Is paying pension waste of money

Pensionor?

Hi experienced members, I had big debate with my family. Can't find answer, can't persuade each other. hence turn to this forum for a second opinion.

My family member also tells me the best pension is buying property. My thought is - OK we got big house sitting there, but no cash to spend when we are both too old to work. Of course we can sell the house. then we will have big chunk of cash sitting in the bank suffering no interest, possible stolen or lost in some way. Also we don't know how long we can be alive. what if the cash runs out?

Pension is different, pension will pay you until you die.

My family member's idea - pension will NEVER pay what the policy say how much it worth. when the time comes, it will always turns down to very low repayment, maybe half of my contribution. Not worthwhile at all - actually wash the money down to the drain.

Any advise will be very much appreciated! Thanks a lot!

simonfitba

Family member is wrong. Very wrong.

Get a pension. If employer pays in, it's FREE MONEY.

I'd suggest googling "why do I need a pension" and doing some reading.

ViolaLass

Pensionor? wrote: »

Hi experienced members, I had big debate with my family. Can't find answer, can't persuade each other. hence turn to this forum for a second opinion.

My family member also tells me the best pension is buying property. My thought is - OK we got big house sitting there, but no cash to spend when we are both too old to work. Of course we can sell the house. then we will have big chunk of cash sitting in the bank suffering no interest, possible stolen or lost in some way. Also we don't know how long we can be alive. what if the cash runs out?

Isn't the point of this method that you let the property and live off the rent?

Why would the money get lost if it were in the bank?

Not saying I agree with your family member but neither of you sound like you have much of a clue about this.

dunstonh

My family member also tells me the best pension is buying property.

Up until the credit crunch we had nearly 40 years of credit boom fuelled by easy money. (back in the 70s was the early easing of credit availability). So, property values rocketed over that period. However, they still underperformed equities.

My family member's idea - pension will NEVER pay what the policy say how much it worth.

How do they work that out? You get tax relief on your contributions. Tax free growth and then when you take it, you can get 25% as a tax free lump sum with the rest of the post as income. The breakeven point to what you paid in can often be made up with the tax free lump sum alone.

e.g. £3600 paid into a pension for a basic rate taxpayer costs £2880. Lets ignore growth and say when you retire its still £3600. You then take £900 as a lump sum. So, the net cost, is £1980. At 6% income, that is £162. £1980 /162 = 12.2. So, it takes just over 12 years to get your money back. And that assumes you have never seen any growth.

Pensions are not perfect but then nor is property. It has had a boom period that is unlikely to be reflected in the 40 years ahead. Any income it generates is taxable and the asset is subject to capital gains tax. It will also need repairs, maintenance and refurbishment and is subject to dead periods of rental income and possible hassle. Both have pros and cons. However, anyone that says pensions are not worthwhile at all doesnt have a clue.

if there is an employer contribution then its even more in favour of the pension. Free money from employer. What beats free money? You pay £100. Employer matches it so you get £200. However, it has only cost you £80 due to tax relief. What else turns £80 into £200 overnight?

atush

My family member's idea - pension will NEVER pay what the policy say how much it worth. when the time comes, it will always turns down to very low repayment, maybe half of my contribution. Not worthwhile at all - actually wash the money down to the drain.

get rid of family member. Advice that bad means they are enemy.

Pension gets GIFT of FREE MONEY. From company (all companies wil have to give you a pension very soon if not already). From Government.

So say you put 80 into a pension. It becomes 100 IMMEDIATELY. So say to your dodgy family, you put 80 into cash, property it is 80. I put 80 into pension it is 100. who wins? What if your company also pays in 100? (can and does happen every day). Then you have 200 for the same 80. Who wins?

Smithers37

Anyone who makes a blanket statement such as "A pension is a waste of money" or "A pension is free money" is WRONG and not to be trusted.

It's all about utilisation of money. Are you saving for a deposit for a house? If so, paying in to a pension might be pointless as that extra 5 or 10 percent could be used to get a deposit sooner (or repay quicker).

