Are pensions only for high rate taxpayers who own a house?

real1314

dunstonh wrote: »

It was £7 because you used inaccurate figures.

It was £7 net income gain. That's the extra income achieved, not the total income. The effect on other income sources is highly relevant to the issue, but you seem to think all pension provision should be treated in isolation to other factors.

Yes, I would consider £20pm to get £36pm and £10k as worthwhile.

I suggested £20 per week, are you having trouble with the numbers? I'd hardly have suggested a lower payment would represent worse value. Tring to just muddy things up as you cannot really get a convincing position?

It was covered in both. However, it really makes no difference as the contribution would be maintained in real terms to give a real terms outcome. So, in reality, by using projections that took into account inflation at 2.5% p.a. the final value was understated or the contribution overstated.

The aviva tool didn't account for inflation, and needed 5% as a return to get £41k. So, 5% above your 2.5% inflation needs 7.5% average return.

£32k @ 6% = £1920 a year. £1920 divided by 52 = £36.92.



Did two pension annuities in the last week. One got 7.2697% and the other got 5.9276% but included a 10 year guarantee. The first was 65 already and the other 64.

2 pension annuities that you did are not representative of the wider market. Why don't you try a straight answer to the question - just a link to a provider showing they offer 65 to an average 65 yr old will do.

real1314

dunstonh wrote: »

Thank you for verifying that the figures are correct. If the growth figure is 2.6% as you show, then when you add in just over 3% as the average dividend (which is not included in the FTSE100 value) then you see they are right.

Go on then, provide some evidence of that 3% on the FTSE 100 for 1985-2005.

dunstonh

real1314 wrote: »

Go on then, provide some evidence of that 3% on the FTSE 100 for 1985-2005.

Have you heard of dividends? If not, google them.

gadgetmind

real1314 wrote: »

Go on then, provide some evidence of that 3% on the FTSE 100 for 1985-2005.

I don't have that exact period, but I do have some figures that show how deceptive it is to ignore dividends.

1999 was a freak peak, so let's start then.

Dec20 1999, FTSE 100=6930
Jan30 2006, FTSE 100=5780

Yikes, look at that, where did all the money go? Imagine if you'd invested everything in 1999!

But what's this?

Dec20 1999, FTSE 100 Total Return =3141
Jan30 2006, FTSE 100 Total Return =3141

And now -
Aug17 2012, FTSE 100=5852, FTSE 100 Total Return =4077

See how the FTSE 100 is much lower than in 1999 but the Total Return index is much higher? Yes, during this grim period, it hasn't quite kept up with inflation, but no-one invests the lot at the peak of the market

Summary: Figures based on lump sum investment and returns without dividends are pretty meaningless, or even worse are actually deceptive.

jamesd

real1314 wrote: »

Wouldn't the state 2nd pension apply equally to both scenarios?

No, because once you add £68 a week for the 40 times 1.70 to the basic state pension's £107.45 you end up on £175.45 a week.

Try running the numbers to see what starting with that income and no savings does to Pension Credit entitlement and you'll probably see why I didn't agree with you about it being useless for someone working on minimum wage for a full working life or even just 40 years to make more pension contributions.

If we were discussing someone close to retirement it's likely that we'd find areas where we would agree that making personal pension contributions won't make sense under the current rules, but the new rules may change that. So in part it'd depend on how optimistic each of us is that the new rules will eliminate some of the means testing to make extra pension contributions a pure win for all.

real1314 wrote: »

Also, that £1.70 a week - is that based on earnings? You say it accrues at £1.70 a week for those on earnings "up to" £14.7k, but do you mean that those on £14.7k accrue £1.70 a week, with those on less getting less? You can accrue once you earn over £5.6k

That part isn't based on earnings. It's flat rate until £14.7k. That's deliberate policy introduced by the last Labour government's S2P system to help low earners accumulate more state pension.

Above that it does become earnings-related but the rules are more fiddly:

1. From minimum up to £14,700 you get £1.70 a week per year worked.
2. Between that and £40,040 you also get (income - 14700) * 0.1 / 44 per year for each year worked.
3. Income above £40,040 is ignored.

Under the current rules this means a maximum possible accrual rate for Additional State Pension of £2.80 per week for each year. Unlike the Basic State Pension this doesn't stop accruing after 30 years.

The £40,040 isn't increasing with inflation, deliberately, to make it into a pure flat rate system. And this government is likely to make that faster or just go to pure flat rate.

real1314 wrote: »

Why would anyone contract out of serps to go private on such a great return?

