Pension Myths and Misunderstandings

jaybeetoo

https://forums.moneysavingexpert.com/discussion/comment/82180550#Comment_82180550

I wouldn’t put my pension in a fixed term savings account

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82180556#Comment_82180556

Unlike the others though, we don't know if that's a myth or not at this stage!

jaybeetoo

https://forums.moneysavingexpert.com/discussion/comment/82180559#Comment_82180559

Eactly. You die after 5 years, the capital is gone. Invest in a balanced portfolio and live off dividends and perhaps cash in some investments, there is still capital left in your estate to pass on.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82180562#Comment_82180562

OK I will rephrase it.

It is a commonly made comment, although the chance of the SP disappearing altogether is seen as very low by most informed commentators. If only for the reason that any Govt that proposed it, would be obliterated at the next election and probably never recover.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82180560#Comment_82180560

Tenuous - when choosing an annuity, the single mainstream alternative option is to draw down an invested pot according to one's preferred timescales, so it's a straight choice between two valid alternatives.

https://forums.moneysavingexpert.com/discussion/comment/82180561#Comment_82180561

I wasn't suggesting that anyone would, but was simply illustrating how fixing guaranteed returns (in either context) doesn't in itself mean that there's not an element of gambling involved, when considering the realistic alternatives (again in context).

jaybeetoo

https://forums.moneysavingexpert.com/discussion/comment/82180572#Comment_82180572

I might fix guaranteed returns from short dated Gilts or Government Bonds where I get my original investment back unlike an annuity.

Yellowkite

Maybe we could add things along the theme of…….

I wish I had thought about or understood that earlier…….

For example

What are my pension contributions versus my employer

What underlying funds am I invested in, and are the “default” funds good for me

What “cash flow forecast” will I be working with when I retire at age x

How does my cash flow forecast hold up with potential good v bad fund performance, both before and after I retire.

…..these spring to mind easily, but I’m sure there’s lots more

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82180567#Comment_82180567

…a post which neatly highlights another myth: 'all annuities are equal'.

You die after 5 years, the capital is gone.

Not if you buy an annuity with provision for a partner or other dependent, or choose an annuity with a longer guarantee period than 5 years.

Or a fixed term annuity, with a maturity lump sum…and a contractual provision that the maturity lump sum can be paid out to a survivor….

Albermarle

How about the misunderstanding that how much tax relief you can get on your pension contributions, is directly related to how much tax you pay.

Moonwolf

• https://forums.moneysavingexpert.com/discussion/comment/82180567#Comment_82180567

For £150,000 I have £8,000 a year, RPI linked with 100% spouse cover, so that lasts whoever lives longest. A safe withdrawal rate on that in the UK is generally considered to be 3.5% (£5,250) and a market crash in the next 5 years could make that very uncertain. If I draw down 5.3% and live over 85 I may well run out of money.

• Myth (or rather unjustified expectation) the relatively benign market conditions of the last 20 years will last indefinitely.
• Unjustified expectation - I am educated, earned a good income during my working life and have no known health issues but my plans focus on the likelihood that I will only live a few years after retirement. Hint - the average includes poor people in poor neighbourhoods with pre-existing conditions who are living on the breadline.