Should pensions be compulsory?

dunstonh

Are these restrictions worth it for the reward of getting 25% of the fund free of tax ?

Absolutely. At the end of the day I am looking to have an income in retirement. The pension provides that. If there wasnt the tax relief at the beginning and the fact the pension funds are tax free (no income tax or CGT to worry about) then it would be a different answer. That being said, pensions are not my only form of provision and most people need pensions and ISAs to meet their goals.

[Deleted User]

Isn't the failure of the British public to save for a pension particularly highlighted by the poor take up of Stakeholder Pensions?

Why is this?

dunstonh

Deleted_User wrote:

Isn't the failure of the British public to save for a pension particularly highlighted by the poor take up of Stakeholder Pensions?

Why is this?

Because the product took away any incentive for those selling it to sell it.

Retirement planning is something that needs to be sold (for the majority). If you dont have anyone telling you to do it and how much to do then people won't do it. You could also blame the demise of the insurance man. Although they generally sold poor value products compared to what was available through independents or direct, at least they got people saving.

I set up two regular savings stakeholders last month for daughters of a client of mine and I earn £2.88 each contribution. It will take me about 10-15 years to break even on cost. I wouldnt have bothered had it not been for the father being a decent client.

The legacy personal pensions were too expensive. The stakeholders are too cheap. Actually, that is wrong. It isnt that they are too cheap as a higher commission paying personal pension contract can have lower charges than a stakeholder over the term. Its more that the way the stakeholder is charged that is wrong. If a cost of advice fee had been allowable from the inception and a lower AMC of 0.75%pa been the shape of the product then this would have benefited those selling it and policyholders would still have ended up with lower charges than a current stakeholder over the longer term.

EdInvestor

If there wasnt the tax relief at the beginning and the fact the pension funds are tax free (no income tax or CGT to worry about)....

Just to clarify that you get tax relief at the beginning when the money goes in to a pension , but then you pay tax on the income when it comes out - except for the 25% lump sum, which is the only bit that is actually tax free.The other 75% is tax deferred.

[Deleted User]

So the main reason Stakeholders have failed then is the lack of incentive to sell them?

This, despite the all the hype when they were initially launched. I do seem to recall that the whole point of the Stakeholder was to get people saving for their old age as soon as possible - and to enable that saving to even start from the cradle, with parents/grandparents stumping up in the early years.

If this is now tapering off because the product is not being pushed, there seems little hope that people will be encouraged to consider their pensions earlier on life before they become overly financially committed in other ways.

Which kind of sways the argument about forced pension savings towards the side of those who want that.

Charlton_Taz

I definately think compulsory pensions are the way to go. Both employees and employers should be forced to pay a certain percentage into a pension pot. The difference between this and NI is that it is 'your' pot so you know it is there and that you will get something out of it in the future. I am currently paying NI with absolutely no expectation of getting a state pension out of it when I eventually retire. I think you should be able to invest as you choose....whether that is in shares / bonds / property etc.

I am 27 and I do invest in a pension..and have done so since I was 22. However, most people I know in my age group haven't done anything about this yet. Its always too easy to put off as it can be a hassle to understand and set-up and then obviously you see a reduction in your wages.....not good!!!

If it was compulsory that would never be a problem...you wouldn't think of it as a reduction in your salary as it would be deducted frmo day 1 from like income tax and NI...You'd be saving without even having to think about it!!

dunstonh

Just to clarify that you get tax relief at the beginning when the money goes in to a pension , but then you pay tax on the income when it comes out - except for the 25% lump sum, which is the only bit that is actually tax free.The other 75% is tax deferred.

Assume age 65 and this tax year, the first £7090 you earn is tax free, the next £2090 is 10% tax and the rest above that is 22%. Split planning between husband and wife and you can earn over £14,000 tax free a year in retirement. Plus do not forget 40% tax relief is available to an ever increasing number and the increased potential child credit paid. Tax free growth is still there albeit reduced thanks to Mr Brown.

So you may get taxed on some of the pension at the other end but the benefits still add up.

Milarky

The Australian model appears to be falling into disfavour, but surely it could be introduced here as an 'add on' to what we already have? The point is that

1) it was introduced in 'steps' - not suddenly
2) it was taken in lieu of pay increases - and less noticed as a result
3) it could be extended to higher contribution rates or left at the levels already reached after a number of years
4) it results in a lump sum [eyes light up] rather than a pension plus smaller lump sum

The point is that the elegance of the Aussie scheme is its simplicity and apparent equity [everyone 'in'] whilst not puporting to be the whole solution - only a contribution to one. But as a method of increasing [net] saving to meet the identified gap it is definitely worth pursuing?

EdInvestor

But as a method of increasing [net] saving to meet the identified gap it is definitely worth pursuing..

Actually the introduction of the Aussie compulsion system led to a reduction in overall household savings, not an increase.

There is no actual "savings gap" in Britain: household wealth has increased by an average of 3% a year every years since the early 90s.It's just that people are now saving in different ways - more money is being saved/invested in houses and cash ISAs than in shares, pensions and unit trusts.So the pension companies say there is a savings gap, because less money is coming to them, but it doesn't mean people are actually saving less.

Total assets in property and pensions/share investments are quite equally balanced now.You could argue they weren't before: excluding cash, in 1999 household wealth was split about 70% in pensions/shares and 30% in property (homes).Now it's about 50/50 .

I suspect many people would be shocked if they thought 70% of their assets were in the stockmarket :eek: Most people I suspect think if they put money in a "pension" it will be "safe". Quite a few of them have received a rude shock in recent years.:(

That's possibly why the Government will think twice about compulsion. Should politicians force the public to take risks they don't understand? Because that's what they're doing if they put money in a private pension, and even in many company pensions these days.

loopy_lass

i havent got a pension and dont want one... dont care what happens when i retire....

is it me?

loops ;-)