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

nucastle said:
The fact of the matter is that your money gets handed to a bunch of wideboys in the city, who charge a lovely management fee as the percentage of the pot every year whether they make or lose money, and then they go about gambling with that cash on the stock market as it rises or falls depending on their own skill or ineptitude, and whatever the world economy is doing at the time.
Click to expand...

It doesn't have to be like this. You can self invest with the right products e.g SIPP / SSAS


nucastle said:
... 2008 anyone ;)
Click to expand...

This is just a blip, if you are invested in shares it for the long term, ups and downs happen. If you save in the bank it just goes down.
 
Theophany said:
So let's get this straight:

You borrow, say, £250,000 on a 25-year mortgage.
You pay off the mortgage, plus interest due.
At the end, you have an asset that is highly illiquid and costly to sell (solicitors, surveyors, estate agents, etc).
The value of the house has maybe gone up 20%.
Inflation over the same period has been around 20%.

How exactly have you achieved any return on investment? :confused:
Click to expand...

If you had said that with the interest on the mortgage due meant you would have paid near £500,000 for the house as it's generally as near as damn it double the amount, then you would have made a stronger point IMO. That said, it could be offset by the fact you could rent it out and get someone else to pay it off.
 
PhilGQ said:
It doesn't have to be like this. You can self invest with the right products e.g SIPP / SSAS




This is just a blip, if you are invested in shares it for the long term, ups and downs happen. If you save in the bank it just goes down.
Click to expand...

A blip? Look at a stock market chart over the past 100 years. There are ALWAYS booms and busts which occur with credit cycles, or due to other events.

The point at which you cash out will make a massive difference, which when you are retiring may not exactly be something you can easily control.

Some might argue that the stock market rises on average just about at the same rate as inflation, which is hardly a 'return' but rather a means to just about keep on top of the falling value of money.

Either way, for the children of the baby boom generation, they are facing quite the timebomb in the next 30-40 years time.
 
Bear said:
If you had said that with the interest on the mortgage due meant you would have paid near £500,000 for the house as it's generally as near as damn it double the amount, then you would have made a stronger point IMO. That said, it could be offset by the fact you could rent it out and get someone else to pay it off.
Click to expand...

We're not talking about buy to let though?
 
Theophany said:
We're not talking about buy to let though?
Click to expand...

True enough, I didn't read the OP properly and normally don't think the home you live in is an investment, as you usually need somewhere to live so it's not a realisable investment.
 
does your company not have a pensions adviser/preferred company?

you need to speak to them. they'll assess your feelings towards risk and discuss where you would feel most comfortable investing and you'll receive an annual forecast on what you can expect from your fund at the current time.

i have 3 pensions as i believe them to be a sound investment (though no one can predict the future of course).
 
Bear said:
True enough, I didn't read the OP properly and normally don't think the home you live in is an investment, as you usually need somewhere to live so it's not a realisable investment.
Click to expand...
Assuming you have kids, come retirement you can downsize and pocket the difference though.
 
Bear said:
True enough, I didn't read the OP properly and normally don't think the home you live in is an investment, as you usually need somewhere to live so it's not a realisable investment.
Click to expand...

Totally agree.

Jokester said:
Assuming you have kids, come retirement you can downsize and pocket the difference though.
Click to expand...

But what about the cost of having kids in a house? Broken windows, repainting, puke stains, all the stuff that kids do? :p
 
I have a pension, sure I could just save money for when I am old instead but what if I live to a really old age, the saved up money might not be enough. Sure I could die young and it be wasted but better to be safe than sorry.
 
Mr Jones said:
That's assuming inflation goes up the same rate as house prices, but over the last 40 years, it's not been, has it? If so, bread and milk would be costing crazy prices now.

The current house I'm aiming is a 3 bed room townhouse, for future family life. Assuming I stay there forever and by time of 'retirement', I can either sell up and down size to a bungalow, or rent it out to fund my small scale life.

