My view on Pensions

Rachel_Pierson

Linton wrote: »

You really havent followed what has happened to pensions over the past 10+ years......

1 - You only need to get IFA advice if your pension provides a guarantee. Most people in the private sector these days are in DC pensions without guarantees so there is no requirement to involve an IFA. Pensions with guarantees are more restricted, however the fiinancial benefits are much larger than could be gained purely from your contributions.

But surely the point is that wasn't the deal when the pension was taken out? Who's to say that DC pensions won't become subjected to the same "must obtain financial advice" rules in the future? They tend to impose these rules post-facto. Becuase no-one in their right mind would have bought a DB pension if they knew they'd have had to pay for financial advice when they retired just to do what they wanted to do with it.

Linton wrote: »

2 - There has been no general requirement to buy an annuity since 1995 when drawdown was permitted for people under 75. Constraints were relaxed by successive governments in 2006 and 2011 and complete freedom came in 2014. After the age of 55 you can buy an annuity or you can drawdown as much or as little as you wish whenever you wish.

I'm aware of that. I provided a link previously that showed the options. Most of the 'options' are pretty tax inefficient, however, unless you do exactly what the pension scheme wants. (Which, coincidentally, is what stops the scheme collapsing. If everyone took out their pension as a lump sum, plenty of schemes would go bust.) So, I feel it's the illusion of choice at best.

Linton wrote: »

3 - A mistake you are making is your apparent belief that it must be pensions or S&S ISAs. I think you will find that most people on this board with significant savings, especially those who have taken or plan to take early retirement, make full use of both pensions and S&S ISAs. Both have their advantages and disadvantages so use both. Put as much into pensions as required to get the maximum employer benefits and put the rest of your available money into S&S ISAs.

I didn't say it's ISAs or pensions. I didn't even mention ISAs in my post. There are of course plenty of options for investment, including property, bullion, or just good old fashioned paying the bills instead of using a credit card. (Which for some of the people auto-enrolled into these schemes is the harsh reality - they get signed up to a pension scheme they don't want and can't afford, and inertia or fear of rocking the boat with their employer in their low-paid job makes them stay in. Whilst struggling to pay their bills.)

Linton wrote: »

4 - One advantage of pensions that hasnt been mentioned is that it can be very much more tax efficient to use pensions for inheritance as they are outside one's estate. ISAs form part of one's estate. For those with less wealth, but this is not my field, money in ISAs can limit your access to benefits far more than money in a pension can.

It can be. But you'll usually pay tax if the person is under 75. And there will usually be less left in the pot if they're over that age.

Rachel_Pierson

AlanP wrote: »

I read the OP before anyone had replied and bit my tongue figuring it just wasn't going to be worth trying but reading this post the misunderstandings seem to be getting worse.

If you are talking about a Final Salary or Defined Benefit scheme as you had in the Police then you never have a "pot of money" and what is within the Pension Scheme is not yours.

Were you under the impression I did think I had a pot of money in that scheme? Because I wasn't, and didn't say I was.

I was contrasting that Police scheme (which was worth being in as there was a Defined Benefit) with the schemes in most workplaces now. And noting that even in the case of the Police it wasn't worth it, because my lifetime earnings (so far) have been far greater than if I had stayed in just to get an 80th of my final salary per year of service (or highest salary in the last 5 years of service, or career average, whichever was greater.) Adding it all up, getting a more than 100% increase in actual salary every year I work by leaving for the private sector still left me better off. Even with a good Police pension scheme.

zagfles

Rachel_Pierson wrote: »

But surely the point is that wasn't the deal when the pension was taken out? Who's to say that DC pensions won't become subjected to the same "must obtain financial advice" rules in the future? They tend to impose these rules post-facto. Becuase no-one in their right mind would have bought a DB pension if they knew they'd have had to pay for financial advice when they retired just to do what they wanted to do with it.

No-one "in their right mind" would have opted out of a DB scheme. Until a couple of years ago there was never the option to "do what they wanted with it" anyway! It was a pension that paid a defined benefit, an income. Not a cash sum.

The reasons there are rules in place to stop people transferring out of DB schemes is because people vastly underestimate what they're worth. Like you, it seems.

Pensioners today who have DB pensions are the ones who are well off in retirement and can go on exotic holidays or world cruises (I know a few). Pensioners who weren't lucky enough to have one are the ones who worry about turning the heating up.

Rachel_Pierson

zagfles wrote: »

Ever heard of the PPF?

No, never heard of it. Or indeed quoted an article about it in my post just above yours....

Rachel_Pierson wrote: »

What, like this one?

I suppose it's still better than the scheme the government proposed last time a major pension scheme went bust. A lot of those pensioners died without receiving a penny, whilst politicians were faffing about offering as little as 25% of what was due.

