Pension

I'm with Aegon at the moment, have two Pensions with them (1 a holiday a year pension) and the other my company one.

at the moment i put in £40/£50 per month and my company put in £150+tax relief.

To be completely honest i couldn't trust myself to have a savings account as i would 100% definately be eating into it all the time.

Although my Pension isn't fool proof I've have something like £50 in interest in 16months which isn't bad at all imo for what i've got in there works out at 8% interest if i read my annual report correctly.
 
ejr22 said:
Cash + Mattress = Pension.
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NO!

This a terrible idea, not only is your money becoming less in value (inflation) you are also engaging in a loss due to opportunity cost (risk free rate, generally interest).
Not only that but the money you are keeping is net income whereas all pension contributions (up to a point) are taken from gross income.

I would definitely check to see if your employer offers an employee pension scheme as these generally better options than any personal investment you make. DB (defined benefit) schemes are generally a good deal (especially for more senior employees) and as the name implies your retirement benefit is calculated using a set formula, you pay a certain amount each interval and come retirement time your employer pays the difference between what you've accumulated and what the calculated benefit should be. The expected present value formula for this benefit is generally something like
n/R * Salary * avg_projected_salary_factor * annuity_factor_for_benefits * probability_of_retirement_at_ages_between_now_and_NRA * discounting_factor

where n is the number of years in service and R is the accrual rate. This is a simple example and real benefits are generally far more complicated.

Another option may be a company Defined Contributions (DC) scheme and in these schemes both you and your employer put a set amount of money each (lets say) every month or so and come retirement you would take the money in the pot and purchase and annuity from an insurance company. These are more flexible and may be a better deal for you if you are a younger worker. In general these do pay out less than DB schemes which is one of the reasons the latter is gradually getting phased out.

In both cases you may take up to 25% of the money in the pot as a tax free lump sum upon retirement.

If your employer doesn't have a company scheme for you to join you can always invest in a Self Invested Personal Pension (SIPPs) [you select an area you want funds invested in and a fund manager will invest your money into a portfolio of assets from that sector, performance is determined by the knowledge and understanding of your fund manager.] or a Stakeholder pension (these are getting phased out too in favour of personal accounts.) The downsides to these is that there is no employer contribution and you pay the administration charges yourself.

Many pension schemes also include ill health retirement benefits, benefits for death in and post service for spouses/partners and dependants.

So in my opinion paying towards a pension is definitely a worthwhile investment. Main reasons being: tax free contributions (to a point), fund growth (LPI factor or otherwise), employer contributions of some description (assuming company scheme), ill health/death benefits, up to 25% tax free lump sum upon retirement (you often have the option to commute this into a larger annuity)
 
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dirtydog said:
Personally as pension legislation stands at the moment, I would not put any money into a pension. There is no cast iron guarantee what you will get out of it, or indeed whether you will get anything from it at all.
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If you are a member of a DB scheme you currently have SOME protection from the PPF (Pension Protection Fund) which takes over the pension liabilities of a company if they go bust.

100% if you reached NRA and received your pension before April 2006, it is capped for people receiving benefits after that. Not particularly great, but better than nothing.

If you are on a DC scheme buy an annuity from a reputable (and solvent insurer) don't go for dodgy companies who may offer a higher annuity (bigger gain => larger risk).
 
Seeing as they'll be changing the age or retirement at least once before I reach there and no doubt altering state and private pension legislation I'm not entirely convinced a pension is a good idea. I have one, have for years but I doubt I'll see a penny from it.

On a side note, it's about time we started raising the basic pension without penalising those who have saved up. I'd happily pay more taxes now if I knew that old folks and I in 30-40 years would have a better old age.
 
Strife212 said:
How much is the state pension?
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Also don't forget you can get a lot of means tested benefits on top of the state pension, if you need them. eg. pension credit, housing benefit, council tax benefit. You would need a very substantial private pension to do better than you would get from that.
 
killari said:
So in my opinion paying towards a pension is definitely a worthwhile investment. Main reasons being: tax free contributions (to a point), fund growth (LPI factor or otherwise), employer contributions of some description (assuming company scheme), ill health/death benefits, up to 25% tax free lump sum upon retirement (you often have the option to commute this into a larger annuity)
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You are saying that without knowing how much they earn, or whether they are a homeowner etc.

