My view on Pensions

Rachel_Pierson

I was reading this article by Martin today. I need to say, whilst a lot of the advice on MSE is useful, I found this particular article to be ill-informed and wrong.

I'm old enough now to have seen several incarnations of pension schemes come to disappoint the people who paid into them all their working lives. From the Maxwell pension scandal over twenty years ago to BHS today, pension schemes can and do collapse. And when they do, it's those that have been paying in for 20-40 years that suffer. Not the politicians or company owners that made the empty promises. Or the scheme organisers who get fat from management fees and bonuses that don't reflect how well they do their ostensible job of managing the funds wisely on pensioners' behalves.

And this line that keeps getting trotted out that opting out of workplace pensions schemes is like "giving up free money" is just so much self-serving rubbish. Lets look at the reasons why:

• Many of the people who make so much of the fact that pension contributions are tax free, conveniently forget to mention that you do actually pay the tax when you draw down the pension at retirement. So it's deferred tax, not "tax free". The only time the money is "tax free" is when it's in the pension scheme's hands. Claiming it is "tax free" without qualifying the very limited window in which it attracts no tax is like saying purchases on 0% interest introductory offer credit cards is "interest free", because you don't pay interest right away. Just some time after the money's gone and it's time to pay it back.

• You'd need to get a hell of a lot of that "free money" to pay for the compulsory independent financial advice that's required in some cases if you want to spend your own money your own way. At present, it typically costs about £2.5k to obtain such advice. How much do you think it'll be in the future compared to your pension pot when it comes time to retire? To put that amount in perspective, it's about one third of the average yearly pension for a lot of pensioners. So it's easy to imagine that a pensioner won't have easy access to such a sum. And, conveniently, some of the [STRIKE]Ponzi[/STRIKE] Pension scheme organisers have chosen to interpret the requirement to get independent advice as a requirement to get permission from an independent advisor. How convenient for them and the advisors. But not for the pensioner whose 'free' money it is.

• Many of the past incarnations of pensions from the 70s, 80s and 90s were presented in just as cheery and rock-solid "guaranteed" terms as the current incarnation. Then politicians discovered that National Insurance contributions promises couldn't actually cover all the pensioners that are expected in the future. Because too much public money had been squandered on illegal wars and MPs expenses, so not enough was left for the actual purpose for which it was collected. Their solution? make the state NI pension means-tested instead of just being based upon years of contributions as previously promised. So that workplace scheme you're now paying into will be the very thing that gets those state pension benefits you've already paid NI for in the past, cut in the future when it comes time to get what you were owed.

• Your disposable income now goes down when you fail to opt out of a workplace pension. So you have less to invest using your own acumen. So, instead of relying on your own competence to make money for yourself from your own investments, you instead have to rely on some pension scheme organiser doing what's in your interest instead of theirs. Good luck with that.

• Your employer can (and many do) use the excuse of their paying into your pension as an argument against giving you an actual pay rise. You know, one that you get to keep. Now. This month. To pay this month's bills.

Think about it. If these pensions were such a great idea, wouldn't they sell themselves? Instead, they are one of the few products that it is legal to inertia sell by signing up people to them who haven't asked for them and don't want them. Then make those people jump through hoops to extricate themselves from a financial product they didn't want in the first place. Then do it all over again every three years. Imagine supermarkets worked that way. Imagine they delivered food to your house unsolicited. Then had the cheek to try and tell you it was all in your own best interests, as otherwise you might starve to death. Because you're Just That Stupid. That's about the level of disingenuousness involved in the arguments for inertia selling pensions. It's a terrific wheeze. I bet lots of other industries wish they'd paid political parties to pass legislation that was so favourable to their own interests.


Anyone have any counter-thoughts? I'm always willing to be proven wrong. Then again, we'll only really know who is right and who was naive in 20 years time...

[Deleted User]

"Then again, we'll only really know who is right and who was naive in 20 years time... "
Unless like me, not yet 60 and medically retired in November 2016 after more than 20 years paying into my employers pension plus an AVC. I'm glad that I did, because now I can at least survive reasonably well until State Pension Age.

So to be more accurate - "You will know in 20 years time whether you were wise or naïve"

AnotherJoe

Rachel_Pierson wrote: »

I was reading this article by Martin today. I need to say, whilst a lot of the advice on MSE is useful, I found this particular article to be ill-informed and wrong.

