Please note: The Auto-enrolment sub-board is now closed. If you have a question around pensions, please post in the Pensions, Annuities and Retirement Planning board.
MSE News: Pensions shake-up 'to help half a million by Christmas'
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At least I will be in control and the money will be safe and won't go down in value when the pension fund management decides to invest in bad shares.
Exactly so. A pound in your pocket is worth more than two pounds promised to you in 40 years time by some dodgy geezer down the pub.
There are 400,000 people in the FAS and PPF who lost their pensions when their employers went bust and who will get a lot less than the 90% the Government is still claiming. There are another 750,000 people who got burned when the Government failed to regulate Equitable Life properly. The lesson from this is not "Don't provide for your old age". It is "Don't put your money anywhere if you can't get it out when things start to go wrong." A pension is just about worthwhile if you are in a high rate tax band and if it forms only part of your retirement saving so that you can afford to take the risk. It doesn't make any kind of sense for the low-paid, where the sums saved will be too low to give a useful annuity and any eventual income will probably be offset against state benefits.
ISAs are one savings option, while the tax benefits last. Property is another, if you can afford it. It costs slightly more than renting, but think of the difference as being your 'pension' contribution. Then, regardless of what happens to property prices, once you have paid off the mortgage, you get to live rent-free for the rest of your life. That's an incredibly good return and, unlike a pension, you can leave the property to your kids when you die. And if you sell, the proceeds are tax-free.
In third world countries where both governments and financial systems are untrustworthy, people tend to have lots of kids, give them the best start they can and then, when the parents get too old to work, their kids look after them. There are worse strategies . . . .0 -
The problem is that as people age in larger numbers then benefits will be continually cut, so you need to look after yourself. The benefit of a pension is arguable when not higher rate taxpayer and no company contribution, but the idea surely is always to spread risk.
Sensible approach for most would be some in pension, some in savings and Isa some in property and or paying off mortgage etc
The third world issue is changing rapidly, and a large family is no guarantee for provision in old age, as these countries become more developed and westernised.0 -
edinburgher wrote: »I was proposing an account where the owner gets to withdraw money as they see fit, not the GAD-approved drawdown percentage.
The reason the GAD limits are there is to stop people spending their whole pension and falling back on state support. An account like you suggest would encourage people to spend it all and then the state would have to pick up the tab.
Drawdown is provided as an alternative to an annuity, but the limits are in place to minimise the risk of the pot being emptied before death. Blowing all your savings and then letting the state (i.e. the rest of us) pay for your last decade or two is rightly considered to be a bad thing!0 -
They say you pay £80, and they put in £20, but £5 is swallowed by fees and commission every year, if you are lucky: could be £10. So only £95 is invested. Let's say £95 a year over 40 years grows into £9,500, and you can take £2,500 lump sum. The remaining £7,000 is given to you at £400 a year, so you will have to live 18 years to get it. If you are not lucky, the £400 is potentially subject to tax.
Your calculations are meaningless because no one would just pay £100 per year into a pension scheme and the fees are nowhere near 5% (i.e. your £5 per £100 invested).If you just kept the £80, invested it in an ISA, which has similar tax free properties, with £5 in fees, so £75 is invested. After 40 years, you have £7,500 , but it's all tax free, and you can do what you want with it.
If you are a higher rate taxpayer, it's a foregone conclusion that it's better to save in a pension scheme rather than an ISA because you get 40% tax relief on the way in and pay 20% tax when the pension is paid out.
With lower rate taxpayers, the line between whether to pay into an ISA or pension is blurred. The advantages with pensions are that they are not means-tested so that if you can't work, you are not expected to use your retirement savings to support yourself until they drop below £6k (or whatever the savings limit is). Pension savings are also protected from bankruptcy proceedings.0 -
Eellogofusciouhipoppokunu wrote: »Your calculations are meaningless because no one would just pay £100 per year into a pension scheme and the fees are nowhere near 5% (i.e. your £5 per £100 invested).
I initially thought that (£100 a year - wouldn't be paid) but I guess its a quick and easy way to show % movements.If you are a higher rate taxpayer, it's a foregone conclusion that it's better to save in a pension scheme rather than an ISA because you get 40% tax relief on the way in and pay 20% tax when the pension is paid out.
Unless a higher-rate tax paying pensioner (there are many e.g. people with £40,000+ incomes in retirement).0 -
Unless a higher-rate tax paying pensioner (there are many e.g. people with £40,000+ incomes in retirement).
I doubt there are 'many' people earning £40k in retirement, certainly with the demise of FS pensions and low annuity rates, I'd imagine this figure would be even lower by the time people my age retire. To buy an annuity that pays £40k, you'd be looking at a minumum of an £800k pension pot. The average UK pension pot is £25k.0 -
Eellogofusciouhipoppokunu wrote: »To buy an annuity that pays £40k, you'd be looking at a minumum of an £800k pension pot. The average UK pension pot is £25k.
If you want an annuity which holds its value (i.e. indexed to RPI) you need even more than that. On current best-buy annuities (according to the FT) to get £40k you would need £1.1 million for single life with a 5 year guarantee. Or, to put it another way, with the average pension pot of 25k, you would get a pension of £905 per year. :eek:
They don't even quote for an indexed joint-life annuity.0 -
Eellogofusciouhipoppokunu wrote: »The average UK pension pot is £25k.
Of course, it could also mean that there is more than one pension pot held by a single person. It would be nice to know the median amount of total pension fund sorted by age for example.
Cheers
Joe0 -
If you want an annuity which holds its value (i.e. indexed to RPI) you need even more than that. On current best-buy annuities (according to the FT) to get £40k you would need £1.1 million for single life with a 5 year guarantee. Or, to put it another way, with the average pension pot of 25k, you would get a pension of £905 per year. :eek:
They don't even quote for an indexed joint-life annuity.
Exactly, so very very few people will be paying higher rate tax as a pensioner. Which brings me back to my point that for higher rate tax payers, paying into a pension is a 'no-brainer'.0 -
Eellogofusciouhipoppokunu wrote: ». . . for higher rate tax payers, paying into a pension is a 'no-brainer'.
Yes, for them it makes a lot of sense as part of a balanced savings portfolio for old age. But this thread is about auto-enrolment, which is aimed at people who are not higher-rate taxpayers, and specifically at the lower-paid, who stand to gain least from the tax benefits.0
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