You can't take the Additional State Pension income until state pension age, don't get a 25% tax free lump sum and don't get to choose your own investments and possibly do better, nor is remaining capital inheritable by a spouse or others. Under past contracting out rules that haven't been around for a while the system also made more generous payments to encourage people to contract out.

I'm not planning to wait until state pension age to retire so I contracted out as much as I could.

real1314 wrote: »

Incidentally that £1.70 is not on direct.gov. Which bit of DWP did you ring to get that figure? :cool:

Future Pension Centre. Expect them to want you to ask for a State pension Statement as their opening step even if you tell them that you just want to know the accrual rates. My notes show that I actually ended up on 08000232076 instead of the number on that page but best to give the number on the page a try first. Just don't expect them to have an easy time understanding what you're asking for because it's so uncommon for people to ask.

Scottish Life has a page that you may find helpful. I don't guarantee that the values there will match what the FPC told me this year, though at least it's another example showing how the calculations work.

jamesd

zagfles wrote: »

Why not? The govt is proposing exactly that, a higher basic state pension, and earnings-linked. With all party support in principle, as suggested and carefully costed in the Turner report.

Because now isn't the time when the tax costs of paying for it are highest. We'll need to with until all of the big baby boomer generation have retired before we get there. At that point those who are still working are likely to be somewhat less happy to pay for those increases than the still working boomers are today. Some things are being done to try to reduce this pain, like later state pension ages, but it's still going to be an issue.

jamesd

real1314 wrote: »

The aviva tool didn't account for inflation, and needed 5% as a return to get £41k. So, 5% above your 2.5% inflation needs 7.5% average return.

The Aviva tool didn't need to account for inflation because I reduced the growth rate to allow for it.

real1314 wrote: »

Go on then, provide some evidence of that 3% on the FTSE 100 for 1985-2005.

See the Equity Gilt Study that I already mentioned.

Page 92 of the 2011 edition has a table showing the returns after inflation for some UK-only investment types.

Pages 94 to 96 cover the reason why dunstonh objected to you not including the dividend income, notably this quote:

"The first table shows £100 being invested at the end of 1899without reinvesting income; the second table is with reinvestment. £100 invested in equitiesat the end of 1899 would be worth just £180 in real terms without the reinvestment of dividend income, while with reinvestment the portfolio would have grown to £24,133. "

The Equity Gilt Study is one of the most respected long term studies of returns in the business, with the 2011 edition I'm taking numbers from being the 56th edition. The 2011 edition I'm using here and 2012 are available via Scribd, you'll need to edit the site address to get the links to work. Similar information is provided by the Credit Suisse Global Investment Returns Yearbook, available online from them for 2012 and 2010.

If you're not familiar with these you're missing out. The charts on page 93 of the 2011 EGS are of particular value to those who want to know about volatility, illustrating the way returns have varied over time, and next page covers the effect of different holding periods.

dunstonh

The Aviva tool didn't need to account for inflation because I reduced the growth rate to allow for it.

Plus, if the person increased the regular contribution each year by inflation, as most sensible people do, then that would account for inflation as well.

zagfles

gadgetmind wrote: »

My private pensions have *never* made any promises. Have yours? Really?

Nor has the state. Promises was probably the wrong word, more the expectation created, forecasts etc. It was in response to those who reckon they can't trust the state.

My company pension provision has been massively cut since I joined (first a 5 year increase in the age for the final salary scheme, then the closure of the final salary scheme and replacement with a money purchase scheme). Some of my personal pensions have been hit with much lower returns than those used in the forecasts. State pensions have been affected too, eg increasing the age, but they've also been positively affected eg the "triple lock" increase guarantee. Overall state pensions & benefits have been least affected.

I decide my own contribution level, manage my own asset split. track my own capital, and project my own future performance.

Oooh, well done. So do I.

I guess I could blame the bogey man if things go off track for a while, but I won't as that's not my style.

What a man you are :T

Summary: grow up, wise up, man up.

And while you're working out how to do this, shut up and listen.

Perhaps you should shut up and actually try to understand what we're discussing here. Hint - it's not about me, or probably you. It's about people on low incomes and whether it's worth them saving in a pension or not.

zagfles

jamesd wrote: »

Because now isn't the time when the tax costs of paying for it are highest. We'll need to with until all of the big baby boomer generation have retired before we get there. At that point those who are still working are likely to be somewhat less happy to pay for those increases than the still working boomers are today. Some things are being done to try to reduce this pain, like later state pension ages, but it's still going to be an issue.

Have you read the Turner report? Do you really think he didn't consider these things?