Pensions? Are they even worth it?

thickasabrick

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"

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, my rent PA is £8,160, CT is £1500 sooo I'm investing into something that wont even cover a roof over my head never mind electricity, water, heating, food etc?

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...... 

Step back from looking at the pension by itself. It forms part of your overall “net worth”. Pensions can be a useful way of investing for the future because it forces a very long timeframe which works best for investing.
There are also some advantages in terms of the way pensions work with respect to being a “tax wrapper”.

You also need to do a bit of research on the flexibility we now enjoy when drawing from funds invested in pensions. What size of pot are you looking at that is needed for a £2009 per annum annuity ? There are other ways of drawdown that might be a better fit.

I like this article as it gives a nice simple visual for investing for a target net worth

How to become a millionaire from bigthink.

Followed by the Which article How much do you need to retire.

LV_426

Scrudgy said:

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! 

Wow impressive. Pension pot envy here.
I managed to stumble on to what I think is the ideal pension combination, with both DB and DC schemes available to me. That is through blind luck. The only advice I ever got was from my parents, who said it was important to pay into a pension scheme right from the start. Good advice.
But don't you think that this should be taught in schools? I mean it's vitally important, yet young people get no guidance on how to invest for the future.

Pondskater

Wish I had known where your mum was able to buy a three bed detached house in the 80s for less than £7000. I was looking at crummy flats in run down areas outside Glasgow and they cost more than that and the interest rates were eye watering,

MallyGirl

Pondskater said:

Wish I had known where your mum was able to buy a three bed detached house in the 80s for less than £7000. I was looking at crummy flats in run down areas outside Glasgow and they cost more than that and the interest rates were eye watering,

Indeed. My one bedroom flat in Didcot in 1991 cost £44,000 (as a repo) and the interest rate was 14%

Thrugelmir

Allumis said:

I have what I would consider a very good salary 

Then you need to sit down and analyse where the money goes. We all have choices as to whether to spend or save. My Grandmother was forever telling me that from acorns grow oak trees. Small things matter the most. 

LV_426

Thrugelmir said:

Allumis said:

I have what I would consider a very good salary 

Then you need to sit down and analyse where the money goes. We all have choices as to whether to spend or save. My Grandmother was forever telling me that from acorns grow oak trees. Small things matter the most. 

Judging by lack of response, I think the OP has concluded that we're all talking crap and there's some miraculous ingredient required that we don't know about. Magic beans?

mlv-1967

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"

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, my rent PA is £8,160, CT is £1500 sooo I'm investing into something that wont even cover a roof over my head never mind electricity, water, heating, food etc?

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...... 

Sorry, but you're a fool if you think that contributing 4% of salary a year will get you anything decent as a pension. You need to aim for a 30% contribution, including your employer's contributions.

mlv-1967

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! 

People like you make me wish we had a proper state pension system in the UK, with an NI rate of of 25% to ensure this, as in many European countries. You are fooling yourself if you think that paying in less than 20% will get you anything substantial as a pension.

mlv-1967

Silvertabby said:

The idea has always been that your State pension will cover the very basics, with the rest being paid for by savings/ other pensions.

This is the system in the UK.  Most other developed nations have a much more generous state pension system - even the USA has a 'social security' pension that you can claim from age 62 which is paid TAX FREE if you have no other income.

Thrugelmir

ajfielden said:

Thrugelmir said:

Allumis said:

I have what I would consider a very good salary 

Then you need to sit down and analyse where the money goes. We all have choices as to whether to spend or save. My Grandmother was forever telling me that from acorns grow oak trees. Small things matter the most. 

Judging by lack of response, I think the OP has concluded that we're all talking crap and there's some miraculous ingredient required that we don't know about. Magic beans?

Basic numeracy skills are pretty shocking these days. One can only assume that basic finance skills are getting even worse. What used to be past down from generation to generation is being lost. Little hope for the next generation.