Is my pension contribution "worth it"

jamesd

N1AK wrote: »

You can disagree all you like about bear markets and bull markets, country etc, however it doesn't change the fact that the FTSE100 was at nearly 7k in 1999 higher than it currently is 15 years later! Sure we've had highs and lows in the meanwhile but none exceeding 1999.

Except that the FTSE total return would have taken it to the equivalent of 9200 by May 2013. Higher now. Easy enough to make an index that pays about half of its returns in dividends look bad by ignoring them.

And thanks to gadgetmind for providing the total return index values that do an even better job of illustrating the point.

gadgetmind

Here are some more on the end.

Jun30 2014, FTSE 100=6744, FTSE 100 TR=5014
Jul31 2014, FTSE 100=6730, FTSE 100 TR=5008
Aug29 2014, FTSE 100=6820, FTSE 100 TR=5111
Sep30 2014, FTSE 100=6623, FTSE 100 TR=4969
Oct31 2014, FTSE 100=6546, FTSE 100 TR=4920

If we take that August figure, and do 5111/3141*6930 we get 11276. So, if someone says the FTSE hasn't reached the same heights as in 1999 then we can tell them that it's over 60% higher. (Even that Oct figure, which is the latest I have, is 56% higher.)

I suspect that 9000 in the article you linked to wasn't reinvesting the dividends along the way.

Oh, and let's not forget that someone continuing to invest each month would have been buying during the lows as well as the highs.

gadgetmind

And, to be fair, let's also not forget inflation along the way ...

Radiantsoul

The CPI Index has gone from 93.1(Q4 1999) to 128.5(Oct 2014) - http://www.ons.gov.uk/ons/datasets-and-tables/data-selector.html?cdid=D7BT&dataset=mm23&table-id=1.1
The inflation adjusted ending return is 3564, which is a small positive return. Probably some sort of argument for bonds is in the mix!

Radiantsoul

I would take as much free money as your employer is willing to give.

I guess you probably want to think about how you and your partners income is going to progress over time as well. I mean if you were training to be junior doctors and doing a bit of work on the side at Starbucks you would probably approach this differently.

If you suspect your salaries will increase quite significantly over time you could probably get away with saving less now, and increasing as your income rises. If not you either need to try and save more or accept you will most likely be working into your 70s. Which might not be terrible if you love your job and as the country ages I suspect more and more people will be working at least part time at a much older age.

The other thing is probably to consider what actions you could take to increase your income. Investing in yourself is often a good idea.

agarnett

PeacefulWaters wrote: »

me wrote:

Ad86_-_the_OP wrote:

Our JOINT gross is less than 2k a month.

I am amazed at how this thread seems to be self-sustaining despite that little revelation from the OP

My advice to the OP might be to forget UK and emigrate to a place where labour is respected and the financial services industry are not such overt crooks and snake oil merchants

Has he said they're both employed in financial services?

Did I imply any such thing??

Which utopia do you recommend they move to?

It is a big world and aeroplanes take you anywhere you want to experience, and contrary to the UK experience, you don't have to restrict your career plans to service industry jobs. Believe it or not, some countries in the world do get on with the job of making things rather than living off industries that simply corner other people's money, or through standing guard over intellectual property and collecting tolls, which restricts freedom of ideas and enterprise.

You self-congratulatory commentators are a mixture of "I'm alright, Jack - been there, used my above-average indeed truly excellent noddle to validate it and try it, and it turned out pretty ok" types, and perhaps one or two snake oil merchants giving the wheel a turn.

Would one of you, instead of playing with imaginary performance based on some rose-tinted idea of the past or future, please care to tell the OP the average period that a real pension policy/plan like the one you think he should pay more into, remains as purchased in the UK over the past, say 20 years?

The sort of interruptions to the best made plans in the real world which I mean cut short the original intended contract are this (in order of the likelihood/frequency of it happening):

1. If the terms are unilaterally changed by the provider, then that ends the original plan for the purposes of my question, or
2. If the provider gets taken over, or
3. If the provider sells out your pension fund as part of a 'zombie fund' (you didn't realise your fund could be so labeled on a whim?), or
4. If the employer gets taken over, or the employer decides to be less generous with their contribution, or the trustees of the scheme if there are any, decide to crumble in effectiveness and fade away, or
5. If the individual purchaser changes jobs, that also more often than not ends the original plan, or
6. If the individual purchaser hits even leaner times and cannot even contemplate continuing in any form of contribution based scheme unless forced to, that ends it, or
7. If the government make sweeping changes such as changing the pension age (again) or introducing unfathomable rules about drawdown or taking tax-free cash or reducing basic pension entitlement based on something like SERPs which all normal people never understood in the first place (fathomable only by people like gadgetmind who DOES NOT represent the average pension buyer.) - that also represents the end of the period.

I would guess that the average period of a pension policy/plan on that basis would be about 24 months. Less for a younger manual worker.

And yet you commentators still dare to pontificate over your utopian investment scenarios based on some 30 or 40 year unchanged environment save for your ups and downs of a TR Index?

