pensions

[TheOmegaMan]

Ok, the UK private pension scheme is a complete rip-off. Just take a look at annuity rates! Bloody shocking! They should be hung etc.

Why do you say that annuity rates are shocking ?

Please remember in your reply that the Jabber is an actuary.

[Euro-commuter]

The only benefit of paying into a pension is if you're a permie and your owners are contributing into the pot.

Well, no: if you are a contractor and your Ltd Co is contributing net of tax and NIC (both) then it is a good deal. Downsides as mentioned around this thread, although I would mention that annuities are not as bad a deal as everyone says. It is the pension funds themselves that are crap. Annuities are OK for what you pay for, and of course they don't pass on the residue to your estate. That's part of the deal: you pop off 10 years before expected, your 10-years-worth pays the other guy who lives 10 years too long.

[BlasterBates]

I would steer well clear of Japan as it needs alot of constant attention. It's had a good year last year but before and since then it's been poor. That's why there are Asia funds that exclude Japan.
I wouldn't say stocks have been better then property. With a property you can gear using a mortgage. With stocks your only using your money.

Bad piece of advice on Japan if I may say so.

But it pleases me this is the view of private investors as it enables those of us reading up to date research to make more of a killing.

[TheOmegaMan]

Well, no: if you are a contractor and your Ltd Co is contributing net of tax and NIC (both) then it is a good deal. Downsides as mentioned around this thread, although I would mention that annuities are not as bad a deal as everyone says. It is the pension funds themselves that are crap. Annuities are OK for what you pay for, and of course they don't pass on the residue to your estate. That's part of the deal: you pop off 10 years before expected, your 10-years-worth pays the other guy who lives 10 years too long.

There is a lot of evidence which suggests that annuities are fairly priced.
There are also many different forms of annuity other than a level one. Some have a guaranteed period during which monies can be passed on, but of course they cost more.

If you don't buy an annuity there is chance that you will outlive your funds. Anyway the government (practically) forces annuitisation at 75 as it wants its tax back.

[IR35 Avoider]

I put 95% of my earnings (less 5k salary) into a pension as employer contributions, getting tax relief of 41% on earnings that would have fallen into the basic rate band and 47% on that that would have fallen into higher rate. As pension counts the same as salary for IR35 purposes I have complete (and certain) immunity from IR35.

During the investing phase, the possibilities for what my money can be invested in and the charges I will pay need not be significantly different to what I could do with money saved outside a pension.

When I take benefits I can take 25% of the fund tax-free, the rest must be used to provide an income for the rest of my life.

From age 55 I can take an income for 20 years without buying an annuity. During this drawdown phase the possibilities for what my money can be invested in and the charges I will pay need not be significantly different to what I could do with money saved outside a pension.

Any money that provides an income that falls into my personal allowance band will also be tax-free.

At age 75 (at the latest) I can transfer the money into an annuity, and continue to take an income as before, except that now my income will be boosted by "mortality bonuses" - my share of other peoples pension funds that are left when they die. Of course the quid pro quo for this is that my funds are shared out among the survivors when I go.

During this annuity phase the possibilities for what my money can be invested in and the charges I will pay need not be significantly different to what I could do with money saved outside a pension. (OK, the charges will be slightly higher if I were retiring today - e.g. for one provider, 0.75% per year of funds under management. I expect them to be much more competitive in 30 years time though.)

An annuity does not have to be invested in government bonds. If you want flexibility see products by Merchant Investors or Prudential's Flexible Lifetime Annuity.

Note that not buying an annuity (if you are taking income from your own savings) is logically equivalent to paying life insurance premiums on the money you will leave to your heirs. (I'm assuming for sake of illustration a non-profit insurance company that sells products at cost.) I have a spreadsheet where I've calulated the cost of these virtual premiums in terms of reduced income, at age 65 the cost is 10%, at 75 it is 28%, at 85 it is 53%, at 95 it is 73%. If you refuse to buy an annuity you will probably be "paying" virtual premiums of more than half your income by the time you die. For this reason, I will ensure that all money that is ear-marked for providing me an income is put into an annuity. In other words, at about age 65 I expect to take savings not already in pensions and transfer them into an annuity, as annuities are such a good idea for maximising retirement income.

[TheRightStuff]

Bad piece of advice on Japan if I may say so.

But it pleases me this is the view of private investors as it enables those of us reading up to date research to make more of a killing.

prove it with stats not with words.

[Churchill]

Why do you say that annuity rates are shocking ?

Please remember in your reply that the Jabber is an actuary.

6.25% for a male age 60?

The fact that you have to buy an annuity and they'll pay you the equivalent of 1/16 of your purchase price per year? If you die after two years, tough. Money all gone.

Don't you find that shocking?

[BlasterBates]

Well I don't have time for in depth stats, but steadily improving earnings over the last few quarters is one of the key arguments.

In a nutshell:

Yen historic low
Money supply increasing.
Consumer spending.
Stocks dropped dramtically last year in the global correction (may 2006) and some stocks still haven't recovered.

Oh dear I'm blowing my advantage.

[wendigo100]

do people here pay into a pension ? I've one left from my permi days, but don't pay into one now.

I think that if I put the same amount of money into housing as I'd put into my pension I'll be better off in the long run, also I can always cash in my housing, but I can't cash in my pension......

thoughts ?

Pensions are an excellent investment if you are a public sector worker. Your returns will be far more than you'd expect for the same input to a private pension, because the rest of us are paying for it.

If you are considering a private pension, use self-select, stakeholder, or anything else where you eliminate or minimise what you pay fund managers to fuck it up for you, and what you pay IFAs to fill in a couple of forms.

FWIW everyone on here is right in a way - keep a varied portfolio ... some pension, some property, a variety of stock investments ... every little helps (tm).

[rootsnall]

I put 95% of my earnings (less 5k salary) into a pension as employer contributions, getting tax relief of 41% on earnings that would have fallen into the basic rate band and 47% on that that would have fallen into higher rate. As pension counts the same as salary for IR35 purposes I have complete (and certain) immunity from IR35.

CERTAIN ! Please don't start this debate again ! I was in on the last one and I am still not convinced you can pay 95% in without some risk. Can we agree to disagree before the debate fires up again !?