Help about 'automatic enrolment' pensions please, i do not have a clue.

ryaninblack

Hi all, i have just joined solely because I am at my wits end regarding pensions.

I am 26, work full-time, have been in my job for just over a year, and until then i was self-employed. I have never contributed to a pension.

I have been 'told' that I will be put into a company pension on the 'automatic enrolment' government scheme from 1 June 2013, the pension provider is 'Friends Life,' and the pension is called a 'group personal pension.'

I am very wary of all this, to me, this is simply a government ploy to boost their empty coffers with more of my hard earned money, i have relatives who have paid in all their lives, only to be told their pensions are now worth nothing, and there is nothing they can do about it.

I have been on a few pension calculators and they all say pretty much the same thing, that when i retire, i will be entitled to just over half of the total i have paid in over the years, please do correct me if i am wrong, but to me this just does not add up?

What i would like to know is, is it worth having a pension these days? if yes, should i go along with the scheme dictated to me by my employer? or should i not be in such a hurry to give my hard earned away?

I have done a ton of research lately as I am getting increasingly worried that the longer I leave it, the more skint i will be when i am old. Something that is floating around in my head is that I should not get a pension, but instead should concentrate on stocks and shares, and paying my mortgage off faster, yes, i know there is risk, but is it any riskier than this company pension i am about to go into?

Please fire away at me, i am trying to gain knowledge as to how the whole pension thing works, and how it actually benefits the people who pay in all their lives, but the harder i try, the less i feel i understand, is this what the government is trying to do? make it un-understandable so we will just pay in just because we are told to without actually knowing what we will get back?

I was discussing this with a colleague and he said he 'will never pay into a pension, because when did you ever see a homeless pensioner?' his attitude was that when you get old, you will be looked after by the state no matter what you have done, or how much you have paid in, and a part of me agreed, we will all get a state pension regardless, right?

Please advise a young man who is trying to get his head around the murky, complicated world of pensions.

Ryan.

Cygnus_Alpha

ryaninblack wrote: »

I have been on a few pension calculators and they all say pretty much the same thing, that when i retire, i will be entitled to just over half of the total i have paid in over the years, please do correct me if i am wrong, but to me this just does not add up?

What i would like to know is, is it worth having a pension these days? if yes, should i go along with the scheme dictated to me by my employer? or should i not be in such a hurry to give my hard earned away?

Please fire away at me, i am trying to gain knowledge as to how the whole pension thing works, and how it actually benefits the people who pay in all their lives, but the harder i try, the less i feel i understand, is this what the government is trying to do? make it un-understandable so we will just pay in just because we are told to without actually knowing what we will get back?

I was discussing this with a colleague and he said he 'will never pay into a pension, because when did you ever see a homeless pensioner?' his attitude was that when you get old, you will be looked after by the state no matter what you have done, or how much you have paid in, and a part of me agreed, we will all get a state pension regardless, right?

Please advise a young man who is trying to get his head around the murky, complicated world of pensions.

Ryan.

Well it's great that you are doing your research and really engaging in this.

I guess the upside of paying in to this pension is that you get the employer's contribution and tax relief.

I'm not sure what calculators you have been using but what you say about only getting half your money back doesn't ring true. Your fund basically grows over the years and when you retire you can take 25% of it as a tax free lump sum and use the rest to buy a pensions income. That's just the tip of the iceberg but I will let others with more knowledge fill you in on the rest.

Your friend does have a point. But at the same time, he is taking a big risk. Who knows how politics will evolve over the next 50 years and whether the politicians of the future will still want the state to pay to look after the old folk. Even now the welfare state is being cut back.

If you have your own pot of money in retirement and not totally dependent upon the goodwill of future politicians then that is a good thing surely?

jamesd

The colleague is right if you and he want to be pensioners living on means tested benefit levels of income. That's not a lot and not really a good place to end up. How generous that income level is will depend on the will of tax payers and politicians in the future.

