Anyone reduced their pension contribution?

[chief barker]

I really need to get a pension statement.

£1200 goes into my pension every month + 100 AVC.

Well, so my wage slip tells me.

I've 20 years of pension payments so far (but not all at that amount), I am now 42 so how does that calculate?

 

[anything I don't mind]

I really need to get a pension statement.

£1200 goes into my pension every month + 100 AVC.

Well, so my wage slip tells me.

I've 20 years of pension payments so far (but not all at that amount), I am now 42 so how does that calculate?

You get £15 per month.

 

[platypus]

Who can tell you that? Your pension statement.

We have no idea what funds you've invested in at all.

 

[platypus]

Here is the kicker the part that is hidden in the fine print.



This means that i could pay in for 40 years and then come to see teh value only to be told, sorry mate the stock market had some problems in 2032 and the property market crash of 2035 and we were wrong on those bonds, so there is half of what you are expecting is actually there. So much for the employer contribution, enron anyone?

It's not really hidden in any fine print. Every investment product tells you that your money may go up as well as down.

It's **** I agree, but you need to spread your portfolio. Money in the bank at the moment? It's losing value. Money in property? Ok good at the moment but not everyone can afford it. Money in a pension? Again not the best, not inflation proof either, but its the tax relief that makes it so good.

I've always been advised that you want to try and split savings into thirds: cash/property/pension. It's not always practical but its a good spread of risk.

 

[Richie]

I brought in three years to my pension which would have allowed me to retire at 52, now I need to work until I'm 60 or I will lose a hefty part of my already decimated pension.

Not sure if this is entirely true. From my recollection, you wont be able to draw your pension until you are 60 irrespective from when you retire. Sure you lose on 8 years of pension income but that's not technically the same as being forced to work or you "lose a hefty part".

At least the Fire Service had the option to strike to voice their opinion. Think of the Police who were unable to do anything but just suck it up.

 

[D.P.]

Ok sure, so that would make it even worse as the 84k would be even higher and i assume the calculator takes interest in to consideration? So say it increases to £110k with interest.

If we take £110k and divide by £329 per month we get 27 years roughly. So at the rate of £329 per month i would need survive to the age of 92 before i used up the pot.

I guess the main benefit that everyone things make it worth is the employer contribution, but if you don't survive long enough in your pension years you would never see the rest of it.

Why would you still only get £329 per month if you increased your pensions from 84k to 110k?

And I don't think you are realizing the impact of compound interest. 10K invested now averaging 5% returns will be 43K in 30 years time.
You may get the same returns if you handled your own investments but you have 2 big drawbacks: now employer match and no gross tax savings.

Lets say you had 10K pre-tax to invest in a pension or privately. If you employer matches pensions 100% then you have 20K in the pension pot. This will return 86K in 30 years. If you decide not to go the pension route then you have 10K minus the taxes, e.g. typically 40% so you only have 6K to invest. In 30 years time your savings/investments is now worth 26K. Significantly lower than the 86K from the pension! The difference of course is the fact that your employer has doubled your investment and you don't pay tax on the investment.

The figures are actually than even worse than that. If you just put the money in a savings account that had the same 5% interest then each year you will be paying tax on the earned interest. Your effective net interest rate might end up at something like 3.5% so after 30 years your 10k gross (6k net) investment will only get you 17K!

17K vs 86K for a pension

 

[chief barker]

Who can tell you that? Your pension statement.

We have no idea what funds you've invested in at all.

It's a DMGT pension.

 

[anything I don't mind]

Even with the employer contribution and the tax benefits, I am still not sure it is a worthwhile solution.

I think if you have a lot of money can afford to put in £800+ per month in to pension it starts to become of use when you retire. But then if you are earning so much money than you can put £800 in to a pension every month then in my opinion there are far better ways to invest that money than pension.

But if you like me with debts and next to no spare money, i just don't see how losing £100 per month now would be better spent in £35 years time once its lost half its value.

 

[platypus]

It's a DMGT pension.

Um, that means little to me I'm afraid. But that pension scheme will have invested in certain funds, which you, as an investor, will have information on.

 

[platypus]

Even with the employer contribution and the tax benefits, I am still not sure it is a worthwhile solution.

I think if you have a lot of money can afford to put in £800+ per month in to pension it starts to become of use when you retire. But then if you are earning so much money than you can put £800 in to a pension every month then in my opinion there are far better ways to invest that money than pension.

But if you like me with debts and next to no spare money, i just don't see how losing £100 per month now would be better spent in £35 years time once its lost half its value.

You're right, it's really not an easy choice to make. I wish there was some easy way to just point at a decent return investment model and put everything into it safely.

Forcing people to save - even if it doesn't give them much return is pretty much one of the only ways we can pay for the nations advancing years though.

 

[Judgeneo]

I swear pension schemes are deliberately complicated to make you pay for an advisor.

 

[D.P.]

Here is the kicker the part that is hidden in the fine print.



This means that i could pay in for 40 years and then come to see teh value only to be told, sorry mate the stock market had some problems in 2032 and the property market crash of 2035 and we were wrong on those bonds, so there is half of what you are expecting is actually there. So much for the employer contribution, enron anyone?

That is not in the fine print, that is all over the documents in bold headings!


But it doesn't really have anything particular to do with pensions in them selves. If you invest privately you have the same risks. I've lost lots of money through private investments.

You can also control the risk with most schemes, just put all the money in bonds and then you get secure growth at a low rate. The advantages through a pension is the employer match and the tax benefits, see above .

 

[anything I don't mind]

Why would you still only get £329 per month if you increased your pensions from 84k to 110k?

And I don't think you are realizing the impact of compound interest. 10K invested now averaging 5% returns will be 43K in 30 years time.
You may get the same returns if you handled your own investments but you have 2 big drawbacks: now employer match and no gross tax savings.

