When you die your insurer keeps your pension pot, so why have one?

Conrad

I occasionaly dip into this part of the forum and often wonder why people bother with a pension.

When I die, I hope to leave my properties and various Unit Trusts and shares to my children. They in trun can cascade the wealth down into the generations to come.

Do you pension people not recognise the folly of pensions where the pot is retained by the insurer upon death? What if you only live 1 year into retirement?

I realise some pensions come with a death policy but this is irrelevant, as you can have a death policy AND give all your assets to your next of kin without quibble.

Before anyone ridicules me, thinking I'm one of these highly geared B2Lers I'm not. I take a steady approach to investing and nowadays am focused on repaying debt in the main in order to freeup the rental income.

Any thoughts?

EdInvestor

Conrad wrote: »

Do you pension people not recognise the folly of pensions where the pot is retained by the insurer upon death? What if you only live 1 year into retirement?

You are not alone in thinking this.

http://www.ifaonline.co.uk/public/showPage.html?page=ifa2006_articleimport&tempPageName=466070

The increase in the number of people retiring with quite large guaranteed inflation linked state pensions, combined with the big fall in annuity rates, is likely to decrease their attraction even more in the long term.

People are becoming more aware of the dangers of inflation (after all the generation now retiring experienced the full ferocity of it in the 1970s.) They are realising that with the increase in longevity, annuities provide not so much a guarantee of not running out of money but a guarantee that your pension will have little purchasing power left when you are really old.

What you need is at least some investment in assets which can deliver a rising income long term.It's madness to lock into a fixed income when you expect to live another 30 years.

Andy_L

Because it is the only way to GUARANTEE that your money will last until you die, assuming you don't have enough capital to live of the returns.

Jake'sGran

People are living longer. That is a fact. I joined a company pension when I was about 41 and added AVCs to plump it up. I left that company in 1990 and started taking the little pension five years later after taking the maximum cash allowed. It has gone up 3% ever since and I am glad I have it as my state pension of about £50 only started when my husband became 65.

I think it was often the case at one time that men in particular did not have many retirement years after 65 but there have been a lot of improvements in health care and they now live longer with better health. These days a lot more people are buying personal pensions as they have greater aspirations; want to do things and go places. This was not the case in my father's time.

In April my next door neighbour died very suddenly. He was 54 and had no company pension. He'd had a warning the previous year about his heart and done nothing about it. His wife said that at the time he'd said "we need the money". The day he died she said "now I don't have my husband or the money".

Some people don't bother with pensions thinking the State will provide and I think it does provide more now with the top up for people on low incomes but it still would not be enough for many folk who want a better life style.

I didn't understand your last paragraph - what is a B2Ler but I think I have figured out the next bit. I have had no debt for a long time and like you will be leaving assets to my family but others think this is foolish. Different folks, different strokes.

dunstonh

If it concerns you then buy an annuity with capital protection or a longer guarantee period. 10 year guarantees often make little difference to the income.

And for clarification, if you die before retirement, then insurer does not keep your pot. The value is paid out, outside of the estate, and the beneficiary/ies get to keep the lot, including the tax relief. A bit of irony being that to get the most out of the pension, you need to die the day before your retire.

Paul_Herring

Conrad wrote: »

What if you only live 1 year into retirement?

What if you only live 40 years into retirement? Or 50?

roddydogs

There a minimum of 5 years equivalent pension that goes to your estate if you dont live that long.

Dithering_Dad

To turn this around somewhat, when you're in your 70's can you be bothered with the worry about collecting rents, going to court to evict squatters, paying bailiffs to serve eviction notices, having to find new tenants when your old ones leave or paying hefty charges to a company to do all this for you?

If you decide to sell up, you will be hit by a major capital gains tax bill, which will wipe out a lot of your gains. When you die, your children could end up with a large inheritance tax bill, and so have to sell one or more properties to pay this - which will then result in caps gain tax bill. If you don't buy the properties outright, then you have to pay interest on a mortgage which you have to cover during periods when the property isn't rented.

When you're actually buying the properties you are using money that has been taxed, so for a high-rate taxpayer to buy a house outright for £100k, he would have to earn £140k - pension contributions are tax free. Many people have company pensions where their employer contributes anything upto 3 times their own contribution, effectively this is free money.

I'm not saying that one mode of retirement planning (property ownership) is better than another (traditional pension), but each have their benefits and pitfalls.

purch

It still strikes me as strange how 15 years ago anyone considering using Rental Property as a way to build wealth and fund their retirement would have been considered 'Bonkers' by most people......

Times change, yet no one seems able to consider the chance that they might well change again !!!!!

Debt_Free_Chick

Conrad wrote: »

Do you pension people not recognise the folly of pensions where the pot is retained by the insurer upon death? What if you only live 1 year into retirement?

There are other options, as the replies suggest.

But I have another question for you ... what if you live for 30, 35 or 40 years after retirement? Where would your income have come from if you did not have a guaranteed payment from your annuity?

Annuities are insurance against living too long - simple as that.

Like all insurance, you don't get the premium back if you make a claim Interestingly, you do get something back for sticking it out. How much you get back, depends on how long you live

Conrad

dunstonh wrote: »

If it concerns you then buy an annuity with capital protection or a longer guarantee period. 10 year guarantees often make little difference to the income.

And for clarification, if you die before retirement, then insurer does not keep your pot. The value is paid out, outside of the estate, and the beneficiary/ies get to keep the lot, including the tax relief. A bit of irony being that to get the most out of the pension, you need to die the day before your retire.

Still a pension is no replacement for ones own assets such as a few properties.

Whether I live after retering for 1 day or 50 years I OWN MY INVESTMENT AND I GET TO PASS ALL OF IT ONTO MY NEXT OF KIN (after IHT).

Again, a pension pot passes wholly to the insurer / annuity provider when you die, so your family get none of the benefit of all your hard work and frugality