Pensions: Explain to me why it's a sound investment...

[Mr Jones]

Here's a little background. I'm 27, I started working at 23 and didn't start earning enough money to start saving until about 18 months ago. My GF and I are currently saving as much as we can for deposit to buy the house we're renting (part of the housing scheme, rent is 20% lower and in 2 years of renting, I will be offered opportunity to buy 50-100%, depending on how much mortgage I can raise).

Anyway, the new auto work place pension scheme kicked in this month so it'll automatically sacrifice 1 percent of my pay (my company matches up to 5% contributed) a month. I've never contributed to my private pension as I rather save right here right now for a house deposit, no matter how small that 1 percent is.

I am of Chinese decent. Crudely, I estimate the most I'll live to is about 65ish (males on our side of family don't have high expentency). So I never see myself retiring - nor do I dread it as I would rather work till I die than be bored at home.

With this pension thing happening, I am having to think long term or short term benefit now. Do I save no matter how small for in case I grow older than I foresaw or do I sod this auto pension and save for right here, right now - and if worst should come, I'll work till I die or if fortunate, have family to look after me when old.

I am also under the impression that if I conk out before I retire, my other half will only benefit from half my pension when she's old enough? What if we're both pushing up the daisies, what will happen to the pension?

What's your opinion to the whole private pension savings vs personal savings / investing it in a house that you'll want to live in?

TL;DR
Pension newbie wonders if it's worth saving now for when I retire via work place pension scheme or use the money now for brick & motar investment.

 

[Theophany]

Bricks & mortar are a terrible investment - in the same sense as say shares - unless you know what you're doing, imho.

As to questioning your lifespan, nobody can insure against longevity just as we cannot predict the future. You could live to be a hundred or you could die tomorrow. The question is, are you feeling lucky?

FYI - I'm 23 and have been saving into a pension for over two years now. The fear of being old and destitute keeps me awake at night as much as the fear of being old and alone. I don't imagine I'll have great longevity past 65 if I carry on like this (still working on that one!), but I'd rather have a million quid to blow if I'm diagnosed with a terminal illness on the day I retire.

 

[jas72]

My worry is not if I should have a private pension but to whom should I give my money and how can I monitor their handling of my cash. Am I protected incase they buy the wrong stocks and go belly up? Should I choose risk free or accept some risk.

Hard questions to answer and no one who can answer them clearly means I continue to waste my investment

Unfortunately I have to pay 11% into my works pension which is at the mercy of government cuts each year and over which I have no control. (I cannot opt out.)

I would be even less inclined to pay into a privately owned works pension as the chances of them going belly up with the pension funds is also quite high.

 

[bowey]

Bricks & mortar are a terrible investment - in the same sense as say shares - unless you know what you're doing, imho.

As to questioning your lifespan, nobody can insure against longevity just as we cannot predict the future. You could live to be a hundred or you could die tomorrow. The question is, are you feeling lucky?

FYI - I'm 23 and have been saving into a pension for over two years now. The fear of being old and destitute keeps me awake at night as much as the fear of being old and alone. I don't imagine I'll have great longevity past 65 if I carry on like this (still working on that one!), but I'd rather have a million quid to blow if I'm diagnosed with a terminal illness on the day I retire.

Brick and mortar are a terrible investment? Worst advice ever given.

 

[pitchfork]

The idea of saving for a pension is for when you get too old to work, either you become unemployable, or fall ill. Would you at that point shoot yourself in the head or would you want to continue living at home and having a roof over your head?
Or option 3, you're taken into a degrading care home at the expense of taxpayers.

Anyone who says bricks and mortar is a bad investment are wrong. It isn't a capital generating investment, it's the roof over your head and the family home full of memories.

You could pay marginally less to rent and at the end of 25 years have nothing to show for it, or you could pay your mortgage for 25 years and have gained an asset worth several hundred thousands of pounds, which you will not continue to pay for in retirement.

Way things are going it's starting to become cheaper to pay a mortgage than rent anyway.

It often is not worth doing buy to lets or using property as a capital generating investment, because there are better things to invest in and it's better to split your portfolio, this is where the misconception comes from.

 

[Make]

Learn investing and invest the money yourself.

It feels better if you lose the money yourself than if someone somewhere screws it up and charges you 1% a year or more for the privilege.

Or if you win. Investing is not gambling.

 

[Kemik]

The biggest two are the fact that the government grosses up the amount you invest in your pension, and your employer matches your investment. i.e. you put in 80p, government put in 20p and your employer puts in 80p. That's £1.80 for 80p...

