Pensions are very risky?

jamesd

TrustyOven wrote: »

I certainly have a lot of reading to do.

You do but it's OK to take years and more to learn. People typing replies to you have been at it for years, we're not super-human, just have had more time to learn. I'm telling you this to encourage you not to get overwhelmed by all there is that you could try to learn.

It's not at all likely that someone your age would end up with less than they put in. The word impossible can't really be used with investments in general but it is so unlikely that it's not really worth considering as a possibility. The reason for that is the long term upwards trend. After a while the upwards trend will have grown the value enough so that even the biggest normal drops won't take you below where you started. Think of a roller-coaster in reverse, lots of ups and downs but at the end you're higher than where you started.

With investments risk has two different meanings. The most common one is the size of those ups and downs and refers to the risk of loss if you happen to have to take money out during one of the down times. Another word for this is volatility. Of course, with a pension you're many decades from doing this so it's mostly just unsettling when you watch the ups and downs. That unsettling factor is where something called your risk tolerance comes in. It's how much downward movement you can handle without giving up and panic selling, or losing lots of sleep. Once you get some idea of that you can pick a mixture of investments that are likely not to drop more than that.

For the best long term results you should be willing to accept drops of 40-45%. That's what the main UK stock market does once or twice every ten years on average. A drop of 20% or more happens a few times every ten years. They aren't comfortable, just the price you pay for the long term growth.

Historically, with no guarantee, the main UK stock market has grown at a bit over 5% plus inflation a year on average over the last hundred plus years. Some good times, some bad, just an average.

The main thing to do when it comes to learning about investments and investing is to get some money involved and get started, then learn at whatever rate you're comfortable with, without letting it overwhelm you. However hard you try there's always more to learn, the areas just get more esoteric.

If you're really lucky you'll suffer a 40% drop early on, before you have a lot of money invested, so you can see what happens and how it feels and be reassured that yes, it's normal. That gets harder to do as the amount of money goes up, even if you've been paying attention and know it's normal.

FLAPJACK

TrustyOven wrote: »

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.

I had a "private pension" (before Stakeholders were invented) and when I got a job with a Occupational pension I transferred the private one across to the OP.

Unfortunately I think most OP's now don't allow "transfers in" as they are termed.
If that is the case for you then you could as you say stop payments to the stakeholder and start an OC with your employer. You will get "free" money by doing this as the employer will also contribute to the OP. The stakeholder pension although not being added to by yourself will "hopefully" grow as it will be exposed to the stock market...as will the OP if it's a defined contribution one.

As a result yes you are correct to a point saying that pensions are risky (the only ones that were not risky were defined benefit pensions ...find out which your employer provides)....they are risky because they are exposed to the stock market.

However depending on your age then the risk factor is reduced...the younger you are now the more time your pension pot has to iron out any losses that could be made and therefore when pension time arrives you have a decent pension pot from which to get your pension.

But a short answer is yes pensions are risky but you should have one (or in your case two).

atush

Quote:
Originally Posted by dunstonh
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?

While it is important to look at your current pension, the Most time depedant question is your employers pension. which you are entitled to join. Which you have not. And which means you have been Flushing money down the toilet????

So just do it, and then get back to us after.

Wht % pf your salary do they pay in? How much do you pay in to get their max contribuion? These are the two questions to ask tomorrow, and no daly. I don't care if they are on holiday, you write it, you put it on their desk and get their assisant ton look up the answer. just make sure you join it before payday.

Thrugelmir

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.

Compounding of interest is often referred to as Einsteins 8th law. What you pay in is what will drive the return. The latter years will generate the biggest return not least because you'll have more invested.

PeacefulWaters

While the formula I'm going to post below is very crude, hopefully you'll get the message.

If you invest into a pension fund for forty years, that pot of money has to last you for twenty years.

So, stripping away the positives of investment growth and the negatives of inflation ...

Your £30 a month for forty years will give you an income of £60 a month on retirement.

Start paying in more. Lots more. Maximise what your employer will provide as a minimum.

DiggerUK

TrustyOven, the risks with pensions, other than defined benefits and final salary pensions, are enormous. I am no fan of private schemes.

The lure of 'free money' should get you suspicous that all is not as it seems straight away. The only free money is for the operators of such schemes. Once you pay your money over, it is no longer yours, as legislation stands, until 55.
Not only do you not know how much your pot will be worth at retirement, you can only get 25% of it in your hand when you do retire. The rest is not yours to do as you want with either, and has to be passed over to others who once again take their cut.
Not only do they take fees all the way to your retirement, but afterwards.

No, you should start thinking of other ways to put by for your retirement. Pensions are not the reliable vehicles of old, they are well past their sell by date and unfit for purpose.
..._

bigadaj

There be gold on them thar hills!

atush

DiggerUK wrote: »

TrustyOven, the risks with pensions, other than defined benefits and final salary pensions, are enormous. I am no fan of private schemes.

The lure of 'free money' should get you suspicous that all is not as it seems straight away. The only free money is for the operators of such schemes. Once you pay your money over, it is no longer yours, as legislation stands, until 55.
Not only do you not know how much your pot will be worth at retirement, you can only get 25% of it in your hand when you do retire. The rest is not yours to do as you want with either, and has to be passed over to others who once again take their cut.
Not only do they take fees all the way to your retirement, but afterwards.

No, you should start thinking of other ways to put by for your retirement. Pensions are not the reliable vehicles of old, they are well past their sell by date and unfit for purpose.
..._

Another load of rubbish from a gold ramper.

25% tax free at retirement, plus you can use DD instead of an annuity if you like, which means you still have control and can take a % each year. And the remaining pot can be inherited.

How is your gold pile doing? Bet you are down a fair old whack lol.

puk999

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).

Transferring a pension pot into another pension pot is fine and legal (assuming the pension plans allow the transfer). I reckon you're probably recalling an article about cashing in your pension before retirement age. This is certainly not fine and probably illegal. See this thread for more info.

Owlman45

Hi,
No one seems to have mentioned the fact that to get your retirement money to live on you have to either buy an annuity or go the income drawdown route for which you will be charged a pecentage. Annuity rates are low at present and this is what people are finding so annoying and difficult to deal with.
Another thing to consider is how long you will stay in one employment as if you change employment frequently you may find some employers are more generous than others and this makes a big difference to your final pot. And speaking from experience don't assume your salary will always increase, sometimes ill health or other life changes work against you.
I have been trying to make sense of personal pensions since the 1980's all I can say for certain is that the government will change the rules and will probably make an already complicated system yet more complex.
Good luck!