The current government has announced flat rate cut to pensions that reduces the value of the state pensions to only £144 a week instead of the £190 plus that a person with a full working career might get from the combined basic and additional (S2P/SERPS based) pension parts under current rules. You're going to need some extra income even to catch up with what a person retiring in the next few years gets under the more generous rules that it's proposed to end.

The auto-enrolment rules require your employer to get you signed up but you can choose to tell the pension company that you want to opt out. Your employer isn't allowed to take don't sign me up instructions, so don't blame them for not doing that. The idea is to make it harder for employers to stop employees from signing up. If you do opt out the law also requires them to opt you in again in a few years, making you opt out again. This is so people don't opt out once then never thinking about it again when they might reconsider after a while, perhaps if they now think differently.

The auto-enrolment pensions even at the lowest level have half of the payment coming from your employer and one fifth of the rest from tax relief, so you pay just 8/20ths or two fifths of the value of the money that goes into the pension. Some of the tax relief is taken back from retirement income but some is within the personal income tax allowance so you're still likely to end up ahead on that part of the deal.

Those of your age can probably expect to live to the mid 90 years old range if you make it to 65, so the pension will be paid out for a decent time. The projections are deliberately quite cautious and not really something to be put off by. The idea is in part that it's better to be cautious and have people pay in more than needed than have them not pay in enough.

Beyond just thinking of eventual retirement, you can also consider early retirement. If you want to retire before state pension age you don't have much choice but to use private pension and ISA and other investing.

A pension is a way to invest in stocks and shares. Similar to a S&S ISA, just different way of giving beneficial tax treatment. The work plan may not offer direct share buying but it may be possible to transfer the money to a pension that does allow that, whether that's possible while still working there depends on the rules of the scheme. No problem in law to do that, just up to the employer and pension company and what they have agreed about this.

[Deleted User]

ryaninblack wrote: »

I am very wary of all this, to me, this is simply a government ploy to boost their empty coffers with more of my hard earned money, i have relatives who have paid in all their lives, only to be told their pensions are now worth nothing, and there is nothing they can do about it.

There is a very simple reason the government are providing so many benefits to people enrolling in pensions and encouraging it: if you have a pension you are less likely to be dependant on the state when you come to retire.

A huge cost to the government is people dependant on the state once they retire, with more and more people living longer and longer the number of state dependant old people is growing and growing. Not only does this mean more money must be spent by the government it means they have to make very big and very real considerations with almost every government decision.

The government isn't looking to steal your money or trick you into making bad investments, the government is trying to protect the country from a future where there are tens of millions of retired people that can't afford to eat.

If you do not start saving for retirement right now you may well end up in a position where the state pension age is increased (as our life expectancy continues to grow) and you will be required to work until you're 75... 80... 85... which you absolutely do not want to be doing.

The reason the government wants you to put money into a pension instead of just saving the money is money in a pension is locked away until you retire. You cannot dip into it for a new car, a new house or for a really nice holiday. This forum is full of evidence people are not good at managing their finances, imagine someone earning £20,000 a year knowing they have £300,000 in a fund for when they retire, most people would be very tempted to dip into it and the government can't have that.

If you believe pensions to be a scam or conspiracy then that doesn't mean you shouldn't still be saving for retirement. Start your own "pension" by saving money and promising yourself you will not spend it until you retire. You'll miss out on the government incentives (tax breaks) and employer contributions but that's still much better than losing out on a retirement.

For anyone under the age of ~45 now not saving for your retirement (which ideally means contributing to a proper pension) is a grave error. The world is changing a great deal, the financial landscape is changing a great deal more, the idea that we can all retire at 65 after working hard for 30 years without saving money is going to be a thing of the past in a few years.

Fortunately as a 26 year old you've got at least another 35 years of working before you can expect to retire based on the current retirement expectations, which means with some sensible planning you'll be a-okay.