Are pensions worth it?
| Related: | Personal Finance•Investing•Pensions |
With the latest figures showing a man aged 65 with a £100,000 pension pot can only expect an annuity rate of 5.9%, is it time to stop bothering contributing to pensions and take away the annuity providers' gravy train?
Considering we can get 5 year bonds paying 4.7% and still own the capital, I think it is.
Responses (12)
The advantage of saving into a pension is that is tax efficient. In effect every £80 you pay in gets rounded up to £100 (and higher rate tax payers get a further £20). Pension money grows largely tax free and you can take 25 percent as a tax-free lump sum when you retire.
G-Man, this makes good sense,I think. Spending capital used to be a sin! It may be different now, as interest rates fall.
I guess that's the hub of this all, G-Man, and as Sidesalad so rightly says, is that the 'pot' has grown in a tax free environment so you would need to do your maths and see if saving your own money in this manner versus the pension plan scores any points. Perhaps you should market this philosophy and suggest a 45 year bond with yield to match? Or does that sound silly?
I don't know about all the maths etc but I don't have a pension pot purely because i don't like the whole set-up with them. I have made (and continue to make) other arrangements that will hopefully enable me to survive once I hit 'retirement'. It always seems to me that the person paying into a pension is the one who comes out worst in the end - the provider etc seem to do very well, and if you should die soon after you start getting your pension you've done all that for nothing and they take the whole pot!!! (so I've been told, but I am prepared to stand corrected if this isn't the case).
Great idea wendiew!
And you're correct - unless you buy a 'guaranteed' or 'joint life' annuity, your annuity dies with you and they net the money. That's the problem. They calculate that you'll die before you've spent the pot and so they'll make money out of you :(
Thanks G-Man. With that confirmation I am definately not entering the pension minefield, I'll stick with my alternative plans.
Personally, I only put money into a pension where my net contribution is less than 25% of the total contribution, so I know that I'm getting that back in a lump sum when I retire. Sure, the actual value depends on the growth in the fund, but that's the same as if I'd invested the net in an investment ISA.
This way, the annuity is formed entirely from the tax savings and 'free money' from my employer's contributions.
Any money outside this, I stick in ISAs.
Speaking as a pensioner with an index-linked occupational pension, I would say 'Yes'.
But having an annuity for a small private pension, my answer would have to be 'No'
You're very fortunate to have an index-linked pension Feline. Our private pension pots have dropped hugely over the last 5 years. I think that G-Man is right and apart from the tax breaks I wish now that we had done more to save in ISAs and put less into our pension fund.
Yes, fortunate indeed, SS. And I totally agree that I would do other things with my investments nowadays than a private pension.
Mr F put absolutely tons of money into a private pension that pays peanuts.
Just to add insult to injury, he got a letter last week saying that his state pension will be a year later because he was born two months too late......
I totally agree with you !
Hear, hear! So we've got to live 16+ years just to get the capital back and I guess there's been a fair bit of interest. I'm in the process of getting my 25% but won't buy an annuity. With my luck I'd get knocked down by a bus the day after taking one out! I'll try the draw down thingy.
I completely agree.
Grab the 25% and avoid the annuitisation of the rest at all costs!
small pensions are more trouble than thay are worth
I have never paid into a pension a total waste of time and with all the cons and fiddles going on - Robert Maxwell anyone its a bit of a bagatelle whether you would ever get anything back in the future...
Live for now anyway has always been my motto - I would rather have fun now and enjoy the cash...
Besides I plan to "live fast , die young and have a beautiful ending!!!"
>;o)
Heh.
I'd prefer to live fast, die young and take the rest of the world with me.
What about live fast and die old - but having spent all the cash?
Omen and G-Man what's with the fascination of dying young?
Is it a new fashion? Have I missed something?
Life is too short as you guys still need to find love settle down and kids etc! So hurry up and get a move on lol!
Its actually a quote from the clasic Magnificent seven remake - Battle Beyond The Stars - The great big Sybil Danning if I remember rightly.
I am sure G-Man will concur on that one!
big big big...
Oh yes, one of the Valkyrie as I recall :)
Wow that's a cheesey good film. Not quite in the same league as Flash Gordon, but nearly there. And a bizarre cast: George Peppard, Robert Vaughn and John Boy Walton...
Yes strange from the Magnificent seven to Coronation street - Robert Vaughan is the only surviving member of the original cast of the Magnificent seven and went on to do the exact same role as he played in the Magnificent Seven he did in Battle Beyond The Stars...