Get Real!

No-one should invest in any financial services industry pension product until

• they have secured their own individual platform of success, whether it be the longevity and rewards of their job, whether employed or self-employed, or some other measure where that person is sufficiently at ease in their world to be able to control their own destiny on their own say so, not someone else's
• they have the knowledge to challenge the seller of the product they feel might fit their life

both criteria that gadgetmind clearly has fulfilled for quite some time! How many buyers will ever be that clued in? I say you cannot afford not to be if you buy any pension product either via your employer or the open market. Putting serious contributions into a pension is worse than buying a second hand car with no understanding of what might be wrong with it. I was reading a thread over in the Motoring section yesterday thinking how so few people have a clue how not to buy a pig in a poke. It's the same with pensions.

The advice over there ranged from buying a high mileage one which has been used daily to the opposite extreme of buying a low mileage one at a premium price.

I think the best advice was that you take your expendable budget and halve it. You buy a car costing half what you can afford to lose, and then if you lose it because it turns out to be junk, you still have half left to buy another.

Maybe employer-sponsored pension schemes can be viewed a bit like that - if you can afford a 6% contribution and if your employer is prepared to match it, then just view the employer's contribution as the bit you might be able to afford to lose before you transfer out to a better scheme?

It is all nonsense of course. A terrible muddle for all except the well off to think about. For most people who like the OP do not have a generous salary and perks package, that means you should let the government worry about your retirement until you have the success, knowledge and luxury of time on your hands to monitor investments as closely as thread commentators regularly suggest.

Incidentally, £2.5K per month for STEM graduates is not success, unless it is scheduled to rapidly increase within 18 months to say £4K per month. £2.5K is a mickey take when they will be leaving university with typically £60,000 to £100,000 of student loan debt increasing at 6+% pa under current English arrangements.

£3K pm rising to £4K pm in 18 months is what some 'lucky' graduate might land if they get an in to say the Financial Conduct Authority, regulating(sic) the whole sorry show discussed in this thread. STEM graduates could expect to start on £4K pm in Europe.

And the terribly sad thing is that jobs like gadgetmind offers and FCA might offer are very much the exception in UK for 'ordinary' graduates. So rather than on £2.5K pm starting salaries, you get swarms of impressionable smart-a$$es employed in financial services, learning bad habits, many even starting as lowly bank cashiers just to get an in. And when do you think a bank cashier might ever see £2.5K pm?? About as often as the OP dares dream of it I should think.

Radiantsoul

agarnett wrote: »

It is all nonsense of course. A terrible muddle for all except the well off to think about. For most people who like the OP do not have a generous salary and perks package, that means you should let the government worry about your retirement until you have the success, knowledge and luxury of time on your hands to monitor investments as closely as thread commentators regularly suggest.

Quite a rant! On some level I agree, and to an extent pension offer far greater benefits for those with generous salaries as they get more tax relief. On the other hand pensions have gradually improved with each round of legislation. Pretty soon everyone will have to save at least something, for many of those on lower pay it will go into low-cost tracker style funds, fees will be relatively low and the method of withdraw seems simpler to understand.

There seems to be a long-term trend towards liberalisation of financial choices away from government/companies and towards individuals. There have been and will continue to be problems with this model, but the idea that government will worry much about your retirement income seems very risky to me. They will probably do not a lot more than attempt to regulate the pension industry and provide you with a smallish guaranteed income.

gadgetmind

agarnett wrote: »

Incidentally, £2.5K per month for STEM graduates is not success, unless it is scheduled to rapidly increase within 18 months to say £4K per month. £2.5K is a mickey take when they will be leaving university with typically £60,000 to £100,000 of student loan debt increasing at 6+% pa under current English arrangements.

Is that what you pay STEM graduates?

gadgetmind

Radiantsoul wrote: »

On the other hand pensions have gradually improved with each round of legislation.

Until very recently, I wouldn't have entirely agreed with you, but there have been some big improvements recently.

So saying, I've been paying to pensions for nearly 30 years, including during some very lean times when my first company hit the rocks, and I've very glad that I did. Over that time, options have improved with everything becoming more hands on (for those that want to be) and with fees tumbling all the time.

For instance, my company's group personal pension has full online access, a wide range of good quality funds, and fees below 0.5% pa all in (unless you go choosing expensive external funds).

All of my earlier (more limited and more expensive!) pensions have been transferred either to my GPP or my SIPP, which is never what you'd call a hassle free process, but it does mean that your investment can move with the times.

atush

N1AK wrote: »

You can disagree all you like about bear markets and bull markets, country etc, however it doesn't change the fact that the FTSE100 was at nearly 7k in 1999 higher than it currently is 15 years later! Sure we've had highs and lows in the meanwhile but none exceeding 1999.

I will disagree as I am right and you are not, as the figures provided by gadget show.

Your example would be the same as a 10K 5 year bond at 5% returing only the 10K as you have decided to disregard the interest.