Is it really worth it?

FatherAbraham

AnotherJoe wrote: »

You question boils down to, is it better if i put £116 in my pension and get £232*, or should i save £92 (because you'll get taxed on the £116 and maybe even less if you pay NI as well) instead.
I vote that £232 is better than £92

Ignore the pension calculator which tells you what that eventual lump sum is worth as a monthly pension, as its wrong (basically it assumes you'd buy an annuity, you wouldnt) But you could have around £65k to spend after tax when you retire. Would that be useful ?



* if you employer matches the 5%. If not its £185. Roughly.

Why wouldn't one buy an annuity?

For those who aren't interested in managing a down-down pot, who just want a safe income for life (a "pension" is what that used to be called), and sophisticated investors who've done the research, and know that buyers of annuities both live longer than and are happier than those retiring on drawdown pots, annuities are a great product.

Mnd

If you are in a post do so, you can pay additional payments in as well to enhance it further

atush

Andy_L wrote: »

they are purely the employees contribution over the next 21 years so they ignore the employers contribution, investment returns & the tax rebate

This is exactly it. And the investment returns from our pensions have occasionally topped 20% annually. there have been a few down years, but overall we have a very healthy annual return.

atush

Mnd wrote: »

If you are in a post do so, you can pay additional payments in as well to enhance it further

Not ony is your pension worth it, as above you shiould pay more in. Right now you are paying in peanuts. But some peanuts are better than no peanuts.

Mr_EDATD

Like others have said, not doing it is turning down free money (your employer's contribution and tax relief on your contribution).

The alternative is live off the state pension only (worth checking your forecast to see how much this is likely to be https://www.gov.uk/check-state-pension) or continue working until you drop.

Definitely worth looking into paying more into some form of pension if you can afford to do so (some would say that you can't afford not to). Either more into your workplace's scheme or a SIPP.

Doubleshotdamo

Thanks everyone for your answers. I tried a different calculator, and the figures were better in my favour. I suppose I should view the pension as a savings plan. The thing is, I know too many people who worked hard, paid into a pension, saved for old age, then died before retirement age. I'm a saver, and I spend wisely, but pensions are quite new to me and, I hate to admit, I don't really know too much about them. I'll have a read up on the one I have, and will keep paying in. Thanks.

AnotherJoe

FatherAbraham wrote: »

Why wouldn't one buy an annuity?

For those who aren't interested in managing a down-down pot, who just want a safe income for life (a "pension" is what that used to be called), and sophisticated investors who've done the research, and know that buyers of annuities both live longer than and are happier than those retiring on drawdown pots, annuities are a great product.

Because IMO they offer very poor value for money.

From what I've seen, unless you are in poor health, you might as well just go into very conservative investments or even cash and then burn the money down.

But mainly, and putting that back to one side as we've both drifted off topic, the annuity values that are used in illustrations such as the OP got, are really at the very lowest low pessimistic end of what you could actually get from a pension, even via annuity, and as others have said here before, these ultra lowball estimates tend to make people think a pension overall is a very poor choice. They do naive pension investors a disservice.

Pennysmakepounds

Doubleshotdamo wrote: »

The thing is, I know too many people who worked hard, paid into a pension, saved for old age, then died before retirement age.

I am of the same mindset as you when it comes to pensions. I don't got the logic of putting money into a scheme that you MAY NEVER live to benefit from.


However, having said that. I also FULLY believe that you need to make a plan/provision for your old age when you CANNOT work.


How you do that is entirely up-to you.

dunstonh

I suppose I should view the pension as a savings plan.

Which is what it is.

The thing is, I know too many people who worked hard, paid into a pension, saved for old age, then died before retirement age.

About 1 in 6 won't make retirement. So, do you want to plan on the basis of you being that 1 in 6 that dont or the 5 in 6 that do? Your spouse/partner/children or other beneficiary get the money in the pension. Its not lost.

I don't got the logic of putting money into a scheme that you MAY NEVER live to benefit from.

i dont get that logic as the only way that works is if you spend every single penny exactly each month so the day before payday, you have zero left in the bank account. no pension, no savings, no investment. No point doing anything as you could be dead the next day.

jamesd

FatherAbraham wrote: »

Why wouldn't one buy an annuity?

A. Because they tend to be poor value for money compared to the alternatives, in effect paying you half as much as you could get elsewhere:

1. State pension deferral provides around twice the income per Pound spent.

2. Even just natural yield is likely to pay more than an annuity, with the benefit of preserving capital for use as needed or inheritance.

3. The 90% success rate safe withdrawal rate for the UK starts at 5.5% of the pot before costs, normally increasing with inflation, for a 40 year planning horizon and 60:40 equity:bond mixture using the Guyton-Klinger rules. Costs of 1.5% reduce that to 5%. That also being around twice what might be expected from an inflation linked annuity. Failure cases mean adjusting more than the rules do, normally being easily visible in the first ten years. The 90% success income assumes worst performance than the rest of the 90% of past outcomes, with increases above inflation a more likely result by far than getting down to the annuity income level.

B. annuities are inflexible and spending normally decreases with age, the excess going into savings. Annuities aren't well suited to this, though a combination of level and inflation linked might work. Generally this means lower incomes when higher income would be desirable and higher when not needed.

As a result of A and B pure annuity solution tend to require working much longer or accepting a far lower income. But state pension deferral perhaps combined with some annuity buying to provide an income floor can be a good match.

FatherAbraham wrote: »

buyers of annuities both live longer than and are happier than those retiring on drawdown pots,

Annuities have selection bias, being a better value product for those with higher life expectancies so it's to be expected that those buying them will live longer than those not. Similarly, the health issues associated with lower life expectancy can be expected to reduce happiness.