Feel a bit lost what to do about pension contributions etc

zAndy1

I'm feeling rather confused about what to do for the best when it comes to my pension contributions and the funds to invest in. Obviously it's a really tough market right now and likely to be for the forseeable future , if a pension fund grows 3% a year at the moment it's doing well and you could argue putting money in a savings account would be a better investment. However I pay my pension contributions by salary sacrifice and would pay 40% tax on the vast majority of the £9k a year I put into my pension so it's obviously good in that respect but I can't help thinking there are better ways to invest that money right now. I'm 55 so max 10 years to retirement (and hopefully a lot less) so you would hope the market will turn round before I retire and putting money in now when the market is low will probably prove to be a good move eventually but it's obviously very risky. Should I be putting the money in certain types of funds and avoiding equities. It's depressing looking at my pension fund value, it's down 10% and just seems to be stagnant regardless of the additional contributions I'm making so I feel like I'm throwing money down the drain right now. I know someone will come along and remind me that pensions are long term investments and it's a marathon not a sprint but I'm losing confidence in my pension as being the best way to spend this not insignificant amount of money each month although I know everyone always says pensions are the best investment you can make and you'd be daft not to maximise contributions especially if you can contribute via salary sacrifice and you're a 40% tax payer. How is everyone else feeling about pensions as a retirement income vehicle , better options out there in the current market or not?

LV_426

I'm the same age as you, with intentions of retiring a lot sooner than 10 years down the line. I'm still very confident about my pension funds, although my collection of pensions is probably very different to yours, and I have a couple of DB schemes to call on.
Some of my funds are more adventurous than others in terms of investment choices. And as you say the tax benefits are significant, as I'm also a high rate taxpayer.
I do track the value of my total pension assets regularly, and I'm happy that they will provide a good income in retirement.

dunstonh

Obviously it's a really tough market right now and likely to be for the forseeable future

Not really.  Its pretty much in line with expecation.

 if a pension fund grows 3% a year at the moment it's doing well and you could argue putting money in a savings account would be a better investment.

Only if you want the money out in the next couple of years (and assuming you dont mean holding it in cash in the pension).

However I pay my pension contributions by salary sacrifice and would pay 40% tax on the vast majority of the £9k a year I put into my pension so it's obviously good in that respect but I can't help thinking there are better ways to invest that money right now.

Better than 40% relief and buying investments cheaper than they were in June this year? (recent gains have recovered the losses since then)

Should I be putting the money in certain types of funds and avoiding equities.

The mistake of an inexperienced investor is to go looking for alternatives that rarely exist because they dont understand how investing works.    Before you go looking for those alternatives learn about what you have and how it works.

 It's depressing looking at my pension fund value, it's down 10% and just seems to be stagnant regardless of the additional contributions I'm making so I feel like I'm throwing money down the drain right now. 

10% loss is nothing.  
What did you do in 2020 when it lost more?
What did you do in 2018 when it lost about the same?
What did you do in 2015/16 when it lost about the same?
What did you do in 2008/9 when it lost more?
What did you do over 2000-20003 when it lost more?

If your investment values were higher you wouldn't feel this way.  yet the opportunity to buy cheaper seems to put you off.

 How is everyone else feeling about pensions as a retirement income vehicle , better options out there in the current market or not?

The tax wrapper has nothing to do with investment returns.  The same investment held in an ISA or pension or unwrapped or in investment bonds or whatever other tax wrapper will get the same rate of return.   The tax wrapper is all about the taxation.

Pension would seem to be a non brainer in your case.

In your whole post about your concerns about investments, you haven't once mentioned what your investments are.  

zAndy1

dunstonh said:

Obviously it's a really tough market right now and likely to be for the forseeable future

Not really.  Its pretty much in line with expecation.

 if a pension fund grows 3% a year at the moment it's doing well and you could argue putting money in a savings account would be a better investment.

Only if you want the money out in the next couple of years (and assuming you dont mean holding it in cash in the pension).

However I pay my pension contributions by salary sacrifice and would pay 40% tax on the vast majority of the £9k a year I put into my pension so it's obviously good in that respect but I can't help thinking there are better ways to invest that money right now.

Better than 40% relief and buying investments cheaper than they were in June this year? (recent gains have recovered the losses since then)

Should I be putting the money in certain types of funds and avoiding equities.

The mistake of an inexperienced investor is to go looking for alternatives that rarely exist because they dont understand how investing works.    Before you go looking for those alternatives learn about what you have and how it works.

 It's depressing looking at my pension fund value, it's down 10% and just seems to be stagnant regardless of the additional contributions I'm making so I feel like I'm throwing money down the drain right now. 

