Pensions are very risky?

molerat

A former employers group pension fund with SL that I have not contributed to since March 2009 has grown 99.4% since that date.
2009 + 41.6%
2010 + 14.25%
2011 - 7.8%
2012 + 12.7%
2013 + 18.6%

Only negative in 1 year out of 5.

TrustyOven

sandsy wrote: »

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.

Ahhh!!
Good, thank you for that. I think that was my biggest question I had on pensions.

sandsy wrote: »

Yes, there is risk attached. But the bigger risk is that you do nothing and have to survive on a basic state pension.

Very true. A basic state pension is not much at all.

sandsy wrote: »

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.

Yep. Your explanation makes it both obvious and very scary (shows how little I will have in the future if I continue with the current contributions).

sandsy wrote: »

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.

I plan on increasing the contributions, most likely with the current work pension scheme. I believe the auto-enrolment for us isn't due till next year.

sandsy wrote: »

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.

I am sure I have seen those figures used on some other site I guess it does help thinking this way to help with motivation.

sandsy wrote: »

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

Yep. I seem to have too many things to save for now :eek:

Thanks for your reply!

tell_it_how_it_is

I've no idea if your scheme is good or bad, but, as mentioned, £30pm needs bumping up significantly.

I speak from experience having left my contributions on one of my pensions at £50pm for 20 years, meaning I've had to increase it big style in recent times.

Ramp it up now, and consider increasing it as pay rises come along.

TrustyOven

xylophone wrote: »

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

Exactly!
The relevant personnel aren't in the office until next week, so I hope to learn as much as possible about pensions until then.

xylophone wrote: »

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

I was thinking that this would be ideal for me.

I tried to search for an answer to this and not found anything that explained it. There was even some news article somewhere that suggested doing a transfer like that was illegal... ?! :eek: or at the very best, it was either impossible or you lose all your money (some figure was thrown about - HMRC takes 55% tax on the transfer and the pension company or advisers take a gigantic cut, leaving I think it was about 10% left in the example).

dunstonh

Pensions are very risky?

Not at all.

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).

You need to change your reading material. There are a number of different types of pension available (some no longer available for new business). Each has pros and cons. Some will carry risks but there is no risk free option in life.

- 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.

The pension company invests where you tell them to invest (or your adviser tells them where to invest). That level of investment risk will depend on the selection. Risk is not on/off. It is a sliding scale.

I have never known anyone get less back than they paid in on a conventionally invested pensions. You would have to make some really really bad investment decisions. However, that has nothing to do with the pension itself.

The only gambling is if you choose really bad investments.

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.

Thankfully that is not the case. Savings/deposits make awful long term options.

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)

CM are a pension provider. Not a broker
Your views are wrong
Investing is normal.
You havent told us much about your pension so we cant say. However, CM were a perfectly find provider and your tiny contribution isnt going to get much better. Really £30pm for a 29 year old is abysmal. You need to increase that.

nearlyrich

I cringe when I read pensions are risky, they are not as risky as hoping the state gives you enough money to live on rather than just exist...
I pay 10% of my salary via salary sacrifice into my company pension tax relief and a generous contribution from my employers almost doubles my contribution. I have been contributing to personal pensions with and without various employers contributions since I was 28 now 52 and well on the way to be free to retire at 55 as per my plan at 28...

ViolaLass

TrustyOven wrote: »

I tried to search for an answer to this and not found anything that explained it. There was even some news article somewhere that suggested doing a transfer like that was illegal... ?! :eek: or at the very best, it was either impossible or you lose all your money (some figure was thrown about - HMRC takes 55% tax on the transfer and the pension company or advisers take a gigantic cut, leaving I think it was about 10% left in the example).

Where have you been reading? The Daily Mail? Or perhaps you need to start reading more critically. Thank goodness you came here for help!

TrustyOven

Thanks for your reply.

dunstonh wrote: »

Not at all.
I have never known anyone get less back than they paid in on a conventionally invested pensions. You would have to make some really really bad investment decisions. However, that has nothing to do with the pension itself.

The only gambling is if you choose really bad investments.

I'm on a balanced managed pension. For a long time I always assumed (stupid me) that the only variable I could change was how much I paid in. Now I see that there are other things that I can change and tweak.
I certainly have a lot of reading to do.

dunstonh wrote: »

Thankfully that is not the case. Savings/deposits make awful long term options.

I think that's also a really important bit of info that I will take on board.

dunstonh wrote: »

CM are a pension provider. Not a broker
Your views are wrong
Investing is normal.
You havent told us much about your pension so we cant say. However, CM were a perfectly find provider and your tiny contribution isnt going to get much better. Really £30pm for a 29 year old is abysmal. You need to increase that.

Thanks for your direct and honest reply. It is really helpful, and clears up a lot of confusion I had about pensions. I'm sure as I read up more on them and re-check my statements with a hawk-like eye, I will have more questions.

One last bit for me to quote:

dunstonh wrote: »

You havent told us much about your pension so we cant say.

I'm not sure what I should be looking at the statements / info-pack, so that I can reply sensibly to the above. Did you want information on the current pot value, or unit price or type of funds or something else?

TrustyOven

ViolaLass wrote: »

Where have you been reading? The Daily Mail? Or perhaps you need to start reading more critically. Thank goodness you came here for help!

Perhaps it was The Daily Mail
I can't remember exactly where it was, I was jumping all over the 'net trying to get info about it.

Perhaps it also depends on the work scheme? If the pension provider they use don't allow transfers in (perhaps in the same way some ISA accounts don't allow this?) then maybe there's nothing I can do about it and have to just stop payment in CM pension and join the work pension scheme.

I will be asking about it next week when the relevant people are back in the office.

Neasy

I think this has been a really useful thread; thanks OP for being so frank and others for being so helpful.