The reality of the Pension Debt (To encourage discussion)

Turnbull2000

At the age of 28, I honestly can't see any reason to invest in a pension - and neither can most of my 20 something collegues. The figures required to obtain above 50% of salary in a defined contribution scheme are huge.

If house prices remain the way they are, I'll be renting throughout my retirement anyway. Rather than fritter away my pension on rent and not be eligible for benefits, I'd rather the state pick up the tab instead. And as my widowed Mother found out to her great cost, there's no guarantee you'll see a penny of your pension investment upon retirement. Her long-term employer went under, leaving her with a private pension of £35 per month as opposed to £800.

EdInvestor

Turnbull2000 wrote: »

At the age of 28, I honestly can't see any reason to invest in a pension - and neither can most of my 20 something collegues. The figures required to obtain above 50% of salary in a defined contribution scheme are huge. .

I think that's well understood in Government and it's one reason NI has been put up, as that's going to provide you with two pensions that you can live on (just) without claiming benefits when you retire.

Far better that you spend your money on a home, which you need anyway, and which offers the possibility (through downsizing) of providing you with a top-up pot of money as well - while also keeping you off housing benefit when you're old.

The Government also thinks that you might well change your mind about pensions when you get older and especially when you start paying higher rate tax (most people do). So that's why it's changed the rules to enable you to stuff large quantities of money into your pension later, when the mortgage is less onerous, the kids have left hoime etc.(Formerly you got penalised unless you started young, as contributions limits were fixed on an annual basis.)

Now it's the ISA limits that are annual. So the incentives are arranged to encourage you to save up a cash emergency fund and a house deposit when young, and provide at least a basic pension.Then you are encouraged to switch over to big pension savings later (which also means you will be a taxpayer in retirement rather than a benefits claimant.)

Can't see too many holes in this thinking from the Government's point of view.

dunstonh

At the age of 28, I honestly can't see any reason to invest in a pension - and neither can most of my 20 something collegues. The figures required to obtain above 50% of salary in a defined contribution scheme are huge.

....I'd rather the state pick up the tab instead.

Thats a bit daft though. You only need a pot of around £100k to provide £5k of income. Getting that pot, in real terms value, over 40 years is a lot easier than 10 or 20 years and doesnt cost that much at all.

Either you do that or you look forward to £4500 a year in state pension.

The state doesnt pay much at all when you look at what you actually get.

PasturesNew

I don't have a pension.
Never worked for any company that offered one.
"we" weren't "told" to get a pension until I was nearly 30, then I've been in/out of work since then.
I did get a pension at that time, in all fairness, but the first time I was out of work I stopped it and upon getting another job the only way to start it again was to repay every missed payment. Not possible with the new job paying less than the last.

I'm nearly 50 now. Currently managing to create a self-employed income of about £10k/year. So no spare to start a pension. And if you look at the figures it doesn't make sense.

I don't understand pensions. Never have. Never will.

And ... no matter what you think/plan, the rules will (and do) change so that there's no point you starting in the first place.

"back in the day", it used to be that if you'd managed to squirrel away a few quid (all that those on low earnings could hope to do), then you'd have been penalised when you retired as you'd lose that amount from any payouts you got.

As I said. I don't understand pensions. No idea what to do. I've figured for the last 10 years it's been too late. And tried it once, crashed and burned.

To be honest, the basic pension + minimum income guarantee, to me is worth more than I get when I am working most of the time anyway. So I'll be better off (until they change the rules, which they will do a few more times before I get mine - and no doubt after that too).

Current strategy is: find somebody with a good pension provision and marry them for it in about 10 years' time. So actively track down, stalk and date civil servants, teachers, govt employees, public sector workers

Dithering_Dad

I started my pension at the age of 26 and aided by government tax relief, employer contributions, my (modest) contributions and stockmarket gains I now have a pension pot approaching 90k (at age 39). I will continue to invest modest amounts each month until my estimated retirement age of 60, so have a further 20 years on top of the 13 yrs I have already had.

My pension pot, coupled with downsizing from our family home, ISA Savings and my state pension should see me through to a comfortable retirement. Without any hardship whatsoever.

If you rely totally on downsizing to fund your retirement, then:

a) you had better be living in a huge mansion before retirement and a tiny terrace cottage afterwards, because you'll need hundreds of thousands of £'s to fund you.
b) you had better pray that you are retiring at a time when the housing market is booming and houses are selling at inflated prices at a fast rate!

dunstonh

To be honest, the basic pension + minimum income guarantee, to me is worth more than I get when I am working most of the time anyway. So I'll be better off (until they change the rules, which they will do a few more times before I get mine - and no doubt after that too).