Equally, someone who (for example) that will forever rent a property may find a pension to be the most efficient way of saving for retirement and will enjoy their employer matching contributions.

Basically, it's up to the individual as to how their money is best utilised. You have to do what's right for you, not what is right for your family members.

margaretclare

Ha. Property in lieu of pension?

Last evening we watched a repeat of a TV programme 'Can't Pay, We'll take it away'. This featured 2 High Court bailiffs who had the job of evicting the present tenants from a rented flat and regaining possession for the owners who were pensioners. Tenants had paid no rent and owed something like £10K. Plus court costs and enforcement costs. When the tenants were eventually persuaded to leave - not a simple process - the tenants' son gained entry and found the place had been trashed. The tenants had been compulsive hoarders, the place stank, it had been pristine and needed complete re-doing. The couple who owned it eventually were owed approx £25K once it had all been refurbished. It didn't seem that they had much chance of getting any of it back.

A lesson for anyone who thinks that renting property can be a good substitute for a pension.

OldBeanz

Saw the programme. The retired owners still had to continue paying the mortgage.
I would imagine the chance of getting any money from the renters as nil.
The renters had all the keys eviction dates on a calendar so were well aware of what was going on.
The son of the owners did well to maintain his cool though in the end reverted to letting a lawyer handle matters while stewing in the background.

chucknorris

margaretclare wrote: »

Ha. Property in lieu of pension?

Last evening we watched a repeat of a TV programme 'Can't Pay, We'll take it away'. This featured 2 High Court bailiffs who had the job of evicting the present tenants from a rented flat and regaining possession for the owners who were pensioners. Tenants had paid no rent and owed something like £10K. Plus court costs and enforcement costs. When the tenants were eventually persuaded to leave - not a simple process - the tenants' son gained entry and found the place had been trashed. The tenants had been compulsive hoarders, the place stank, it had been pristine and needed complete re-doing. The couple who owned it eventually were owed approx £25K once it had all been refurbished. It didn't seem that they had much chance of getting any of it back.

A lesson for anyone who thinks that renting property can be a good substitute for a pension.

That's not too far away from telling us about somebody that got knocked down by a bus crossing the road, so never go out of the house. The lesson to be learned isn't that investment property isn't profitable, it is that care is required. Property isn't a passive investment, it needs to be properly managed, and yes also it isn't without risk either, so why not have diversified investments which property is only part of a portfolio.

Property can be (notice I used your word 'can', rather than 'is') a good substitute for pension, but why not set your sights on both (and others too)? We have about £100k of annual income from property, but I still plan to invest up to the max annual allowance for pension tax relief each year.

EDIT: I/we have enough in property right now, so I am focusing on building up my pension and share investment. But property has been an excellent investment for me in the past, it isn't for everyone though.

atush

Anyone who makes a blanket statement such as "A pension is a waste of money" or "A pension is free money" is WRONG and not to be trusted.

It's all about utilisation of money. Are you saving for a deposit for a house? If so, paying in to a pension might be pointless as that extra 5 or 10 percent could be used to get a deposit sooner (or repay quicker).

Anyone who says to save for a deposit rather than join an occupational pension (thereby throwing away years of employers contributions) is WRONG and not to be trusted.

Saving for a house deposit should be done with 100% of available cash After joining the occupational pension.

Perelandra

[STRIKE]Another risk of housing, which hasn't been mentioned above, is the lack of diversification.[/STRIKE]

If all of your retirement income is in BTL properties, and the market conditions change when you retire- let's imagine that the bottom has fallen out of the rental market- what income are you going to live on?

Is this likely? Probably not- but it's possible.

Putting money away in a pension allows for a much greater level of diversification- and so a well balanced pension has less risk of "collapsing". If you really believe that property is the only way to go, you can use a pension to invest in property firms, or even directly in a commercial property if you really want to... and still get all the tax benefits.

Even if property is going to grow faster than shares (and dunstonh points out that the oppopsite is likely- equity has historically given the higher return), you don't want to put all your eggs in one basket.