Reply to: Pensions whens a good time to start...

[pmeswani]

This snippet may be fo interest - oh dear another scandal ....

One of the most senior figures in the fund management industry has broken ranks and admitted that up to 40 per cent of private-sector pension pots are swallowed up in fees.

David Pitt-Watson, the founder and former chairman of Hermes Equity, made the estimate in a submission to the Royal Society for the Encouragement of the Arts, Manufactures and Commerce (RSA).

It was contained in a report from the RSA lambasting the pensions industry for high charges, opacity and a lack of accountability. “Private pension fund members are almost universally detached from the management of their money and, when they do try to discover more, they find fund managers unaccountable and institutions opaque,” it said.

The RSA called for a sharp reduction in annual fees from the 1.5 per cent it said was typically payable in Britain to the 0.5 per cent charged in Sweden and the Netherlands.
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* Pensions to be cut after payment blunder

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It also criticised the process of “churning”, under which pension plan portfolios are constantly turned over. Less switching of investments could add as much as 20 per cent to pension values, it said, and churning appeared to be getting much more common. Annual turnover of British equities was equivalent to 10 per cent of GDP in 1965 and 200 per cent of GDP by 2004.

Mr Pitt-Watson is quoted in the report saying: “A pension lasts 50 years. So an average pound invested in the pension is there for 25 years; 1.5 per cent is paid in fees on the balance of the fund every year; 25 times 1.5 per cent is 37.5 per cent, or approximately 40 per cent.”

He told The Times: “Just do the maths and it comes to about 40 per cent. Pension fund members would be 66 per cent better off if they paid no fees at all.”

He said that the 1.5 per cent annual charge was paid by consumers buying private pensions from IFAs. Members of employer-sponsored defined contribution schemes typically paid about 0.7 per cent.The findings come after one of the worst years for defined contribution fund members in decades and as the Government admits that it has overpaid 95,000 pensioners for years.

The public sector Pension Scheme is a farce anyway. I pulled my Protected Rights Pension out and put it into my SIPP when I could (against the advice of the current Pension Provider).

The 1.5% annual charge does not apply to all pension schemes. I didn't go through an IFA to get my Pension Scheme set up. The most any of my funds cost to administer is 1% per year. Yes, it is expensive... but it is all relative. Using the 1.5% theory, I will lose about £225 a year. But on average, I would lose about £100 a year on my whole pension. So if I don't contribute any more money into my pension scheme and the funds did not rise or fall, it would take 100 years for my pension to get wiped out. If I carry on contributing at the rate that I am now, then there is little danger of my pension being wiped out, unless all the fund managers manage to squander my investments.

In my view, my pension is a lot safer than houses at the moment and will continue be so for the forseeable future.

[AlfredJPruffock]

This snippet may be fo interest - oh dear another scandal ....

One of the most senior figures in the fund management industry has broken ranks and admitted that up to 40 per cent of private-sector pension pots are swallowed up in fees.

David Pitt-Watson, the founder and former chairman of Hermes Equity, made the estimate in a submission to the Royal Society for the Encouragement of the Arts, Manufactures and Commerce (RSA).

It was contained in a report from the RSA lambasting the pensions industry for high charges, opacity and a lack of accountability. “Private pension fund members are almost universally detached from the management of their money and, when they do try to discover more, they find fund managers unaccountable and institutions opaque,” it said.

The RSA called for a sharp reduction in annual fees from the 1.5 per cent it said was typically payable in Britain to the 0.5 per cent charged in Sweden and the Netherlands.
Related Links

* Pensions to be cut after payment blunder

* Low-risk pensions lose thousands

It also criticised the process of “churning”, under which pension plan portfolios are constantly turned over. Less switching of investments could add as much as 20 per cent to pension values, it said, and churning appeared to be getting much more common. Annual turnover of British equities was equivalent to 10 per cent of GDP in 1965 and 200 per cent of GDP by 2004.

Mr Pitt-Watson is quoted in the report saying: “A pension lasts 50 years. So an average pound invested in the pension is there for 25 years; 1.5 per cent is paid in fees on the balance of the fund every year; 25 times 1.5 per cent is 37.5 per cent, or approximately 40 per cent.”

He told The Times: “Just do the maths and it comes to about 40 per cent. Pension fund members would be 66 per cent better off if they paid no fees at all.”

He said that the 1.5 per cent annual charge was paid by consumers buying private pensions from IFAs. Members of employer-sponsored defined contribution schemes typically paid about 0.7 per cent.The findings come after one of the worst years for defined contribution fund members in decades and as the Government admits that it has overpaid 95,000 pensioners for years.

