Pension - why do I bother?!?!?

[GB9]

Being sensible(?!) I put aside a reasonable sum into a pension every month and have done since I started contracting. Today was annual statement day.

Jan 2012

Projected value: x Projected income: y

Jan 2013

Projected value x + 25% Projected income: y - 15%

I have always sworn by pensions, but now even i'm starting to doubt how worthwhile they are.

[northernladuk]

World is falling on it's arse and pensions are being hit left right and center. Was unavoidable unless you hit lucky with your product IMO. Everyone swears by a product when it is going well.

Not sure why you have sworn by them. People have been warning against pensions as your only source of income at retirement for years.

Should be part of your retirement portfolio, not all of it.

Have you factored in the tax savings fom having a pension? Should offset the loses you are seeing in your mind.

[BolshieBastard]

Being sensible(?!) I put aside a reasonable sum into a pension every month and have done since I started contracting. Today was annual statement day.

Jan 2012

Projected value: x Projected income: y

Jan 2013

Projected value x + 25% Projected income: y - 15%

I have always sworn by pensions, but now even i'm starting to doubt how worthwhile they are.

Gut wrenching, isnt it?

I invested (via an IFA) small sum of 5 grand just over 12 years ago. A year or two after I took it out, I got an annual statement plus letter. These stated my investment had gone down as a 'termination bonus' was now to be applied to this product but not to worry as this was only 'a paper deficiet' and bonuses would soon negate this.

So, my in a few years, my investment was worth significantly less and I could only withdraw it on pain of the loss.

Naively, I kept hoping that bonuses would return me to profit. Unfortunately, that took the best part of the next 8 years. I eventually bite the bullet and cashed it in. Over the 12 years, my profit was about 1400 quid and they took their 'termination bonus'!

Absolute twunts.

Thank goodness Mrs BB and I both have relatively long service civil service pensions to look forward to but I still think we'll have t downsize the house when we do retire, hopefully in the next 4 or 5 years.

[GB9]

Biggest kick today was that the projected term value had gone up by 25%, yet the forecast annuity had actually fallen 15%.

When the value of your pension pot rises you kind of hope the annuity will rise with it......... (which smilie do I use for 'bloody naive'?)

[SimonMac]

The market is pretty bouyant at the moment, over 5 and 10 years stocks (with dividends reinvested) still out perform property as an investment so you need to be looking at where these fees are going, and could you do better yourself

[SimonMac]

Biggest kick today was that the projected term value had gone up by 25%, yet the forecast annuity had actually fallen 15%.

When the value of your pension pot rises you kind of hope the annuity will rise with it......... (which smilie do I use for 'bloody naive'?)

Remember to shop around for annuities, this could give you up to 21% more

SAVERS could pocket thousands of pounds more a year in retirement as a result of a clampdown on pension firms that do not offer competitive incomes.

Last week the Financial Services Authority, the City watchdog, launched a review into the £11bn market for annuities, which pay an income for life when a worker retires.

The move follows a slump in payouts to hard-pressed savers, which has left many significantly poorer in old age.

The review will focus on the differences in income paid by annuities bought in the open market and those bought from a saver’s existing pension provider.

Analysts at Shore Capital, the investment firm, estimated that insurers could be forced to pay out an extra £500m to annuity customers as a result of the clampdown.

About 400,000 people buy an annuity each year and about two-thirds of them purchase from the insurer holding their pension savings, according to Just Retirement, the specialist provider.

These consumers are losing out by up to £1bn a year by not shopping around on the open market, the National Association of Pension Funds has estimated.

The retirement income a saver could receive can vary by thousands of pounds a year. A 65-year-old man with a pension pot of £200,000 would be offered £9,426 at Prudential, but 21% more by taking an annuity from Aviva paying £11,377, according to Better Retirement Group, the broker.

The annuities market review comes ahead of new rules aimed at helping savers get the highest payouts.

However, the code of conduct, to be introduced next month by the Association of British Insurers (ABI), the trade body, has been criticised for allowing insurers to shop around on behalf of customers. This means that some insurers can present results from only two rival firms, ignoring many others that may offer better deals.

Tom McPhail, head of pension research at Hargreaves Lansdown, the adviser, said: “While the ABI measures are a step in the right direction, there is a huge flaw.

