To pension or not to pension?

ZTD

iwanttobreakfree wrote: »

ZTD - thats an interesting point you make and not something I know a whole lot about - can you clarify further? I had just always assumed a pension was something you did - never actually knowing if it really is worth it - its just mind boggling!

Well a pension is basically savings/investments, but with a few major twists.

1/ The money you put in is gross, i.e. you haven't paid tax on it.

2/ You *have* to buy an annuity. If the rates are crap (like now) when you come to do so, then tough. You get taxed on the income from the annuity - so it's rather like the opposite of an ISA.

3/ Your pension pot is not counted in benefit assessments (excepting recent transactions), so you can have a huge pension pot and still get benefits. You can't do that with savings.

There are a whole host of minor twists to do with pensions i.e. rules to do with lump sums, instant vesting etc - so regard the above as a simplification.

There are a few major dangers with pensions.

1/ Your pot can disappear. Totally. Despite scandals from the Robert Maxwell days onwards, pensions are really speaking, no safer now than then.

2/ Your income can disqualify you from benefits worth more than the income is.

3/ Inflation can eat your annuity alive. Don't imagine that inflation will always stay at this level. Don't imagine that "cost of living increases" will come anywhere close to keeping up with the cost of living.

In short - time for you to do your own research...