10% loss is nothing.  
What did you do in 2020 when it lost more?
What did you do in 2018 when it lost about the same?
What did you do in 2015/16 when it lost about the same?
What did you do in 2008/9 when it lost more?
What did you do over 2000-20003 when it lost more?

If your investment values were higher you wouldn't feel this way.  yet the opportunity to buy cheaper seems to put you off.

 How is everyone else feeling about pensions as a retirement income vehicle , better options out there in the current market or not?

The tax wrapper has nothing to do with investment returns.  The same investment held in an ISA or pension or unwrapped or in investment bonds or whatever other tax wrapper will get the same rate of return.   The tax wrapper is all about the taxation.

Pension would seem to be a non brainer in your case.

In your whole post about your concerns about investments, you haven't once mentioned what your investments are.  

54% of my fund is in the aviva pension stewardship managed fund (4/7 risk level), 6% in Aviva Pension BNY Mellon Multi-Asset balanced FP (4/7 risk), 36% in Aviva pension Blackrock World ex UK equity index tracker (6/7 risk) and 4% in Aviva Blackrock UK equity index tracker (6/7 risk). And yes I take all your points and feel a bit more comfortable about the fact I'm using the money wisely by maximising my pension contribution. I guess it's just whether those funds are a good choice / balance in the current and forseeable future market I suppose...
https://www.fundslibrary.co.uk/fundslibrary.dataretrieval/documents.aspx/?user=me1aprvW1p4218/e9kl35cvd+0epPqmmFJo0ZVVpkoA=&type=packet_lp_fund_unit_doc_factsheet&citicode=FL99&r=1

https://www.fundslibrary.co.uk/fundslibrary.dataretrieval/documents.aspx/?user=RzR8+l1D7W1rNzdS/tqsHWaXZnfXEyQo3GI3mgayK6E=&type=packet_lp_fund_unit_doc_factsheet&citicode=OQ43&r=1

https://www.fundslibrary.co.uk/fundslibrary.dataretrieval/documents.aspx/?user=t/4+gXy1yijAmGxsn2lwO70K2tzL0dE763BYao85LA0=&type=packet_lp_fund_unit_doc_factsheet&citicode=OQ18&r=1

steampowered

It seems very odd that you are looking at the performance of your pension over the past year.

You've been contributing into your pension for over 30 years, and you have another 10 years to go until retirement, so why look at such a short timescale?

If you are only looking at the last year or two start going further back as pensions are long term investments! 

The average return generated by a typical pension over the last 30 years or so is about 7% per year, so your contributions are almost certainly worth a lot more than you what you originally put in.

You can hold cash savings in a pension if you wish. Many pension funds start moving your pot into cash as you approach retirement to reduce risk. If you had done that since the start your pot would be much smaller than it is today! 

zAndy1

steampowered said:

It seems very odd that you are looking at the performance of your pension over the past year.

You've been contributing into your pension for over 30 years, and you have another 10 years to go until retirement, so why are you looking at such a short timescale?

Is it simply that you haven't been paying attention to your pension for 30 years and are only now paying attention as you get closer to retirement? Start going further back as pensions are long term investments! 

The average return generated by a typical pension over the last 30 years or so is about 7% per year, so your contributions are almost certainly worth a lot more than you what you originally put in.

You can hold cash savings in a pension if you wish. Many pension funds start moving your pot into cash as you approach retirement to reduce risk. If you had done that since the start your pot would be much smaller than it is today! 

This particular pension I'm currently contributing to I've been in for the last 14 years and for a lot of that I was only contributing 2% of my salary which in hindsight was a stupid thing to do but when it comes to making good financial decisions I've never been top of the class to say the least. I'm only really looking at it I guess as I'm getting closer to retirement and the market is performing so badly right now and my fund has been stagnant for ages and with savings interest rates increasing it's got me thinking whether I'm doing the right thing contributing so much to my pension. I think perhaps I need to think about exactly which of the funds I'm investing in I want to prioritise , perhaps I should be putting more into the UK equity tracker as bonkers as that might sound but over the next 5-10 years it could be a good move if things pick up which they are bound to eventually...
Currently 50% of my monthly contribution goes into the stewardship managed, 25% into the blackrock world ex uk equity index tracker and 25% into the BNY Mellon multi asset balanced fund. 

Marcon

zAndy1 said:

I'm feeling rather confused about what to do for the best when it comes to my pension contributions and the funds to invest in. Obviously it's a really tough market right now and likely to be for the forseeable future , if a pension fund grows 3% a year at the moment it's doing well and you could argue putting money in a savings account would be a better investment. 

