Pensions are very risky?

TrustyOven

Hi

I've dug out my paperwork for my stakeholder pension.
I am a pension newbie, and I don't understand enough of this to properly digest the paperwork, but I am learning.

From the bits that I have read, it seems to me that all pensions are bad and risky. I used to think that pensions were safe and secure and could guarantee your income at retirement (assuming you put enough contributions).

I know that many people have pensions, so my view of pensions (as above) has surely got to be wrong.

At this stage of my pension-learning, it seems that:

- you pay your hard-earned money into the private pension
- the pension company (whoever holds your cash) "invests" it into the stock market
- the value of your pension goes up and down depending on how well the markets perform.
- when you retire, you may be unlucky to have less money than what you put in.

So the pension companies (or even ourselves) seem to be gambling our money.

I was under the impression a pension is a savings account that one pays money for a long long time and then due to compound interest over a long time gets a nice big amount of money that forms their pension. None of this "investment" stuff that I read in the last 48 hours.

A few facts about my situation:
- I am with Clerical Medical (but this was arranged with another company, I think a local investment or financial advisor), who in turn does something with Scottish Widows (SW hold/invest the money?)
- It's a stakeholder pension,
- opened in 2008
- I'm paying £30/month
- pension pot is not very large (circa £2600 last year)
- made a small loss on my pension pot for 2 years (£9 and £37)
- made a profit on the pot in 2012 - 2013, profit was larger than the loss before
- It's a 100% balanced funds type
- I know I can switch to a lower risk fund, but I might move to higher risk to try to reap more benefits... if that's how it's supposed to go with pensions.

Questions:

- Does this make CM just a broker?
- Am I wrong about my views and opinions about private pensions?
- Is this how private pensions work (the gambling/"investing"), thus is this normal?
-Did I chose some rubbish form of a pension scheme? (I was naive and didn't know)

I think I can live with it being a gambled pension, as long as that's how it's supposed to be.

I might increase contributions (but work pension is better and I am yet to sign up to that - don't want to be paying into 2 pension concurrently).

I just want to know if this is normal and that I didn't chose some silly version of a pension scheme...

Thanks!!;)

ViolaLass

Why are you paying into a private pension rather than your work pension which you say is better?

TrustyOven

ViolaLass wrote: »

Why are you paying into a private pension rather than your work pension which you say is better?

I had the private pension before I joined the current company. I'm not sure I was entitled to the current company's pension until maybe last year.

Unfortunately, out of laziness I didn't bother to look into it further (when I became eligible to join that scheme). I will be looking to join the current scheme but need time to get their documents and have a read etc.

I know I can stop payments to the current stakeholder pension. I don't know if I can merge this current pension with the new work pension after I join.

I was going to create a new thread on here at some point in the next few weeks about that specific question.

lvader

Pensions tend to used the stock market because the returns have proven to be better in the long run and the long term nature of the investment reduces the risk. As you get closer to retirement you are meant to switch investments to bonds which are lower risk but the long term returns aren't as good.

Drp8713

I don't know where to start really.

Pensions are not risky, pensions are just a vehicle to save for retirement.

You get tax relief, and usually employer contributions, which is free money.

You invest in the funds you choose, the stock market goes up and down in the short term, but it the long term 10+ years it goes up.

If your pension was a savings account you would lose money year on year as inflation ate away at your money.

Youre only putting in £30 a month, how old are you? What other retirement saving do you have?

I'm 26 and pay just over £300 a month in pensions and stock & shares ISA and I feel like I should be doing more.

If I were you I would join your work pension if your employer pays in, think about what age you want to retire and if it's not 143 pay more than £30 a month in!

Also look at the charges you're paying with your current provider and post the funds your invested in so people can see if they are suitable when hey see how far from retirement you are

CLAPTON

certainly pensions aren't magic

-'safe' things like simple savings accounts typical don't even keep up with inflation

-over a decent period S&S should easily beat savings a/cs : you started yours at probably the worst periof of the stock market for 50 years but it's now doing very well and I would think your were well ahead.