Now reduced to starring in Coronation Street - How the mighty have fallen!!!!
I was gobsmacked to see him in Corrie, Omen - as you say, 'How are the mighty fallen?'
But did you watch 'Hustle'? He was brilliant in that.
I think I may steal that quote Side-aubergine may I?
Very witty I must say!
Damn another hot earl grey all over the shag pile!
And I wasnt wearing me tea-na pants!
>;o)
Having seen the opinion against pension plans here, doesn't it make us all feel a tad better that all of those public service 'gold plated' jobbies may not be worth what the hysteria dictates?
Lol, Snoops I've not heard that world for a long time! Lol!
'World' Serena?
Word sorry typing error I must be getting sleepy lol!
I assume the word was 'jobbies' .... people always remark when i use that word ..... do they assume that I'm talking 'sh**', you know what!! Lol!
It's a great word! It always reminds me of a young child saying it whilst giggling and not allowed to say it but it's very funny to say that word... Lol!
You put it in a sentence very well I just couldn't get away with it being a lady n all! Lol! Very naughty Snoopy! Lol!
Always reminds me of the Beechgrove garden - you must know the one where George Barron turns to Jim and says "Im just away for a wee jobby in the greenhouse" - Classic...
lol
Crikey Serene one you are just as childish as I am!!!
There you go again omen... Calling me serene again I wish I was.... Lol!
Actually Serena ... if 'jobbies' were indeed gold plated, we would all be 'panning' for gold ....just think how the gold reserves would leap in a month. There's an investment that would never go down the pan ... and not something we should dump lightly ....
Good stuff as always, Snoops.
S... happens as they say...
Oh my Serena ... you are an utter wag!
AS for jobbies, time to put a lid on this one ... hear about the Irish labourer who found a jobbie in his pay packet ? .... he was on time and a turd.
Snoops, where did you get that one......?
You'll be saying next that he was on shi(f)t work.
Glad you approve Feline ...! According to the internet, and perhaps Omen could comment here ....."I am a Scots term for the brownish substance excreted from ones anus when the bowels are full or after a spicy cuisine. Also the term for something that is disapproved of/ rubbish. "Who left that stinkin jobby in er"
All good stuff! Have a gander at this facebook webpage .... looks like Jobby fans worldwide! And can you see that adorably named loo paper on this page .... I'd love to fill my Tesco trolley with some of them!
I can't believe they actually sell loo paper with that name, Snoops. Must be somebody having a laugh, surely? Or have you actually seen it in the shops?
Yes Snoppy must put a lid on it... speaking of lids why do guys not put the lid down especially after a j.....? lol
We had this discussion a couple of days ago, Serena, on another thread. I'm still waiting for G-Man to comment on my response that flushing the loo with the lid up spreads every disease known to man over an area that I can't remember now.....
The very same question was asked in the Sunday Times paper about a month ago G-Man, I can not post a link as you have to be signed up to read back papers, so just incase you are do a search for your question the answer was really quite interesting.
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Ah, but you're looking at how the lump sum is generated, not what you do with it.
A lump sum of £100,000 in a 4.7% bond wiill last up to 41 years while netting you the equivalent income as an annuity (allowing for basic rate to be deducted on the interest). That means an annuity only beats a bog standard fixed rate bond if you live beyond the age of 106 (65 + 41).
You can grow the lump sum in an investment ISA. Without the tax input to the contributions, you would only achieve 80% of the growth, but a lump sum of 80K at 4.7% still lasts 27 years (i.e. until age 92).
Yes that's a good point G-Man but I would worry that future governments might change tax rules on savings (in ISAs) as a way of getting finances back into the black.
True, but the same thing could happen with pensions - they already pay an extra 10% tax on divdends thanks to Gorgon Brown...
Hmm sounds like G-Man works in the industry methinks!
Very well read on the subject I am put to shame by the breadth and depth of his knowledge!
>;o)
I think you're right, Omen.
G-Man always seems to be able to do the maths effortlessly while the rest of us are scratching our heads wondering how to understand the question in the first place!
He is probably the tax man gathering / wheedling all the financial secrets from us only to pounce on us at a later date!
Scary g-man
Hmm, good job I've got my ill-gotten millions safely stashed offshore....
Mines under my mattress!
All 1p of it.
I sometimes feel like the The Prince and the Pea!
I must be royal i can really feel that coin on my Tajazzal!
>;o)
You could just move it to a different part of the mattress, Omen.....