Pensions? Are they even worth it?

MEM62

Allumis said:

I'm not the best when it comes to fully understanding my financial future but I'm at that stage again where I'm being re-enrolled for a pension and tying to understand is it even worth it or "what's the point"

How about because you do not want to spend your retirement years in poverty?  Do you need a better motivator than that?  

Allumis said:

I have what I would consider a very good salary and contributing 4% of that per month would give me an annuity of £2,009 PA, 

If you have a good salary why are you only contributing 4% to your future self?  If you pay in peanuts, you'll get back peanuts.  And in any case it is highly unlikely that you will be buying an annuity as they are very poor value.  More likely you arrange your retirement income via drawdown. 

Allumis said:

What's the point? I can't understand why I would invest into a pension when the returns are not even enough to cover living costs...... 

@Allumis You are asking what is the point because you won't get much back but what do you expect when you are putting very little in?  You should also bear in mind that any future financial assumptions shown to you are extremely pessimistic as they are not based on realistic figures.  Also, you will not be buying an annuity. 

You would serve yourself well if you did a little research on the subject so that you have a more realistic picture of how pensions work and what the real returns are likely to be.     

LateStarter

It would be easy to jump in and criticise you, but my own experience isn't too great. Planning for your post working life is a step change in outlook, which only you can decide to take. It certainly is not pointless to consider how you're going to live, how much you'll need, and how you're going to accumulate that amount. 

How old are you? When would you live to retire? What is this "very good salary" you're on where you "barely afford to save anything"? Where's the money going? I wish somebody had asked me those questions when I was 35 (or 25). And don't compare your situation to your mum's, - life was different then, and the cost of living certainly has changed. But saying that it's pointless sounds like a cry for help, so read what the kind people on here have to say, ask more questions, make a plan for your own future. 

Best wishes
LS

LV_426

Allumis said:

What type of person would be best to speak with about this? Contributing almost 20% of my salary can't be "the only way" to afford to just exist come retirement.

Yes my mum has an old NHS pension and had the luxury of buying a 3 bed detached property in the 80's for just under £7,000. The dream of having a monthly mortgage of £142 a month! 

You got it. I bought my first house just after the housing market crash in the mid '90s. I've had an ultra low mortgage payment throughout my entire life. I've just been lucky.
Mortgage/rent costs are the killer these days.
Your options are to either increase your earning power, or reduce your living expenses somehow. This is why these days, double income families are required, to service debts and make provision for retirement.
I do sympathise with your situation.

 

Allumis

MACKEM99 said:

The dream of having a monthly mortgage of £142 a month! 

At 15% interest.

I don't think you could rent anywhere in the UK for that price these days, even Harry Potters cupboard would carry a higher cost than this!

p00hsticks

Allumis said:

MACKEM99 said:

The dream of having a monthly mortgage of £142 a month! 

At 15% interest.

I don't think you could rent anywhere in the UK for that price these days, even Harry Potters cupboard would carry a higher cost than this!

Ask your mum how much she was earning back then though....after paying basic rate income tax of 30%

[Deleted User]

Contributing 4% matched is a hell of a lot better than contributing 0% matched.  

Yes, its best to maximize what the company contributes because you are otherwise missing out on a portion of your effective paycheque from your employer.  But if you can’t thats ok too - contribute as much as you can.

If the money is then invested in a diversified and cost efficient fund, you will find it compounding to something well worth having.  Future returns are, of course, unknown.  However, I found that invested money tends to double every seven years or so (not accounting for new contributions).  So, if you put 10k in and the employer adds 10k, in 30 years it could become  over 160k.  

bluenose1

Dont despair too much yet Allumis, most of us on here would not dream of getting an annuity as the pay out is extremely  low and unless in a very unusual position not worth it.and note you dont have to have an annuity.
Not sure how old you are and if your pension scheme is DB (annual pension) or a DC scheme (pot of money)
I would suggest you look at Guiide.co.uk  
Its a really good site where you put your age in, expected date of retirement, current and future pension contributions etc and it calculates what pension you will have at retirement.
Plus you can adjust your contributions easily to play with the sums.

GunJack

Allumis said:

What type of person would be best to speak with about this? Contributing almost 20% of my salary can't be "the only way" to afford to just exist come retirement.

Yes my mum has an old NHS pension and had the luxury of buying a 3 bed detached property in the 80's for just under £7,000. The dream of having a monthly mortgage of £142 a month! 

A lot depends where you are in the country.... my oldest's £70k mortgage on his first flat is under £300 a month. And your mum's property price will also be relative to salary at the time, probably 3-4 times her salary at the time. 

Scrudgy

Have you said how old you are yet?

Do not use an annuity as a good example of what you future retirement will look like. It may be the example your employer gives you, but it is likely to be the worst way to demonstrate future value.

It is likely you are in a defined contribution scheme where your and your employers money will be invested in a default fund. This is likely to be a medium risk fund depending on your age. It may be called a lifestyle fund or option. If you are around 30 years old, then I would opt out of that and look for higher risk options with better growth potential. 

Read up on the power of compounding and the magic of pound cost averaging. If you get these principles into your head, it will click into place and you will see the value of a pension.

Me? I started putting £50 a month away into a private pension in 1986 with no employer contribution, I had no idea what I was doing. In 1995 I was lucky enough to move to a company where they contributed to my pension.

As I got older I started paying more attention to these things and increasing my payments when I could. Very recently at age 55 I exceeded the Lifetime Allowance in my pension pot which is £1,073,100, all through the power of compounding and pound cost averaging.

Pensions? Are they even worth it? Most definitely! 

Alexland

Allumis said:

Contributing almost 20% of my salary can't be "the only way" to afford to just exist come retirement.

It depends at what age you intend to retire but I have noticed during progression through my career my target date keeps getting sooner so I am glad that we made healthy rate of contribution (never as low as 20% total) in our earlier years. Remember that a good proportion of the return you can expect to get on your investments will go towards inflation maintaining spending power so it's only the growth above inflation and charges that is giving you a real return on your money.