Lets say you had 10K pre-tax to invest in a pension or privately. If you employer matches pensions 100% then you have 20K in the pension pot. This will return 86K in 30 years. If you decide not to go the pension route then you have 10K minus the taxes, e.g. typically 40% so you only have 6K to invest. In 30 years time your savings/investments is now worth 26K. Significantly lower than the 86K from the pension! The difference of course is the fact that your employer has doubled your investment and you don't pay tax on the investment.

The figures are actually than even worse than that. If you just put the money in a savings account that had the same 5% interest then each year you will be paying tax on the earned interest. Your effective net interest rate might end up at something like 3.5% so after 30 years your 10k gross (6k net) investment will only get you 17K!

17K vs 86K for a pension

What about the risk of the pension pot going down due to stock market or other economic problems? Surely if put the £10k in to gold and sat on it that would be worth more in 35 years than the pension+employer+interest+tax breaks?

why would there be so much interest on the pension? is that because its returns on stock markets and things like that? or does it have a very high non taxable interest rate specific to the fund? I understand compound interest, that is not what i am asking about. I am asking why it has such a high interest rate in general.

 

[Judgeneo]

What about the risk of the pension pot going down due to stock market or other economic problems? Surely if put the £10k in to gold and sat on it that would be worth more in 35 years than the pension+employer+interest+tax breaks?

why would there be so much interest on the pension? is that because its returns on stock markets and things like that? or does it have a very high non taxable interest rate specific to the fund? I understand compound interest, that is not what i am asking about. I am asking why it has such a high interest rate in general.

The price of gold historically has been outstripped by the stock market, apart from minor short stretches such as in the wake of 2008.

For it to make financial sense to invest money privately instead of pensions, the following must be true:
Private investment growth - tax rate > pension investment + employer contribution

OR

The extra savings will earn you more money through paying off high interest debt early, or significant time savings in getting on the housing ladder.

For most people, pensions are a great investment.

 

[booyaka]

I swear pension schemes are deliberately complicated to make you pay for an advisor.

 

[anything I don't mind]

OK that makes sense judgeneo.

thanks for clearing that up d.p, everyone.

 

[D.P.]

What about the risk of the pension pot going down due to stock market or other economic problems? Surely if put the £10k in to gold and sat on it that would be worth more in 35 years than the pension+employer+interest+tax breaks?

why would there be so much interest on the pension? is that because its returns on stock markets and things like that? or does it have a very high non taxable interest rate specific to the fund? I understand compound interest, that is not what i am asking about. I am asking why it has such a high interest rate in general.

Depending on the pension scheme you could choose to have your pension invested into gold if you wanted to. Or better still a bond that grantees a return, say 4%. Then it doesn't matter what happens to the stock market since you have invested in stock but simply earn interest like any other savings account.


And if you really wanted something guranteed and secure growth you would never ever go near gold!

 

[Judgeneo]

Well my one is anyway, my employer contribution is meant to be 6%, but my last pay slip indicated it was 3%. I'll figure it out

 

[D.P.]

What about the risk of the pension pot going down due to stock market or other economic problems? Surely if put the £10k in to gold and sat on it that would be worth more in 35 years than the pension+employer+interest+tax breaks?

why would there be so much interest on the pension? is that because its returns on stock markets and things like that? or does it have a very high non taxable interest rate specific to the fund? I understand compound interest, that is not what i am asking about. I am asking why it has such a high interest rate in general.

With a pension you are investing in much the same things as you could privately and you get the same expected rates. If fixed 10 year bonds have an interest rate of 3% then it is likely if you wanted to have your pension invest in a similar bond getting the same rate. If you want a higher rate of return then you need to invest in stock , but this can be at different degrees of risk. Diversifying the investment will general reduce risks because you are not subject to the noise, e.g if your investment is spread over 50 companies and if 1 or 2 of them go bankrupt then it is not such a big deal and likely some of the other companies ave gained.



This is not really any different to any other investment scheme, the difference is from day one I have a return of 240% which can never be achieved through personal investments.

You pension provider likely offers different ways to invest depending on how much effort you want to put in. For example, with my pension I have these options:
1) do nothing, they have my age and so will know when I will retire and will invest with a diverse range of products based on my age, being young that would include mostly higher risk returns.
2) I can delegate percentages to invest into different risk categories. The zero risk category is just bonds and fixed rate savings accounts. If I choose 30% of my pension to go to moderate risk stocks then their experts will invest that amount for me, if I also have 30% in high risk then their experts will invest that amount for me in what they perceive to be high risk investments. etc.
3) I can pick all the companies and stock options I want from their list and assign percentages to each.

I can go online at any time and make changes to any of the above. I currently use method 2 - I don't have time or expertise to follow company stocks but I know what % I want in high risk, medium risk and low risk.

 

[BusError]

The pensions are made to get some cash into the financial system. Why do you think the gov decided to auto-enroll everyone? THAT money is the one that gets in the "plus" balance of banks, as it is 'locked'.
It's also very easy to plunder for the future governments; we can fairly easily imagine that that "lump sum to the next of kin" would be easily taxable at some point, you know, as an 'emergency' measure or something that only lasts 20 years to start with...

Just imagine how much adding one year to the retirement age saves them in pension payment. Yes, they still have to pay up the pot, but not the interests afterward... Anyone dying before they retire is actually a fantastic deal.

After having seen a couple of <60y/o from work pack up this year, well before they could retire, I have a tendency to say, forget about the pension. Buy property (for the LONG TERM) and land (less jitter) and once you want to retire, just sell these 'tokens' when you need them, and live your life. Oh and you can even enjoy it in the meantime.