You are self employed so you dont qualify for NI contributions towards the second state pension so if you have no real pension provision you are going to be limited to the pension credit (minimum income guarantee was abolished a number of years back).

As long as you have less than approx £10k in savings and investments and dont mind earning under 10k a year then you will be fine.

A good many people out there would find the thought of living on £10k a year a real hardship and it really isnt necessary. £30pm a month from 20 kept up with inflation until retirment would provide over £10k a year income. If people cannot afford £30 a month then they have their priorities totally wrong.

Turnbull2000

I gather the choice for most people my age is either a house or a pension. Not both.

If someday I do manage to buy a house, I doubt I'll have the spare income to save for a reasonable retirement fund for a very long time - certainly not enough to cover rent and living expenses.

It's a pity I chose to go to University. If I became employed 4 years earlier, houses would have been half the price, there'd be no £80 monthly student loan deduction and a fair chance of a final salary pension. To achive the same level of financial security available those 4 years prior, I'd need many hundreds in additional income each month.

It's sickening.

SquatNow

Turnbull2000 wrote: »

It's a pity I chose to go to University. If I became employed 4 years earlier, houses would have been half the price, there'd be no £80 monthly student loan deduction and a fair chance of a final salary pension. To achive the same level of financial security available those 4 years prior, I'd need many hundreds in additional income each month.

Reminds me of a quote from the film "The secret of my sucess"...
"So why did I go to university".... reply "had fun didn't ya?"

The simple fact is it all comes down to when you were born.

A few points to note:

• Taxes are about to rise drastically to fund current retirees.
• Paying NI no longer entitles you to a pension.
• State Pension will be means tested from now on. Cash from downsizing will almost certainly be included in the means testing.
• All current "private" pensions will only pay out if the investments they've gone for pay out... which given their investment in CDOs and CDSs is unlikley.

Dithering_Dad wrote: »

It has also been widely reported that the UK has more private pension provision than the whole of the rest of Europe put together.

Possibly but if that money has been poorly invested then it's worthless.

Dithering_Dad wrote: »

When I worked in Norway, most of them thought it was strange that we paid social taxes (NI) and also paid into private pensions. They have a great state pension, but then it's backed by a 52% income tax system with 25% VAT, a huge tax hike on alcohol, oh and lots of Oil & Natural Gas.

State Pensions are only possible when your country has huge natural resources and a relatively small population.

Dithering_Dad wrote: »

The choice seems to be that we either pay a lot more in tax and get a better state pension or we continue to pay lower tax and get a basic state pension. After always paying into a pension since day 1 of working, I'm happy to settle with the second approach.

You misunderstand... the tax you pay isn't for YOUR pension, it's for the pensions of those already in retirement. How much you get depends on how much your children and grandchildren pay in tax. This is why we are where we are now, where 2 generations paid very low taxes AND promised themselves a great state pension... they decided they wanted the benefits of both of your options.

Dithering_Dad wrote: »

I've always made sure that my retirement savings took priority to my luxury spending. I may have missed out on decades of X boxes, Nintendos, Plasma TVs, top of the range computers, brand new cars, ipods, mobile phones, etc. etc. but at least when I'm old n grey I'll be able to sit in comfort in front of a roaring fire.

Good on you. I hope your pension company hasn't been mis-investing your money and paying it's fund managers huge multimillion pound bonuses for making big short term profits by taking huge medium/long term risks with your money.

If you fund is like everyone elses though, I expect the roaring fire your describing will be the head office of the people managing your money.

dunstonh wrote: »

£30pm a month from 20 kept up with inflation until retirment would provide over £10k a year income. If people cannot afford £30 a month then they have their priorities totally wrong.

Possibly, but only because at the end, just before retirement you'de be putting away vast amounts per month compared to at the start. The payments from the first 10 years would be inflated to virtually nothing by the time you reach retirement.

The catch of course being, if you started now, in 45 years £10k a year will probably buy you a loaf of bread and a block of cheese.

dunstonh wrote: »

Thats a bit daft though. You only need a pot of around £100k to provide £5k of income. Getting that pot, in real terms value, over 40 years is a lot easier than 10 or 20 years and doesnt cost that much at all.

To get a pot of £100k you'de have to put away £2,222 a year, on average. That's not difficult. Sadly in 45 years time £5k income will be enough to buy a sandwich.

dunstonh wrote: »

Either you do that or you look forward to £4500 a year in state pension. The state doesnt pay much at all when you look at what you actually get.

It doesn't pay much, but the amount is linked to inflation.

I think what it comes down to is you rely on the private pension fund investing your money in such a way so as the returns are better than inflation. And if they c0ck up and lose the lot, you've got no come-back what-so-ever.

