Couple of questions.

Jimmyc · 14 October 2012 at 9:19PM

I'm 27 and haven't started a pension yet, reason being I am saving for a deposit towards buying a flat. I don't really know much about pensions and i havent heard anything from my employer. I have a few questions, hopefully people can help me with.

It mentioned on the mse page that've "the amount of money you have when you retire depends on how much has been paid in and how well investments have performed" what sort of investments are they making? What happens if they aren't good investments? Could I end up getting a worse pension then if I just saved.

What happens when I change job?

What happens if I die before I retire will any of my pension/money go to my family.

Linton · 14 October 2012 at 10:20PM

For all company defined contribution pensions I have seen there is some level of choice of funds. The funds on offer tend to be fairly unadventurous and broadly based. So they are very unlikely to be really bad investments. In general you would ensure that you have a wide coverage of the global economy, possibly through a single fund.

In theory you could end up with less than in a savings account, but as you will be investing for perhaps 40 years this is extremely unlikely. For it to happen you would need large scale global economic problems over a long time period. I would guess in that eventuality your pension would be the least of your problems. Savings arent safe over a long time period as they can easily be decimated by a few years of high inflation.

The risk in pension investing is significantly reduced by the free money of an employer contribution, something you wont get with savings.

There will be the odd credit crunch and similar events during your working life when your pension could drop significantly in value, but during those periods you will be continuing to pay into your pension and buying the funds cheaply.

As you approach retirement it would be usual to steadily move your investments into safer but less lucrative funds so that you arent caught out by an unexpected stock market crash.

When you change job your previous pension remains in existence unaffected apart from the absence of any new contributions. You may be able to transfer your old pension into your new one, but whether this is worthwhile depends on the details of the two schemes.

If you die before taking your pension the funds will be passed to someone you have nominated when you joined the scheme. This money is outside your estate and so wont be subject to inheritance tax.

Jimmyc · 14 October 2012 at 10:41PM

Thank you for your reply.

I don't like the fact that my money isn't viewable, so if I end up changing job every couple of years which is quite common I could end up having many pensions, which could get easily forgotten about. Would this pension affect the state pension at all?

Linton · 14 October 2012 at 10:54PM

There is no connection with the State Pension. The SP is provided to anyone with 30 years NI contributions.

As to having many pensions - yes you could have, though you may well be able to merge them. The only person who would forget them is you, they wont be forgotten by the pension company. So these days when we are all individually responsible for our own pensions it is essential that we keep full records.

Not sure what you mean by the money not being viewable. You will get an annual statement. Also your employer may have the facility for you to manage your pension online, mine did but it was a large IT company.

anniecave · 14 October 2012 at 11:19PM

Our company (we are only a small company) have pensions with Friends Provident. I can log into my friends provident "account" on their website and see what the current value is and what payments have been going in to it.

dunstonh · 14 October 2012 at 11:24PM

I'm 27 and haven't started a pension yet, reason being I am saving for a deposit towards buying a flat.

After you buy a flat, your will then find that running the flat is expensive. So, you will put the pension off again. Life continues to throw up reasons you can use for putting it off. The longer you leave it, the harder it gets.

It mentioned on the mse page that've "the amount of money you have when you retire depends on how much has been paid in and how well investments have performed" what sort of investments are they making? What happens if they aren't good investments? Could I end up getting a worse pension then if I just saved.

modern pensions have access to nearly 30,000 conventional investments and a near infinite number of variations. Your investments could end up worse depending on what you invest in. However, at 27, cash is likely to be far worse over the next 40 years. Cash has inflation risk and shortfall risk. Investing could fall short too whereas cash WILL fall short. Investing is the lesser of two evils.

At 27, you are probably looking at this recession as being something new and unusual. However, it is not. There have been 8 financial crisis since 1956. Stockmarket crashes tend to happen every 5 years with major ones less frequent but do happen. Recessions tend to occur once a decade. We just had a longer gap in this one and like a balloon, the more you blow it up, the bigger the bang. you have probably got another 4-6 recessions in you before you retire.

Couple of questions.

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