I personally don't fancy a 10+ year legal fight when it comes to drawing down a pension if promises aren't honoured. Time is not on your side if the worst comes to the worst at that point in your life.

nearlyrich

I suppose the taxpayer can be pleased you don't want the free money and even better you will insist on paying loads of tax on the 75% to take it as soon as you retire.
I am 55 just retired with enough to enjoy life, holidays etc thanks to a generous employer scheme the past 6 years and being lucky enough to realise that a pension is a very good wrapper to save for the future.
I am planning on taking less than my tax allowance from my pension funds and topping up from other investments I have made over the last 20 odd years. I have never been an MP either and neither have most of my retired friends ( 1 has) but they all seem to be getting along nicely on just their pensions.

Rachel_Pierson

zagfles wrote: »

No-one "in their right mind" would have opted out of a DB scheme. Until a couple of years ago there was never the option to "do what they wanted with it" anyway! It was a pension that paid a defined benefit, an income. Not a cash sum.

The reasons there are rules in place to stop people transferring out of DB schemes is because people vastly underestimate what they're worth. Like you, it seems.

Pensioners today who have DB pensions are the ones who are well off in retirement and can go on world cruises. Pensioners who weren't lucky enough to have one are the ones who worry about turning the heating up.

I didn't opt out of mine. But the salary that accompanied it was so crap I did leave the job, and moved to the private sector. In the case I linked to earlier, I don't have any opinion as to whether it was the right move or not. But I do have the opinion that the pensioner in question was a competent businessman that was approaching the end of his life, who shouldn't have had to argue with a self-serving pension scheme organiser just to do what he thought was right with his own money.

hyubh

Rachel_Pierson wrote: »

https://www.theguardian.com/business/2016/apr/25/pension-protection-fund-bhs-retirement-ppf

What, like this one? I suppose it's still better than the scheme the government proposed last time a major pension scheme went bust

Regulation improving over time is a good thing, not a bad thing. The PPF has been existence for over a decade, and lots and lots of little schemes benefiting lots and lots of members have entered it.

Becuase no-one in their right mind would have bought a DB pension if they knew they'd have had to pay for financial advice when they retired just to do what they wanted to do with it.

You do not 'buy' a DB pension (ignoring things like added years contracts...), and the potential for transferring out into more flexible arrangements has increased, not fallen since the heyday of final salary schemes.

Most of the 'options' are pretty tax inefficient, however, unless you do exactly what the pension scheme wants.

What do you mean...? (As an aside, it's not very helpful when you flip between DB and DC - it makes you come off as a bit confused.)

I personally don't fancy a 10+ year legal fight when it comes to drawing down a pension if promises aren't honoured. Time is not on your side if the worst comes to the worst at that point in your life.

To go back to your initial example, there are no '10+ year legal fights' for BHS scheme members to get benefits with the PPF.

You mention AVCs. Am I right in thinking that means you worked in the Public Sector, under a local government pension scheme?

Erm, AVCs doesn't imply public sector, let alone LGPS specifically.

Rachel_Pierson

nearlyrich wrote: »

I suppose the taxpayer can be pleased you don't want the free money and even better you will insist on paying loads of tax on the 75% to take it as soon as you retire.
I am 55 just retired with enough to enjoy life, holidays etc thanks to a generous employer scheme the past 6 years and being lucky enough to realise that a pension is a very good wrapper to save for the future.
I am planning on taking less than my tax allowance from my pension funds and topping up from other investments I have made over the last 20 odd years. I have never been an MP either and neither have most of my retired friends ( 1 has) but they all seem to be getting along nicely on just their pensions.

I am (one of the) taxpayers. But you make a valid point. Who is all that "free money" coming from again? It's not from David Cameron's dad's dodgy Mossack Fonseca offshore trust. It's from you and me.

AlanP_2

Rachel_Pierson wrote: »

Were you under the impression I did think I had a pot of money in that scheme? Because I wasn't, and didn't say I was.

Sorry I must have misunderstood as that was the impression I had based on comments such as:

"Because no-one in their right mind would have bought a DB pension if they knew they'd have had to pay for financial advice when they retired just to do what they wanted to do with it."


I was contrasting that Police scheme (which was worth being in as there was a Defined Benefit) with the schemes in most workplaces now. And noting that even in the case of the Police it wasn't worth it, because my lifetime earnings (so far) have been far greater than if I had stayed in just to get an 80th of my final salary per year of service (or highest salary in the last 5 years of service, or career average, whichever was greater.) Adding it all up, getting a more than 100% increase in actual salary every year I work by leaving for the private sector still left me better off. Even with a good Police pension scheme.

But one of your main points is that you need IFA advice to do what you want with your pension - that in the main applies to a DB -> DC transfer.

Using that as the main point against DB schemes then today's DC schemes are better surely form your perspective?

As for overall earnings whilst that is true for you it wouldn't necessarily be for everyone opting to leave a Public Sector DB scheme for a "No Pension but Higher Salary" Private Sector scheme.

As it happens I went the other way from a non-pension private sector job to the public sector taking a 40% pay cut along the way but recognising that my income when I retired would be substantially better.

I made my choice and you made yours that does not make either of us correct or put us is a position where we can "preach" that our route is the Best Route.

Rachel_Pierson

Right. It's getting late. Thank you all for your opinions, even those I didn't agree with or that contained the words "rant" or "@rse". Although I remain convinced pensions are a bad investment, it's interesting to get an alternative perspective. So thank you for that.