Pensions: Explain to me why it's a sound investment...
- Thread starter Mr Jones
- Start date
The main benefit of pensions at the moment is the tax relief, which is essentially money for nothing. Like anything though you're at the mercy of the investment managers, and the markets.
You're supposed to nominate a beneficiary.
You're supposed to nominate a beneficiary.
This is a 5 or ten year guarantee option, it generally doesn't reduced the annuity very much because most retires are expected to live this long anyway.
Its a separate option to spouse benefits which will pay out whatever amount between 0-100% of annuity to spouse for life. This option also reduces the amount of annuity if taken.
Soldato
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Pensions work because the money you invest is taken out before tax. You're effectively investing an extra 25-40% throughout your working life that would otherwise be donated to the government.
For this reason, it's practically impossible to beat a pension if you're investing money earned through though the normal income tax system.
If you acquired the money through other means, pensions are a rip off. This is due to the high fees and limited investment categories.
For this reason, it's practically impossible to beat a pension if you're investing money earned through though the normal income tax system.
If you acquired the money through other means, pensions are a rip off. This is due to the high fees and limited investment categories.
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This really.
For many people since you are investing pre-tax and this money is going to be taxed at your highest rate you will get a 40% gain immediately. Furthermore most pension schemes do some kind of matching so then you might see something like 140% return on investment. Furthermore some companies will add their own contribution so you could be at 250% etc.
You are then free to choose a large range of investment options for your pension fund. Compare to buying a house where typically 90% of your money disappears in interest in the early years on average! and if you didn't use your pension then your return on investment will be 0% compared with 140% on each pay day.
You can invest in all sorts of things with a pension. The main exclusions are Art, Fine wine and Residential Property.
You get tax relief on pension contributions whether taken out through PAYE or not [as long as you have earned at least the gross contribution and subject to overall limit of 50k (+carry forwards)]
The fees aren't that high really, similar to investing in Stocks and Shares ISA or other non-pension products.
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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?
Incorrect - If you die before taking any benefits, the death benefits are normally paid as a lump sum. This usually consists of the return of the pension fund together with the proceeds of any life assurance.
If the amount of the lump sum - plus the value of any other registered pension scheme benefits - exceeds the Lifetime Allowance (£1.5 million in tax year 2013-14) the excess is taxed at 55 per cent. The beneficiary has to pay this.
Death benefits can also be used to provide dependants' pensions instead of being taken as a lump sum. If a dependant's pension is provided this counts as taxable income for that dependant.
You should complete a "nomination form/expression of wish form" which indicates to the trustees of the pension who you want to leave the funds to in the event of death
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?
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
Think I'm slowly getting it...
http://www.hmrc.gov.uk/pensionschemes/death.htm#1
So if I die before I claim my pension, it goes into my estate/nominee?
it does not go to your estate,
It goes to your nominated beneficiary if you have one. If not the pension trustees will decide who to give it too (most likely spouse if you have one).
Its completely outside your estate, a will does not affect the pension benefits.
I've been paying into my pension since I was 18. Seemed a wise thing to do, but I still remember something my grandad said to me (RIP grandad) "I have no plan's to get old so why pay into a pension when I can save my own money and spend it as I see fit" He died at age 84 
I still remember bantering with him saying he was old at his 83rd b-day, he said I'm not old just more mature 
As for why I'm still paying into mine *shrugs* if I do get old enough to retire though I should be well looked after I guess.
I still remember bantering with him saying he was old at his 83rd b-day, he said I'm not old just more mature As for why I'm still paying into mine *shrugs* if I do get old enough to retire though I should be well looked after I guess.
This is all assuming pension pots are worth anything when you come to claim them. Putting money into shotguns and jerry cans might be as good an investment
Do mean from an income yield standpoint or from a fund value standpoint?
Yes, the income is lower than it once was but that because it has to last longer.
Fund value wise as long as it looked after prudently, long term growth above inflation should be easily achievable.
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?
You also earn a yield on the investment, which in the case of a house you live in is equal to the rent you would have had to pay (less costs of ownership), which you have not taken into account. I think they can vary from 2-8% depending on region, property type, etc.
The benefit of owning your own home is you essentially have perfect asset/liability matching in that you have a liability (you need somewhere to live for which you would be willing to pay rent) and you own an asset that perfectly matches this (the house). You are no longer at the whim of the UK residential market as to the rent you need to pay. Of course there are arguments against owning your own home - you might be able to get a better return elsewhere, you might want to have short exposure to UK resi, etc.
Real estate has a role to play in any diversified portfolio. Returns are not too correlated with other assets and there is an inflation hedging element.
Soldato
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I pay into mine, because if I didn't, I **** it all up the wall....then once I got to retirement, I'd be saying 'I wish I saved into a pension'
Since it comes out of my wages, I just forget about it
Since it comes out of my wages, I just forget about it
Man of Honour
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- Glasgow
Fair point, the idea was basically to say see a professional who has the time to understand your circumstances and the ability to advise on a wide range of options.
I don't doubt that real estate has a role in any diversified portfolio, but that wasn't the original opinion I proffered.
Ahhh pensions - everyone likes to dupe themselves into paying into them thinking it's like a fantastic tax free ISA (another joke, don't get me started) that will give them some amazing pay off at the end.
.... maybe for your dads generation.
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.
When you come to cash it in - what you get out is in no way related to the cash you put in, other than it just represents a share of the pot as a whole, and it's up to the market to decide what you get out at the end.
There is too much ignorance about the implications of state retirement ages being pushed into your 70's, and just what is going to be there to support our retirement plans, or what it's going to take, and how you are going to get there. Blind support of traditional stock market invested pension saving is playing with fire ... 2008 anyone
.... maybe for your dads generation.
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.
When you come to cash it in - what you get out is in no way related to the cash you put in, other than it just represents a share of the pot as a whole, and it's up to the market to decide what you get out at the end.
There is too much ignorance about the implications of state retirement ages being pushed into your 70's, and just what is going to be there to support our retirement plans, or what it's going to take, and how you are going to get there. Blind support of traditional stock market invested pension saving is playing with fire ... 2008 anyone
Ahhh pensions - everyone likes to dupe themselves into paying into them thinking it's like a fantastic tax free ISA (another joke, don't get me started) that will give them some amazing pay off at the end.
.... maybe for your dads generation.
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.
When you come to cash it in - what you get out is in no way related to the cash you put in, other than it just represents a share of the pot as a whole, and it's up to the market to decide what you get out at the end.
There is too much ignorance about the implications of state retirement ages being pushed into your 70's, and just what is going to be there to support our retirement plans, or what it's going to take, and how you are going to get there. Blind support of traditional stock market invested pension saving is playing with fire ... 2008 anyone
And people seriously jumped on my posts? **** mine. :/