I'm old enough now to have seen several incarnations of pension schemes come to disappoint the people who paid into them all their working lives. From the Maxwell pension scandal over twenty years ago to BHS today, pension schemes can and do collapse. And when they do, it's those that have been paying in for 20-40 years that suffer. Not the politicians or company owners that made the empty promises. Or the scheme organisers who get fat from management fees and bonuses that don't reflect how well they do their ostensible job of managing the funds wisely on pensioners' behalves.

This is irrelevant when referring to DC schemes. Which most will be in future, indeed probably all.

And this line that keeps getting trotted out that opting out of workplace pensions schemes is like "giving up free money" is just so much self-serving rubbish. Lets look at the reasons why:

• Many of the people who make so much of the fact that pension contributions are tax free, conveniently forget to mention that you do actually pay the tax when you draw down the pension at retirement. So it's deferred tax, not "tax free". The only time the money is "tax free" is when it's in the pension scheme's hands. Claiming it is "tax free" without qualifying the very limited window in which it attracts no tax is like saying purchases on 0% interest introductory offer credit cards is "interest free", because you don't pay interest right away. Just some time after the money's gone and it's time to pay it back.

Incorrect. At BR tax when earning you get 25% tax free when you withdraw At HR tax you get more than half of it tax free.
Plus, you do get free money. For example, if I pay £100 into my pension, my employer pays in maybe £55. This is aside and before tax. So, yes that is free money

• You'd need to get a hell of a lot of that "free money" to pay for the compulsory independent financial advice that's required in some cases if you want to spend your own money your own way. At present, it typically costs about £2.5k to obtain such advice. How much do you think it'll be in the future compared to your pension pot when it comes time to retire? To put that amount in perspective, it's about one third of the average yearly pension for a lot of pensioners. So it's easy to imagine that a pensioner won't have easy access to such a sum. And, conveniently, some of the [STRIKE]Ponzi[/STRIKE] Pension scheme organisers have chosen to interpret the requirement to get independent advice as a requirement to get permission from an independent advisor. How convenient for them and the advisors. But not for the pensioner whose 'free' money it is.

That financial advice cost refers to DB pensions not DC. Most pensions going forward will be DC

• Many of the past incarnations of pensions from the 70s, 80s and 90s were presented in just as cheery and rock-solid "guaranteed" terms as the current incarnation. Then politicians discovered that National Insurance contributions promises couldn't actually cover all the pensioners that are expected in the future. Because too much public money had been squandered on illegal wars and MPs expenses, so not enough was left for the actual purpose for which it was collected. Their solution? make the state NI pension means-tested instead of just being based upon years of contributions as previously promised. So that workplace scheme you're now paying into will be the very thing that gets those state pension benefits you've already paid NI for in the past, cut in the future when it comes time to get what you were owed.

Again, irrelevant when it's a DB pension you are very backward looking in all your rants.

• Your disposable income now goes down when you fail to opt out of a workplace pension. So you have less to invest using your own acumen. So, instead of relying on your own competence to make money for yourself from your own investments, you instead have to rely on some pension scheme organiser doing what's in your interest instead of theirs. Good luck with that.

Not true with my pension scheme, I can choose what funds it's invested in myself. Though let's face it, most people don't have the acumen to decide what to invest in. You write as if everyone is an expert in investments but the fact is fir most people who don't take the time and trouble, or simply aren't competent to manage their pension funds, the pension people will do it better.

• Your employer can (and many do) use the excuse of their paying into your pension as an argument against giving you an actual pay rise. You know, one that you get to keep. Now. This month. To pay this month's bills.

Move employer

Think about it. If these pensions were such a great idea, wouldn't they sell themselves?

What you mean like it's all good idea to eat healthy food and exercise so the idea doesn't need to be sold and no one had to be encouraged to do it?

Or its a bad idea to inhale cancer causing chemicals so no one does that ?

Or that most people are happy to save for the future rather than squander their money on junky gadgets and expensive holidays bought on credit rather than live within their means?

What's the colour of the sky on the planet you live on?