Someone on low earnings paying small amounts into a pension is wasting their time, they might as well put their money straight in the bin as they'll get nothing back from it at all, whatever they get will just be taken off their state benefits.

IMO anyone with a mortgage is better off overpaying on the mortage than saving into a pension.
 
Kami said:
Seeing as they'll be changing the age or retirement at least once before I reach there and no doubt altering state and private pension legislation I'm not entirely convinced a pension is a good idea. I have one, have for years but I doubt I'll see a penny from it.

On a side note, it's about time we started raising the basic pension without penalising those who have saved up. I'd happily pay more taxes now if I knew that old folks and I in 30-40 years would have a better old age.
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I'm sure you would see return from a personal pension, things are bad now but they will inevitably recover.

The state pension is a difficult topic however. At the moment state pension costs the UK around 4% of GDP (I think, don't quote me on that) and it is predicted to rise to about 12%ish in ten years or so (again don't quote me) due to the ageing demographic (large number of retirements due to war baby boom and smaller number of new young workers contributing to NI). It will be interesting to see how the gov't tries to sort out this problem.
 
dirtydog said:
Someone on low earnings paying small amounts into a pension is wasting their time, they might as well put their money straight in the bin as they'll get nothing back from it at all
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This is true for traditional schemes, that's why there is always a list of criteria you must meet before you can sign up.

For those who are on low incomes there is the option of a Stakeholder Pension (soon to be replaced with Personal Accounts) which is designed for such a scenario.
 
killari said:
For those who are on low incomes there is the option of a Stakeholder Pension (soon to be replaced with Personal Accounts) which is designed for such a scenario.
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It makes no sense for someone on a low income to pay into one of those either, does it.
 
dirtydog said:
Also don't forget you can get a lot of means tested benefits on top of the state pension, if you need them. eg. pension credit, housing benefit, council tax benefit. You would need a very substantial private pension to do better than you would get from that.
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Some DB schemes can leave you receiving a pension of 2/3rds your final salary. Pretty sweet I'd say. But yeah private sector is where the best schemes are.
 
dirtydog said:
It makes no sense for someone on a low income to pay into one of those either, does it.
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I'm definitely no expert on low income pensions, but I'd guess the main reasons for these schemes are tax relief and a temporary annuity for life/maybe death benefits upon retirement. There is probably revaluation too, raising benefits by an LPI in an attempt to maintain its worth, something keeping cash under the mattress doesn't do.

Don't point the scepticism at me, I'm just pointing out the options.
 
killari said:
I'm definitely no expert on low income pensions, but I'd guess the main reasons for these schemes are tax relief and a temporary annuity for life/maybe death benefits upon retirement. There is probably revaluation too, raising benefits by an LPI in an attempt to maintain its worth, something keeping cash under the mattress doesn't do.

Don't point the scepticism at me, I'm just pointing out the options.
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I will when you make the blanket recommendation that everyone should take out a pension, when for many that would be a very bad and very expensive mistake.
 
Lots of advice, thank you.

You asked how old I am. Well, I am 34, married with a child. My wife has a large pension that she has paid into for years and with a substantial amount. I just thought it about time to start something myself and act as a top up to monies saves elsewhere. I would be looking to put away £100 a month until I retire.

:)
 
dirtydog said:
Very sweet. And very unsustainable...
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Bare in mind that when someone with such a pension has retired contributions have already been made and come from the employer and there should have been an actuarial reserve prepared for this.

In theory assuming that the scheme actuary and trustees aren't totally worthless it should all balance out.

But that's in theory...

In practice: that's why the PPF exists.
 
dirtydog said:
I will when you make the blanket recommendation that everyone should take out a pension, when for many that would be a very bad and very expensive mistake.
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Actually my argument was why I think pension schemes are a better option than keeping cash under the bed - or at least I think it was, there is a lot of text in my posts. Obviously there are other things you can do with your money too, I didn't say pensions were the only way forward.

And one would hope that you would research how an investment would affect you in your circumstances rather than taking what someone in some forum said for granted and running in blind.
 
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