[Fred Bloggs]

I'm with Hargreaves as well. But I only put in £200 a month at the moment. My pension pot is currently in excess of £15k. I need to get it up beyond £25k to make it worth something. Once I get a new contract next year, I plan to put £3k into my penions pretty much straight away from my personal account.

Good plan. I try to pay as much as I can into my SIPP now as I'm approaching 52 so it's pretty darned important. If I have any money left over after all taxes I put a lump sum in too at the year end. That way, my Co account has no money to attract Hector to it as it isn't a juicy morsel for attack like many contractors seem to have.

[pmeswani]

I started a £50 a month SIPP for the kids at age 13.

Pay into a SIPP monthly from your Ltd Co. It's tax efficient and you benefit from what the trade calls "pound cost averaging". Presently I pay in a £1000 a month. Lately it has been going into Corporate Bond Funds but most of the money is in either UK income unit trusts or global growth unit trusts. Hargreaves Lansdown in my opinion take a lot of beating.

The above is NOT financial advice.

HTH.

I'm with Hargreaves as well. But I only put in £200 a month at the moment. My pension pot is currently in excess of £15k. I need to get it up beyond £25k to make it worth something. Once I get a new contract next year, I plan to put £3k into my penions pretty much straight away from my personal account.

[pmeswani]

I'm really no fan of pension schemes, all seems like a big con to me.

I have no pension and plan on building up capital in the business and withdrawing it with 10% ER far into the future or when the government decide to change the rules on ER.

Whilst doing this I'm also be investing in the usual ISA's, high interest savings, bonds and having a mortagage paid off as well.

Can't be bothered with pensions..

Your solution is a low risk option with a low rate of return. Which is your right. . Pensions tend to grow (in general) in excess of what Interest based savings account normally offers.

[badger7579]

I'm really no fan of pension schemes, all seems like a big con to me.

I have no pension and plan on building up capital in the business and withdrawing it with 10% ER far into the future or when the government decide to change the rules on ER.

Whilst doing this I'm also be investing in the usual ISA's, high interest savings, bonds and having a mortagage paid off as well.

Can't be bothered with pensions..

[Fred Bloggs]

I started a £50 a month SIPP for the kids at age 13.

Pay into a SIPP monthly from your Ltd Co. It's tax efficient and you benefit from what the trade calls "pound cost averaging". Presently I pay in a £1000 a month. Lately it has been going into Corporate Bond Funds but most of the money is in either UK income unit trusts or global growth unit trusts. Hargreaves Lansdown in my opinion take a lot of beating.

The above is NOT financial advice.

HTH.

[Mart001]

No reason why you can't put money into a pension on deposit : saves paying it out as dividends.

would you do this just to manouver around higher rate or are there other advantages?

[BrilloPad]

No reason why you can't put money into a pension on deposit : saves paying it out as dividends.

[Mart001]

Thanks pmeswani, some great starting points, of course obvious the best time to invest while prices are low.

[AlfredJPruffock]

Hope I die before I get Old.

Talkin ' bout my p-p-p-pen-pension

... or alternatively any better solutions than a pension.

Lethal Injection is quite cost effective.

[expat]

Where does Jane suddenly appear from in this story and what impact do her actions have on Janet's pension?

Aargh, no! If Janet divorces John he's in the poorhouse!

[dang65]

Here's one example:

Janet starts saving for a pension aged 20. John is also 20 but doesn't save anything.

When they are both 30 they marry each other. Jane (I know this is old-fashioned) stops saving, but John now starts saving for a pension at the same rate as Jane did before.

When they are 60 they look to see how much their pensions are worth. In total, Jane has saved for 10 years, John has saved for 30. If they got a good return on their savings (> 6% pa), Janet has more!

Where does Jane suddenly appear from in this story and what impact do her actions have on Janet's pension?

[Lewis]

still at the age of 33 I have not started any pension scheme, looking to start next year, but with all doom at the moment is now a good time to start or should i wait awhile for the market to rise... or alternatively any better solutions than a pension.

Thanks

You want to invest in a penson when the markets are LOW not high.

[expat]

still at the age of 33 I have not started any pension scheme, looking to start next year, but with all doom at the moment is now a good time to start or should i wait awhile for the market to rise... or alternatively any better solutions than a pension.

Thanks

Wait for the market to rise? You mean, wait for the price to go up before buying? Not really a good idea.

If you are doing any kind of saving or investing that earns interest over inflation, the key is the longer the better. Here's one example:

Janet starts saving for a pension aged 20. John is also 20 but doesn't save anything.

When they are both 30 they marry each other. Jane (I know this is old-fashioned) stops saving, but John now starts saving for a pension at the same rate as Jane did before.

When they are 60 they look to see how much their pensions are worth. In total, Jane has saved for 10 years, John has saved for 30. If they got a good return on their savings (> 6% pa), Janet has more!

Start early and don't touch it.