You'll get 25% of your final balance back as a tax free lump sum and the rest you can use to buy an annuity which would then be taxed at whatever the rates are.

The figures from Barnett Waddingham were compiled based on a 25-year-old worker earning £25,000-a-year putting 5 per cent of their salary into a generous company pension, with their employer contributing 10 per cent.
If they take their pension at 70, they could potentially have built up a pension pot worth £1.275million based on average annual investment returns of 7 per cent, whereas someone saving at the same rate from the age of 40 would build up less than half that.

Note: I've not checked these calculations.

 

[robgmun]

Bricks & mortar are a terrible investment - in the same sense as say shares - unless you know what you're doing, imho.

As to questioning your lifespan, nobody can insure against longevity just as we cannot predict the future. You could live to be a hundred or you could die tomorrow. The question is, are you feeling lucky?

FYI - I'm 23 and have been saving into a pension for over two years now. The fear of being old and destitute keeps me awake at night as much as the fear of being old and alone. I don't imagine I'll have great longevity past 65 if I carry on like this (still working on that one!), but I'd rather have a million quid to blow if I'm diagnosed with a terminal illness on the day I retire.

This is terrible advice, Bricks & mortar is an amazing investment, even if there a housing crash like in the 90's you still win out in the end far far more those that simply stuck it in a pension

 

[semi-pro waster]

Brick and mortar are a terrible investment? Worst advice ever given.

This is terrible advice, Bricks & mortar is an amazing investment, even if there a housing crash like in the 90's you still win out in the end far far more those that simply stuck it in a pension

I'd have thought the advice would depend on whether you can realise an income stream from your investment. If you put everything you have into your home and (only) own one house outright (or with a small mortgage) then it's not providing you with any income beyond what you would get from a state pension - you don't have rental costs of course but it might not be providing you with a comfortable lifestyle either because you will still need some form of income to purchase what you need (assuming of course you're not growing your own food, making your own clothes and bartering for the rest or alternatively taking in lodgers for some cash).

Property values have risen signficantly over the decades but it's worth remembering that it is an average, some people will have done poorly from their investments and others spectacularly well. I'm not certain but I'd suspect Theophany is thinking of buy-to-let style property ownership and that is something where having a bit of a clue about what you're doing is very useful, it may be easy to buy a property in that way (although much harder than it used to be) but that doesn't necessarily mean it's easy to make money from because you've got to be able to get tenants regularly, maintain the property, pay rates etc and yet do so in a way that will provide you with some profit - if you don't know what you're doing that is much trickier and reliant on luck (for want of a better word).

Personally if I was unsure I think I'd go and speak to an independent financial adviser - I believe some offer a short free consultation which would give you a better idea about whether it would be worthwhile for you to engage them properly for their advice.

 

[Mr Jones]

Bricks & mortar are a terrible investment - in the same sense as say shares - unless you know what you're doing, imho.

How is it a terrible idea though?

I'm looking at it from the point of if manage to get a mortgage and pay for the house over e.g. 35/40 years. I'd live passed my expected age (personal view). Then if I truly want to retire, can remortgage the house or be sensible, live in the paid off house, thus not worried about being homeless if jobless.

Does anyone know where my pension goes if I die before I retire?

 

[PhilGQ]

Here's a little background. I'm 27, I started working at 23 and didn't start earning enough money to start saving until about 18 months ago. My GF and I are currently saving as much as we can for deposit to buy the house we're renting (part of the housing scheme, rent is 20% lower and in 2 years of renting, I will be offered opportunity to buy 50-100%, depending on how much mortgage I can raise).

Anyway, the new auto work place pension scheme kicked in this month so it'll automatically sacrifice 1 percent of my pay (my company matches up to 5% contributed) a month. I've never contributed to my private pension as I rather save right here right now for a house deposit, no matter how small that 1 percent is.

I am of Chinese decent. Crudely, I estimate the most I'll live to is about 65ish (males on our side of family don't have high expentency). So I never see myself retiring - nor do I dread it as I would rather work till I die than be bored at home.

With this pension thing happening, I am having to think long term or short term benefit now. Do I save no matter how small for in case I grow older than I foresaw or do I sod this auto pension and save for right here, right now - and if worst should come, I'll work till I die or if fortunate, have family to look after me when old.

I am also under the impression that if I conk out before I retire, my other half will only benefit from half my pension when she's old enough? What if we're both pushing up the daisies, what will happen to the pension?

