Pensioner's 'perks' under review.

Cardew

dunstonh wrote: »

Using savings for income has always been higher risk and not usually a good idea for all the money. You can still get more with investments.

Agreed on balance investments have out performed cash savings.

However why do you consider saving for income 'higher risk'. The reason Mr and Mrs Average in UK save in banks/Building societies/ISAs is that it has always been low risk.

The high risk has been investments, with shares in some blue chip companies decimated virtually overnight.

They also have seen the disaster of investments in pension funds and endowment policies. My 25 year with profits endowment policy with a major insurance firm was such a disaster, and left a huge shortfall on my mortgage - and my payout was apparently well above average. Had I taken out term insurance(as a young man) and put the endowment payments into a Building society/ISAs instead I would have been vastly better off.

I am fully aware of having a balanced portfolio etc etc - but that is what the experts at the major insurance firms do!

dunstonh

However why do you consider saving for income 'higher risk'. The reason Mr and Mrs Average in UK save in banks/Building societies/ISAs is that it has always been low risk.

When taking an income, no option is risk free. Cash suffers inflation risk and shortfall risk. £100k will have the spending power of around £65k in 10 years time. The interest generated will suffer inflation erosion as well. So, it is guaranteed to suffer real terms loss which will inevitably lead to capital erosion when the person needs to start using capital to make up those shortfalls and that will leader to even quicker erosion which in the end results in the money running out.

Investing can suffer shortfall risk and inflation risk. So, its a case of can vs guaranteed to do so. hence why taking a sensible level of investment risk can actually be lower risk than going 100% into cash.

The high risk has been investments, with shares in some blue chip companies decimated virtually overnight.

Risk is not on/off. it is a sliding scale. Jumping to the top end of the scale and badly investing like that is not the answer.

They also have seen the disaster of investments in pension funds

What disasters?

and endowment policies.

Endowments suffered as they were a product that priced and built for a different type of economy. They were inflexible and obsolete but continued to be sold too long rather than keep up with modern options. The main problem though was not the investments within the endowments. They continued to do better than cash. It was the target growth rates required to hit target that was the problem.

My 25 year with profits endowment policy with a major insurance firm was such a disaster, and left a huge shortfall on my mortgage - and my payout was apparently well above average

And no doubt the target growth rate was set too high and you were paying too little.

Plus, remember that the investment fund used by most endowments was crippled by the regulator which changed the focus to financial solvency rather than investment returns. So, funds had to start investing much lower risk and that meant lower returns. An issue that doesnt apply to modern investing.

Had I taken out term insurance(as a young man) and put the endowment payments into a Building society/ISAs instead I would have been vastly better off.

Not necessarily. A typical endowment mortgage was around £25pm cheaper than a repayment mortgage. Over 25 years that is £6000 difference. Not dissimilar to a typical shortfall.

However, comparing endowments with income provision in the 2000s is like comparing a black and white TV with a widescreen ultra HD set.

I am fully aware of having a balanced portfolio etc etc - but that is what the experts at the major insurance firms do!

Insurance companies are rarely good at balanced portfolios. They tend to be good on the fixed interest and property side but rubbish on equities.

Cardew

I don't want to get into an argument with you Dunstonh as I appreciate both your knowledge and advice you have given over the years.

I still think that your statement 'Using savings for income has always been higher risk ' is incorrect; and your post above accurately details the reasons why some investments have been poor. e.g. 'Insurance companies are rarely good at balanced portfolios' 'Growth rate set too high' etc etc.

Anyway the such discussions detract from the main point of the thread which is the 'threat' to 'pensioner's perks'.

Thrugelmir

Cardew wrote: »

Some friends of mine intended to buy a smaller cheaper house and they expected to pocket £100k from the move. A few years ago that might have produced an income of around £6k pa - now about £1k.

£100k for absolutely nothing. Next generation is paying the cost. Saving for retirement is an individuals choice.

Sapphire

I think that limitations to state pensions could be introduced – but that it should be for higher rate taxpayers only. There are certainly wealthy pensioners in those brackets who don't even need a state pension – including retired politicians.

ffacoffipawb

Silvertabby wrote: »

70 for both men and women. Not only that, but it was means tested, so only the destitute qualified for payment - so as very few really poor people survived to that 'grand old age', the pensions bill must have been miniscule.

No it wouldn't, it would have been minuscule. 😄😄😄😄

missbiggles1

Sapphire wrote: »

I think that limitations to state pensions could be introduced – but that it should be for higher rate taxpayers only. There are certainly wealthy pensioners in those brackets who don't even need a state pension – including retired politicians.

I take your point but it would be the start of a very slippery slope.

Malthusian

Cardew wrote: »

I still think that your statement 'Using savings for income has always been higher risk ' is incorrect; and your post above accurately details the reasons why some investments have been poor. e.g. 'Insurance companies are rarely good at balanced portfolios' 'Growth rate set too high' etc etc.

In the context of the saver we were talking about - someone who has released a large lump sum from their downsizing, which they intend to provide income to meet their needs in retirement (so the timeframe is anything from 10+ to 30+ years) the shortfall and inflation risks of stuffing it under the mattress clearly outweigh investment risk, so DunstonH is correct.

The problems of endowments have nothing to do with pensioners investing for income. You might as well bring up PPI or a hundred other things that have gone wrong with banks and say this shows you shouldn't put your money in cash because the banks can't be trusted.

Anyway the such discussions detract from the main point of the thread which is the 'threat' to 'pensioner's perks'.

Going off topic is part of what makes Internet forums interesting. The starting point of the thread is not very interesting. All State benefits are always under review. They may be cut or they may not be, or they may be increased if an election looms. The State giveth and the State taketh away again.

Malthusian

Sapphire wrote: »

I think that limitations to state pensions could be introduced – but that it should be for higher rate taxpayers only.

Higher rate taxpayers already have their State Pension withdrawn at a rate of 40p for every £1 they receive over the threshold. What do you think the rate should be?

atush

Cardew wrote: »

I don't want to get into an argument with you Dunstonh as I appreciate both your knowledge and advice you have given over the years.

I still think that your statement 'Using savings for income has always been higher risk ' is incorrect; and your post above accurately details the reasons why some investments have been poor. e.g. 'Insurance companies are rarely good at balanced portfolios' 'Growth rate set too high' etc etc.

Anyway the such discussions detract from the main point of the thread which is the 'threat' to 'pensioner's perks'.

I am quite happy with the comments made by D, showing where there was woolly thinking by others incl yourself.