I'm not about buying house to get an investment, more having a better quality of life when I'm old and perhaps jobless / part time, rent and mortgage free is better than having more pension but need to pay rent to live...

I am however unsure of pension, thus need to read up more. The last thing I want is to save a pension and lose it when I die.

Still reading this
http://www.hmrc.gov.uk/pensionschemes/death.htm#1
Click to expand...


Don't forget costs such as repairs, upkeep, necessary upgrades. You might find the whole roof needs replacing or a major damp issue occurs on the ground floor out of thin air (a friend suddenly had a spring pop up under his house after a wet winter). You aren't insured for such expenses and will take considerable cost to repair.


Furthermore, house prices are not guaranteed to go up at all. I just purchased a house that the seller has lost 50K on over 8 years after spending 20K on upgrades. That is 70K gone in a puff of smoke.



But you shouldn't consider it a choice between pension vs mortgage but aim to get both together, even if your pension contributions are not large. really, you are a fool if your employer offers matching and you don't max that out. It is money for nothing
 
Its a sound investment because,
Going in it gets tax relief
While in it gains compound interest and isn't subject to further taxation.
Ie, not subject to income tax and no upper limit

However, they are somewhat false gains because in the end, you only secure 25% (untaxed) of the pot, and sell the rest for a risky not guaranteed to pay off income (that is taxed).


Call me youthfully naive, but I can not see the point in being really old but really rich, when your body is too decayed to do anything useful with it. As you age, your body breaks, your mind slows, your hearing goes, and having lots of money to waste on sports cars is just a farce.
 
Mr Jones said:
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?
Click to expand...

If you haven't used any od it, and havent't drew the allowed lump sum, then it can be transferred directly into a dependant or inheritors 'pot'
 
D.P. said:
Don't forget costs such as repairs, upkeep, necessary upgrades. You might find the whole roof needs replacing or a major damp issue occurs on the ground floor out of thin air (a friend suddenly had a spring pop up under his house after a wet winter). You aren't insured for such expenses and will take considerable cost to repair.


Furthermore, house prices are not guaranteed to go up at all. I just purchased a house that the seller has lost 50K on over 8 years after spending 20K on upgrades. That is 70K gone in a puff of smoke.



But you shouldn't consider it a choice between pension vs mortgage but aim to get both together, even if your pension contributions are not large. really, you are a fool if your employer offers matching and you don't max that out. It is money for nothing
Click to expand...

Thankfully somebody who has actually owned a house has weighed in on the topic. :p

BunnyKillBot said:
Its a sound investment because,
Going in it gets tax relief
While in it gains compound interest and isn't subject to further taxation.
Ie, not subject to income tax and no upper limit

However, they are somewhat false gains because in the end, you only secure 25% (untaxed) of the pot, and sell the rest for a risky not guaranteed to pay off income (that is taxed).


Call me youthfully naive, but I can not see the point in being really old but really rich, when your body is too decayed to do anything useful with it. As you age, your body breaks, your mind slows, your hearing goes, and having lots of money to waste on sports cars is just a farce.
Click to expand...

You seem to be talking about holding cash in a pension account, which is absurd to the Nth degree, purely because it would lose money from day one.
 
Theophany said:
But what about the cost of having kids in a house? Broken windows, repainting, puke stains, all the stuff that kids do? :p
Click to expand...
What about it? It's things you'll have to do regardless, so to not consider being able to release some of the equity tied up into your home once your older is a bit short sighted.
 
Theophany said:
In your own home you've paid to do it in the first place. :)
Click to expand...
I'm not sure what your point is, when you buy a home it is can be treated as an investment, something that can either be left to your kids, or by downsizing once you retire to release the additional capital investment and value growth.
 
PhilGQ said:
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.
Click to expand...

but still subject to 55% tax, so I have recently found out. Government just took >£50k.
 
You must log in or register to reply here.
Back
Top Bottom