EdInvestor

SquatNow wrote: »

A few points to note:

• Taxes are about to rise drastically to fund current retirees.
• Paying NI no longer entitles you to a pension.
• State Pension will be means tested from now on. Cash from downsizing will almost certainly be included in the means testing.
• All current "private" pensions will only pay out if the investments they've gone for pay out... which given their investment in CDOs and CDSs is unlikley.

Err, the above is all complete and utter tosh.

State Pensions are only possible when your country has huge natural resources and a relatively small population.

State pensions are a feature of all developed economies.

the tax you pay isn't for YOUR pension, it's for the pensions of those already in retirement.

It's NI not tax, but yes, basically correct.

How much you get depends on how much your children and grandchildren pay in tax.

Fortunately the UK population is expected to rise quite considerably over the next 50 years so there should be plenty of workers to fund the part of their seniors' pension which they aren't funding themselves (likely to be less than half in most cases).

2 generations paid very low taxes AND promised themselves a great state pension...

Blimey how old are you? I remember income tax over 35% in the 70s.Anyone with high earnings went to the US because the top rate of tax was 90% :eek: And you think the state pension is great?What planet are you living on?

Possibly, but only because at the end, just before retirement you'de be putting away vast amounts per month compared to at the start. The payments from the first 10 years would be inflated to virtually nothing by the time you reach retirement.

Obviously you know nothing about investment or compounding.

I think what it comes down to is you rely on the private pension fund investing your money in such a way so as the returns are better than inflation.

Anybody who relies on the private pension provider to invest his pension is asking for trouble. You must control this yourself.

I'm afraid the OP is so poorly informed about pensions it's hardly worth wasting time to set him straight.

SquatNow

EdInvestor wrote: »

Err, the above is all complete and utter tosh.

Congratulations, a statement based on absolutely nothing but bravado.

EdInvestor wrote: »

State pensions are a feature of all developed economies.

Correct, but they are mostly an abysmal failure based upon unsustainable population growth to increase future tax income to allow the future payment of promises made today.

EdInvestor wrote: »

It's NI not tax, but yes, basically correct.

Call it NI, call it tax... they are one and the same. It's money taken from your earning by the state which is then spent on public services and the welfare state. The government isn't putting NI money in a big safe somewhere, it's just spending it like any other tax money.

EdInvestor wrote: »

Fortunately the UK population is expected to rise quite considerably over the next 50 years so there should be plenty of workers to fund the part of their seniors' pension which they aren't funding themselves (likely to be less than half in most cases).

With 1.8 children per couple (and dropping) I assume your relying on uncontrolled immigration? Which relys on the immigrants not being taxed heavily, to attract them in the firstplace! Or maybe your just making it up again. Probably the later.

EdInvestor wrote: »

Blimey how old are you? I remember income tax over 35% in the 70s.Anyone with high earnings went to the US because the top rate of tax was 90% :eek: And you think the state pension is great?What planet are you living on?

You've just shown yourself to be one of the people who paid !!!!!! all in tax, asset stripped the nation and now expects everyone to pay high taxes to subsidise your retirement. I explains why your so defensive.

At least people know who you are and can read your responses aware that you arn't exactly neutral in this conversation.

EdInvestor wrote: »

Obviously you know nothing about investment or compounding.

Um, yes, that's the point. Compounding is a basic maths. Sadly for it to work with money you have to get a better return on the "investment" as a percentage than inflation. And that return has to happen every year, without fail. (Tip: In the 80's, inflation hit 20%) This is why Equitable Life went bust.

EdInvestor wrote: »

Anybody who relies on the private pension provider to invest his pension is asking for trouble. You must control this yourself.

Most people don't have the financial skills to do that... that's why they rely on a group of "experience professionals" in the pension companies to do it for them. They even pay those "experience professionals" handsomely in the hope that they will protect their financial interests.

EdInvestor wrote: »

I'm afraid the OP is so poorly informed about pensions it's hardly worth wasting time to set him straight.

Your attitude is sickening. If you're going to talk to people like that you should not bother talking at all. You views are clearly coloured by the fact that you are one of the people who has run the country into the ground.

Just because you don't want to listen because it shows your generation in a bad light, it doesn't mean what I am saying is wrong.

The fact is that the generation now in their 50-70s will keep screaming louder and louder how there isn't a problem and how we should pay them what they were promised. They'll rubbish any claims that they haven't earned it and simple insult people who say otherwise in the hope of discrediting them.

Very few will EVER be willing accept that what they did has harmed their children and grandchildren. Even fewer will be prepared to try to redress the balance.

They will hold on to every penny they can while their children and grandchildren work themselves to death to fund the pensions they promised themselves.

This won't apply to all of them... some will accept the truth, but most will never be willing to give up the lifestyle they have become accustomed to.