“Pension providers are allowed to offer the shopping around service to their savers, which means they might still not be offered the best rate.”

The drive to encourage savers to shop around for their annuities will also provide a boost to those who could qualify for a higher payout from an enhanced annuity.

Those who have a serious illness or smoke could increase their retirement income by up to 60%.

For example, a 65-year-old smoker with a £200,000 pot could get a payout of £13,048, according to the Annuity Bureau at JLT.

McPhail added: “Anyone retiring now should seek advice from an independent financial adviser to make sure they get quotes from across the whole market and can recommend the best type of annuity.”

Ros Altmann, director general at Saga, the over-50s group, said: “People need to get the right type of annuity as well as the best rate.”

Annuity rates have plummeted over the past few years. The downward pressure on rates has been strong, with the Bank of England’s £375bn programme of quantitative easing, in effect printing money, pushing gilt yields lower.

Increasing longevity and regulatory changes have complicated the situation further.

A 65-year-old man retiring in January 2012 with a £200,000 pension pot could have received an annual income of £12,493. Today that pot would secure just £11,409, a 9% drop, according to Better Retirement.


Will annuity rates follow rise in gilt yields?
Insurers are under pressure to pass on the benefit of higher yields on government bonds, known as gilts, which partly determine the cost of annuities.

At the end of last week, the 15-year gilt yield was at 2.65%, up from 2.06% in June last year. However, annuity rates have fallen over the same period, according to JLT, the actuary.

The average annuity rate was 5.7% in June, compared with only 5.12% today. The figures are based on a 65-year-old man for a single life level annuity.

Insurers have blamed the fall in annuity rates on longer life expectancy and the prospect of increased regulation from Europe. However, experts say both these factors have now been priced into the rock-bottom rates available.

Alan Higham, chairman of Annuity Direct, said: “Insurers have already factored in the pressures of the regulatory changes, including the gender directive that means rates have to be the same for men and women. But now that gilt yields are rising, insurers are still cutting annuity rates. It doesn’t make sense.”

Eamonn Flanagan of Shore Capital said: “Profit margins on annuity business are high for insurers. Some of the biggest players in the market, including Prudential, Resolution and Standard Life, typically offer the least competitive annuity rates, so the investigation by the FSA could put them under pressure to pass on the benefit of rising gilt yields.”

Crackdown to boost pensions | The Sunday Times

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[muser]

OP - I did the same review a couple of weeks ago and reached the same conclusion as you. All projections seems to be pointing the wrong way.

Annuities: Make it all add up in retirement - Pensions - Money - The Independent

The FSA action will help but dont expect it to turn things around for annuities.

"But Billy Burrows, director of Better Retirement Group, says the obsession with shopping around for an annuity misses the point, and the FSA would be best to widen its investigation: "There are many people who sign up for an annuity who may well be best advised not to do so, and keep their money invested so they can collect an income while seeing their capital continuing to be protected."

Annuity rates have been falling for a number of years as a result of historic low interest rates and poor yields on government stock. A pension pot of £50,000 would have bought an annuity of around £4,300 on a single life basis for a 65-year-old a decade ago. Now, says financial information provider moneyfacts.co.uk, the same pot would buy an annuity of just £2,841 on a single life basis."

The decision by the central banks to use QE (and the resulting inflation) to get out of the current economic slump will have a far lasting effect than many lay people would have envisaged.

I agree with previous posts i.e. pension should be part of retirement plan but not the sole or even main component. Mrs Muser and I will now be using a combination of rental properties, isas, pensions and small family business income. If whatever govt of the day decides to honour the flat rate state pension of £144 pw, I count that as bonus.

[malvolio]

I have a pension fund. It's not sat in a pension fund though, so is earning ahead of inflation and has done for a few years. It doesn't have to go anywhere near an annuity until you're 75*. By which time the world may have moved on. Or I may have...





* Hands up who said "Next week?"

[Waldorf]

Gave up with pensions years ago - I now fully invest my ISA allowance each year.

I have some pension funds frozen, but always getting ripped off with charges etc, not planning on a state pension, but if I get one, I will also see it as a bonus, it can pay for some holidays!

[Wmnr]

Presumably the projected income has gone down because pension companies were forced to change the way they estimate the projected income. They used to use 7% for estimating growth but have now started using 5%.


Given that you capital is up 25% you should be happy.