What's your opinion to the whole private pension savings vs personal savings / investing it in a house that you'll want to live in?

TL;DR
Pension newbie wonders if it's worth saving now for when I retire via work place pension scheme or use the money now for brick & motar investment.

The trick is get a balance, its important that you get your deposit together, but then its important to save for the future.

 
A matched pension is a really good reason to use pension, if an employer will contribute you then that's free money in your pension. If you really can't afford to lose the 1-5% in your salary to get the matched contribution then you should not pay it. If you can manage it then it is generally its a good idea to have.

By the way private pensions let you retire from age 55.

Death benefits wise, if you die before retirement the full pot will generally go to whomever you nominate tax free. If you die after retirement (assuming you buy an annuity) the spouse pension is not always 50% you generally get to choose between 0-100% when you buy the annuity. (There are other options I am not going to get into).

 

[PhilGQ]

Personally if I was unsure I think I'd go and speak to an independent financial adviser - I believe some offer a short free consultation which would give you a better idea about whether it would be worthwhile for you to engage them properly for their advice.

A Financial Planner might be better in these circumstances, he could do with seeing his future Cashflow.

 

[Amp34]

Pensions are a gamble... Taking more out than putting in (when you include the fact you could have invested and got an increase in your money privately) will only happen with less than half the people on their pension... Otherwise pension companies will soon go bust...

You feeling lucky punk...?

 

[XE11]

the moment i read alan sugar has a two third of his wealth in housing... im sold

the whole pension pot idea is flawed, but it is flawed to our advantage. so keep a small one on the side and concentrate on housing. when you have a couple of rental properties going which will feed your mainhome mortgage, then you can throw some spare money into private pension to lower your income tax liability.

 

[Judgeneo]

Bricks & mortar are a terrible investment - in the same sense as say shares - unless you know what you're doing, imho.

If he was buying as an investment I would agree, but buying would stop him renting, so he would be turning rent into equity instead of throwing it to the landlord, so it probably a very good idea right now.

How it compares to starting a pension scheme and buying the property a little later? I'm not sure.

 

[PhilGQ]

My worry is not if I should have a private pension but to whom should I give my money and how can I monitor their handling of my cash. Am I protected incase they buy the wrong stocks and go belly up? Should I choose risk free or accept some risk.

Hard questions to answer and no one who can answer them clearly means I continue to waste my investment

Unfortunately I have to pay 11% into my works pension which is at the mercy of government cuts each year and over which I have no control. (I cannot opt out.)

I would be even less inclined to pay into a privately owned works pension as the chances of them going belly up with the pension funds is also quite high.

You could go in a Tracker fund, they buy a bit of everything (no stock picking) it will have its up times and down times like most investments but if its for 30+ years in the future you can wait it out. My view is as long as businesses as a whole carry on making profit the fund will go up. Its never going to be amazing performance but it will keep up.

BTW The the chance of a mainstream Private Pension Provider going belly up is quite low really, even if they did the assets are normally held with a separate company (the fund Manager(s)).

 

[PhilGQ]

Does anyone know where my pension goes if I die before I retire?

You should nominate a beneficiary, they would normally get the lot tax free. If you don't nominate the pension Trustees choose someone.

The money is outside your estate so not subject to IHT.

 

[XE11]

If he was buying as an investment I would agree, but buying would stop him renting, so he would be turning rent into equity instead of throwing it to the landlord, so it probably a very good idea right now.

How it compares to starting a pension scheme and buying the property a little later? I'm not sure.

need to watch out for that one. it depends on where he is, and what house is he is aiming for.

for example, in london zone 2, renting a £250,000 studio is around 1100 per month. based on one of these dangerous 95%LTV help-to-buy scheme. the repayment over 25 years is around 1500 per month based on ~5% interest. out of the repayment 1400 is pure interest at the begining. after 5 years, the interest will come down to around 1000. so in this example, he is actually better off renting for 5 more years while he saved up for a bigger deposit.

 

[grumpysculler]

A pension is just a wrapper that confers a particular tax status on the contents and protects them.

Almost, but not completely, any investment that can be made outside the pension can be made inside a pension. the only difference would be the special treatment of the pension wrapper.

 

[danielanthony]

Pensions:

If you die before you draw your pension, the invested amount goes to the person you nominate to receive such benefit upon your death. If you buy an annuity then you have the choice for it to keep paying out to your nominated person for 5-10 years after your death - but obviously this reduces the amount you receive whilst you are alive.