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

dunstonh

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

Only if you buy an annuity that doesnt have a guarantee or capital buy back or spouse included and only after retirement and not beforehand.

Conrad

Alternative to pension;

40 years into ISA Unit Trusts. When you die all (minus IHT) goes to loved ones.

Property is not hassle if you leave the management to professionals.

Dunston - sure you can 'buy' extra benefits to leave some of the pot behind, but at what cost? Why bother and why be beholden to insurance companies.

Far better to paddle your own canoe.

Debt free chick - the idea is to build captial via property, Unit Trusts etc and then use that to produce income in retirment. One re - invests some of this in order to keep up with inflation.
A pension dies with you.

dunstonh

I dont disagree with some of the sentiment as I and others have posted a number of times that this is a potential negative with pensions.

However, when it comes to providing a pure guaranteed income in retirement, then pensions will pay more than an ISA. If it is income provision, which after all is what a pension is for, then it still does the job it is required to do.

Dithering_Dad

I'd be very interested to know the relative costs of property v pension.

For example, say if I now decide to make provision for my retirement. I am a high rate tax payer and I have £1000 per month to invest. To buy a £100k property to rent out I need to get a £24k deposit together...

Pension - I start paying into this straight away and after 2 years I have £24000 plus stock market gains, minus admin costs plus 40% tax rebate.

Property - I start saving a deposit and I now have £24,000 in the bank plus interest.

I buy a house and rent it out. I am lucky because it is a magic house that has needs no repairs, is so safe I need no buildings insurance, my initial tenants stay for the full 30 years so I have 100% occupancy and I need not advertise for new tenants, do credit checks, worry about references, need to pay legal costs for evictions or chase people for rent. I don't use a management company, I don't need to get any electrical or gas checks and I never redecorate. Therefore my tenants pay off the mortgage over the 30 years, so my only investment is £24k.

Pension v Property. Investment = £24k.

Pension - compound interest over 30 yrs then buy an annuity = £24 per week pension.
Property - House paid by tenants over 30 years and I get £500 per month rent = £115 per week "pension", plus capital of house (say £400,000).

Well, it's a "no brainer" for me. I'm off to the estate agent with my £24k!!
Shame on you dunstonh for pushing pensions when this goldmine was here all the time!!


p.s. this started off as a serious post - I really would like to see a comparison of the relative costs of renting a house over 30 years opposed to the regular investments into a pension, but my brain wasn;t up to it and rebelled - descending into madness.

Anyone got a better brain than mine and could do the sums?

DavidLaGuardia

Dithering_Dad wrote: »

I'd be very interested to know the relative costs of property v pension.
Property - House paid by tenants over 30 years and I get £500 per month rent = £115 per week "pension", plus capital of house (say £400,000).

Property looks great because you have introduced gearing (AKA leverage) whereby you borrow to acquire a larger asset that the funds you have and use the returns (the rental income in this case) to fund the borrowing cost

If the same risks can be applied to a pension fund then you create a similar situation.

Pensions are limted to commercial property though and you can only borrow up to 50% of the fund. However some SIPPs do permit co-ownership between you and the pension. so you buy a commercial premises when your fund is enough to meet the deposit then allocate equity to the pension of the deposit plus fifty percent and the rest to yourself.

Getting back to the oiginal question, the idea of a pension is capital you are going to use up before you die with whatever income or growth that sum attracts. If you have built up other assets then the burden of your income needs is reduced by whatever comes out of the pension.
An annuity allows you to share the risk of longevity with others that;s the cross-subsidy bit by which you either win or lose. If its a guaranteed annuity it will not offer the potential return of other investments. That's the price of safety! but then annuities themselves can be based on other types of investment that can give better returns.

Debt_Free_Chick

Conrad wrote: »

Debt free chick - the idea is to build captial via property, Unit Trusts etc and then use that to produce income in retirment. One re - invests some of this in order to keep up with inflation.
A pension dies with you.

I understand the idea

And it's fine, if you can cope with the uncertainty of the level of income you might get - and this is OK, if you have already secured the minimum income you need to pay your bills and "live" at a very basic level.

But if ALL your income in retirement is dependent on the variable income you get from the investment of capital, then you could be in trouble. Property - for example - does not guarantee an income, month in/month out. As we all know, a BTL will have voids - if you are dependent on that income, how do you pay your Council Tax and put food in your mouth with no income?

There is no "one-size fits all". Some people will need all their income to be guaranteed. Some will need a certain amount guaranteed.

It's horses for courses - but for me, the passing of capital to my relatives is secondary. They need to look after themselves - I need a comfortable retirement without worrying where the money for next month's Council Tax is coming from

p.s. And I'd like it NOW at the ripe old age of 46 :rotfl:

djbd1973

Conrad wrote: »

Far better to paddle your own canoe.

This is how I feel regarding pensions and is why I have a buy to let as an alternative to a pension with other avenues also. I don't like the idea of pension providers making a nice profit from my investment despite a fund not doing particularly well. Granted, a transfer can be made, policies can be frozen etc and I am not an expert for sure but by taking an element of control for yourself can often inspire especially as its YOUR OWN money rather than someone else messing with it and having to worry when it goes wrong.

EdInvestor

The initial deposit for a BTL is usually 15% of the purchase price.The big advantage over a pension is that it's a geared investment with someone else paying the interest, plus of course you retain control of the capital.

The best way to do it IMHO is to let out your former residence when you move on, that way you get a nice tax break as well.

It's important to DYOR and to choose a property which has a decent yield so as to cover your costs (if you find a good agent, the actual letting can be fairly trouble free) - plus you need to be prepared to stump up mortgage payments in a downturn.But if you choose well it can produce a much higher return on capital invested, because of the gearing.

djbd1973

EdInvestor wrote: »

It's important to DYOR and to choose a property which has a decent yield so as to cover your costs (if you find a good agent, the actual letting can be fairly trouble free) - plus you need to be prepared to stump up mortgage payments in a downturn.But if you choose well it can produce a much higher return on capital invested, because of the gearing.

I put down 20% for my Buy-to-let on a property that I bought from a friend who already has several properties himself. Its has a good yield, we didn't use an estate agent, and as far as the tenant is concerned, everything stays the same as all maintenance issues are still handled through the same contacts. The deal worked out was very favourable, and yes in a downturn, should the tenant leave, the mortgage will be more of a nuisance than a problem at the moment.

dunstonh

One of the things amateur buy to letters often forget is that with mortgaged buy to lets, they don't actually have the assets they so often boast they do. The lender does and the lender will want their money back at some point. Then the tax man will want the capital gains tax bill paid.

Plus, a mortgaged buy to let can bankrupt you or cause you to lose your primary residence. Paying into a pension (or ISA) cannot. Mortgaged buy to lets are higher risk and its a risk that many have forgotten because of the good run that property has had. Very similar to endowment policies which paid surpluses for decades and the risk got forgotten until it went wrong. Property will "go wrong" again at some point. Everything does some time or another.