork for a few keystrokes on the computer.

If you don't want to be a burden on society, you can do it much more easily by spending what you have, when you want, and checking into a Euthanasia Clinic when you are done.

I would far rather spend the £100k from 68 to 73,
and then hop it in a Euthanarium, then drag out a lingering nightmare in poverty.

I guess from your post that you arent anywhere near 68!! Perhaps nearer 18.

Suggest you learn more about pensions and the importance of saving for your old age. The sooner you start the less you will need to pay to ensure an acceptable standard of living for what could well be 1/3rd of your life.

Why will you only live 10 years after retirement?? About half the population live 20 years and many live 30 years. If you have a reduced life expectancy because of medical conditions you can get an enhanced annuity.

Current level annuity rates which are unusually low historically because of the credit crunch are about £6.5K for £100K pension lump sum for someone aged 68.
• Forumite Posts: 114,328
Forumite
The pension pot is continuously eroded by commission and management fees,

So are savings. So, is every product you buy in any retail area. Guess what? Retailers have to make money to survive. Communism failed.
then the absurd thing is you get maybe half of it back, (£100k=£5k annuity, live ten years, get £50k), and the annuity company gets the fruit of your life's hardwork for a few keystrokes on the computer.

Only if you buy an annuity that doesnt have any capital protection options. You have also ignored the tax free cash and annuity rates for single life at that age are in the 6.x% range (historically low at the moment). And the fact you dont have to buy an annuity if you dont want one.

If you are going to rant then you need to be accurate on your information.
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.
• Forumite Posts: 12 Forumite
While it must be very nice for all of these clever financial wizards to tell us profligate young people off for spending beyond our means and not saving anything for our retirement (I suppose I could cut down by not using electricity or paying my council tax or eating), why not point us in the direction of where to find out what the best way of saving for retirement is?

I tried reading the advice on MSE and it just didn't seem like it was relevant to my situation. I looked on the govt's website but all I could find is info about the state pension. I've done a lot of research and it seems to boil down to "you should get a pension". Ok, but how/where/what kind? Do I go to my bank? My insurer? Someone else? What if I change jobs a lot? Can I have more than one? What if I want to work abroad, or take time off work?
I have an economics degree and I work in an extremely technical industry, so I'm not thick, but all the advice out there seems like a big tangled ball of string that you can't find the end of.

I don't think the financial advice available on pensions recognises that the financial situation of someone in their 20's and early 30's today is hugely different to someone the same age 20 or even 10 years ago. It would be nice to hear from more young people on this thread, but unfortunately I think most of us probably want to avoid the b******ing you tend to get when you say you haven't got a pension!

(n.b. I have one, I just don't understand it, so ner! :P)
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