Not many people would argue that with inflation roaring away. If by 'savings account' you mean a simple deposit account, it's way behind inflation with no chance of catching up.

zAndy1 said:

I can't help thinking there are better ways to invest that money right now. I'm 55 so max 10 years to retirement (and hopefully a lot less) so you would hope the market will turn round before I retire and putting money in now when the market is low will probably prove to be a good move eventually but it's obviously very risky. 

You're making some very sweeping statements, and probably depressing yourself in the process far more than you need to! What 'better ways' do you think would match the benefits a pension offers - and what exactly do you mean by 'obviously very risky'? You're investing in unitised funds so get more for your money (never mind the 40% tax relief and possible NI saving).

zAndy1 said:

Should I be putting the money in certain types of funds and avoiding equities. 

Depends what your attitude to risk is - and how well you understanding investing.

zAndy1 said:

It's depressing looking at my pension fund value, it's down 10% and just seems to be stagnant regardless of the additional contributions I'm making so I feel like I'm throwing money down the drain right now. I know someone will come along and remind me that pensions are long term investments and it's a marathon not a sprint but I'm losing confidence in my pension as being the best way to spend this not insignificant amount of money each month although I know everyone always says pensions are the best investment you can make and you'd be daft not to maximise contributions especially if you can contribute via salary sacrifice and you're a 40% tax payer. 

Not everyone - but certainly those who know what they're talking about tend to spout the gospel of investing in pensions as just about the most tax-efficient vehicle you can have to save for your retirement, not to mention the requirement for your employer to contribute.

zAndy1 said:

How is everyone else feeling about pensions as a retirement income vehicle , better options out there in the current market or not?

What's your attitude to risk? Betting your shirt on the Grand National could have a brilliant outcome...or not. There's nothing at all in your post to suggest you are doing anything other than making perfectly sensible provision for your later years in the most efficient way possible, at a time when the markets are behaving in a way which is clearly doing your head in. You are not alone - but you do seem unusually upset by it all. As suggested above, maybe learning more about the funds in which you are invested, and how markets work generally, could do a lot to perk you up. Could you suggest to your employer that the pension provider might come in and give a general talk on the topic?

Mutton_Geoff

Don't forget that in the modern pension world, you don't stop being invested the day you retire. Let's say you live to enjoy 30 more years to age 95. You're barely past the half way mark now and even if you wanted the first decade of retirement funding to be cautiously invested to drawdown from, that is only a third of your pot in a decade from now.

You have time on your hands. I wouldn't be concerned at all. And my own investments have been really clobbered and I'm retiring imminently but the state of the markets don't concern me, it's what they do.

Now is not the time to stop buying nuts when they are so cheap.

Albermarle

As said already you are making a lot of sweeping statements, and making lots of negative assumptions that probably will not come to pass.
Obviously it's a really tough market right now and likely to be for the forseeable future 
For equities it has been a lot worse in the past, and no doubt will go through something similar regularly over the next 30 years. Bonds/Gits have taken an unusual beating this year, but that is hopefully unlikely to happen again for a long time.
In fact in the last 6 weeks markets and pension funds have perked up quite a bit.

I'm 55 so max 10 years to retirement (and hopefully a lot less) so you would hope the market will turn round before I retire and putting money in now when the market is low will probably prove to be a good move eventually but it's obviously very risky. 

Nobody knows for sure, but I think most would be thinking that markets should hopefully continue to recover from now on. With the usual short term ups and downs of course. As you are investing for the next 30 or 40 years, then it is not really  'very risky'

2Sheds

At the age of 60, I've upped my pension payments on my present employer salary sacifice to 18% from 6%, employer pays 6%.

Possible I'd retire at 62 or before if I get laid off, 40% tax relief, option to take 25% and probably pay only 20% tax on the rest.

As long as it doesn't fall below what I've paid in it seemed like a good idea !!

Mutton_Geoff

2Sheds said:

At the age of 60, I've upped my pension payments on my present employer salary sacifice to 18% from 6%, employer pays 6%.

Possible I'd retire at 62 or before if I get laid off, 40% tax relief, option to take 25% and probably pay only 20% tax on the rest.

As long as it doesn't fall below what I've paid in it seemed like a good idea !!

If you're sal sac, then it's 42% relief as you won't be paying the NI either. If you're worried about it falling in value in the short term, then just leave it as cash in your scheme. If you're close to retirement and can afford it, it's almost a non brainer to shelter 42% of your income from the tax man and then just pay 20% or less on retirement. If you fully retire & drawdown between 62 and whenever your state pension gets paid, all of your personal allowance will be available to you.

Then you can recycle £4k of it back in and get double bubble on that bit.