-pensions get tax relief


-company pensions usually have contributions from the company so are 'free' money

-you can DIY but investing in ISAs .. you don't get tax relief when you pay in but the payout is free of tax unlike a normal pension which is taxable

-think about a property as your best 'investment' as well as a home

sandsy

A pension is considered to be an investment product.
The pension company will invest the money into funds that you/your adviser have selected. These funds will be invested in stocks and shares. This is all quite normal. Yes, there is risk attached. But the bigger risk is that you do nothing and have to survive on a basic state pension.


The biggest thing to understand about a pension is that the more you put in, the more you're likely to get out.


Imagine for a minute there were no investment returns or charges and you contribute £360 a year for 25 years. When you retire and convert your pension pot into an income, if it's assumed you will live for another 25 years, then you're just going to get back ..... £360 each year! Only problem, is, in 25 years time, £360 a year will buy a lot less than it does today.


So lesson (1) is: contribute as much as possible as early in life as possible
And lesson (2) is: try and make an investment return which at least means the money retains its spending power after inflation.


The government helps you. If you put in £80 a month, they make it up to £100. That's one of the best returns you'll get.


Whatever you do, don't neglect saving for a pension.

TrustyOven

Drp8713 wrote: »

You invest in the funds you choose, the stock market goes up and down in the short term, but it the long term 10+ years it goes up.

I see... so it's normal.

Drp8713 wrote: »

If your pension was a savings account you would lose money year on year as inflation ate away at your money.

I've only opened a cash ISA this year. I've never looked closely enough (current account / prices etc) to notice inflation. I do notice some food prices increasing, as well as petrol, but never really thought of it as inflation.

Drp8713 wrote: »

Youre only putting in £30 a month, how old are you? What other retirement saving do you have?

29. I had a mini-light bulb moment at the start of this year, hence me kicking myself up from sleep about finances (and looking at pensions).

I have about 3.5k in a non-fixed cash ISA at 1.6% EAR. Planning to add another 1k or so before the end of the tax year. Today, I have been thinking about starting a S&S ISA with a low initial deposit, but S&S is also confusing to someone not in-tune with finance-speak. I am learning.

Drp8713 wrote: »

I'm 26 and pay just over £300 a month in pensions and stock & shares ISA and I feel like I should be doing more.

Is that £300 total split between the SSISA and pension?

Drp8713 wrote: »

If I were you I would join your work pension if your employer pays in, think about what age you want to retire and if it's not 143 pay more than £30 a month in!

Yeah, the employer pension is supposed to be better than the current auto-enrolment. I'm not sure what percentage options I have for the pension payments, but I think I might go with whatever gets about £150/mo of my contributions into the pot. This will be 150 less available for me to save for other things :-(
It should be worth it in the end I guess, as long as the markets don't perform badly...

Drp8713 wrote: »

Also look at the charges you're paying with your current provider and post the funds your invested in so people can see if they are suitable when hey see how far from retirement you are

I will have a look at the paperwork, but to be honest, I'm really not sure what I need to look at on the statements.

Thanks!:)

Thrugelmir

I'm paying £30/month

Then you need to be increasing this every year. As a minimum in line with inflation.

£30 won't get you good pension even if you saved for 100 years.

TrustyOven

CLAPTON wrote: »

certainly pensions aren't magic

-'safe' things like simple savings accounts typical don't even keep up with inflation

-over a decent period S&S should easily beat savings a/cs : you started yours at probably the worst periof of the stock market for 50 years but it's now doing very well and I would think your were well ahead.

-pensions get tax relief


-company pensions usually have contributions from the company so are 'free' money

-you can DIY but investing in ISAs .. you don't get tax relief when you pay in but the payout is free of tax unlike a normal pension which is taxable

-think about a property as your best 'investment' as well as a home

Thanks for your reply. I read a lot of what you wrote in the last 2 days. I just wasn't sure if the type of pension I have is the best type or if that's what everyone else has as a private pension. I did not realise that a savings account such as a cash ISA gets affected by inflation. I plan on looking at also having a S&S ISA.

xylophone

Time to stop procrastinating and join your employer's scheme?

Investigate whether it is worth transferring your PP to your employer's scheme?