Instead, they are one of the few products that it is legal to inertia sell by signing up people to them who haven't asked for them and don't want them. Then make those people jump through hoops to extricate themselves from a financial product they didn't want in the first place. Then do it all over again every three years. Imagine supermarkets worked that way. Imagine they delivered food to your house unsolicited. Then had the cheek to try and tell you it was all in your own best interests, as otherwise you might starve to death. Because you're Just That Stupid. That's about the level of disingenuousness involved in the arguments for inertia selling pensions. It's a terrific wheeze. I bet lots of other industries wish they'd paid political parties to pass legislation that was so favourable to their own interests.


Anyone have any counter-thoughts? I'm always willing to be proven wrong. Then again, we'll only really know who is right and who was naive in 20 years time...

See above in red

RuleTheWorld

Agree that it would seem a logical step for the state pension to become means tested at some point which would obviously be unfair on those who have saved all their life. Enough to put me off saving? No way!

Auto enrollment is required as I would say the vast majority would save nothing otherwise. People who are above autoenrollment are most certainly in the minority.

robin61

OP - if pensions are such a bad idea I would be interested to know what your cunning plan is to fund your own retirement ?

Rachel_Pierson

Sleazy wrote: »

"Then again, we'll only really know who is right and who was naive in 20 years time... "
Unless like me, not yet 60 and medically retired in November 2016 after more than 20 years paying into my employers pension plus an AVC. I'm glad that I did, because now I can at least survive reasonably well until State Pension Age.

So to be more accurate - "You will know in 20 years time whether you were wise or naïve"

Thanks for your perspective. You mention AVCs. Am I right in thinking that means you worked in the Public Sector, under a local government pension scheme? The one and only time I had a pension was when I was in that boat myself, when I worked in the Police Service. Overall, though, I could make more money in the private sector. So having a 'gold plated' pension scheme lowered my overall lifetime remuneration quite a bit.

Rachel_Pierson

robin61 wrote: »

OP - if pensions are such a bad idea I would be interested to know what your cunning plan is to fund your own retirement ?

I can guarantee that every time I discuss pensions with a group, someone will ask that question. My answer is always the same - "the same as you, but I won't be propping up a Ponzi scheme for 40 years first". The fact, as I see it, is this: we're all going to have a crap retirement, unless we invest wisely ourselves outside of pension provision. Name me one person that wasn't an MP that can live on their pension alone today? Most people rely on a combination of other investments to supplement what amounts to a pretty meagre sum from their pension.

So, my question to you is, what are you going to do when your pension isn't enough to support your retuirement? Same as me probably, except your investments may be worth less because you've had less funds available to invest whilst you were working.

Rachel_Pierson

RuleTheWorld wrote: »

Agree that it would seem a logical step for the state pension to become means tested at some point which would obviously be unfair on those who have saved all their life. Enough to put me off saving? No way!

Auto enrollment is required as I would say the vast majority would save nothing otherwise. People who are above autoenrollment are most certainly in the minority.

So why not just be honest about it? Why go through the pretence of making it "voluntary"? Why not make it compulsory (like NI is/was)? Is it perhaps because then people might actually ask "Hey, wasn't that what NI was meant to be for?"

Linton

Your bullet points can be shown to be misguided possibly based on a misunderstanding of how modern pensions operate in practice. You ignore the 25% tax free lump sum, you ignore the possibility that you may be a higher rate tax payer in employment than you will be retired. You ignore employer contributions. Why should your employer choose to give you a higher wage if you dont want the pension? They dont need an excuse not to. If DC pensions are Ponzi schemes so are S&S ISAs as they are from an investment point of view much the same.

However if you are convinced by your arguments and dont want to take advantage of the benefits of a pension that's fine by me. Perhaps you may find it more helpful if you asked questions rather than ranted.

BLB53

Just a brief comment - I built up a private pension via my sipp on which I got a generous 25% contribution from HMRC.

I was fortunate to be in a position to retired from work at age 55yrs and for the past 6 yrs I have been drawing tax-free drawdown from my pension pot to bridge the gap to state pension. So, no complaints!

AnotherJoe

Rachel_Pierson wrote: »

So why not just be honest about it? Why go through the pretence of making it "voluntary"? Why not make it compulsory (like NI is/was)? Is it perhaps because then people might actually ask "Hey, wasn't that what NI was meant to be for?"

Because if it was s compulsory people like you would rant that it must be a terrible idea since it had to be made compulsory. Can't win, see. Therefore you must be right.

I see you are now delving back to the 1940's in your rants (NI). Why not rant that income tax was meant to be temporary whilst you are on a roll ?