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I was a bit late starting with a pension as i wanted to save everything for a house deposit - perhaps not the most efficient long term use of money, but has left me with a relatively small mortgage that i have a realistic chance of paying off by the time i'm 45.
My company match 100% of my contributions up to 5%, so its a bit of a no brainer as no other investment is going to give me what is effectively 100% growth before taking into account any potential growth of the investment fund.
Rainy day fund is in place (although needs moving somewhere more efficient), and starting to look at options to fund early retirement.
elliott-20 - Member
There's a lot of myths being banded around here (as to be expected I guess).
Agreed. Going back to the OPyour-options-at-retirement/drawdown-vs-annuities]here's [/url] a good comparison between drawdown versus annuities once you have taken your 25% tax free lump sum.
Quick query as there seem to be few clued up people here. How big a pot would I need for 24k a year at age 55?
I'll ask again, Is this true, you retire you draw your pension of you die before your wife she then gets 50% if she dies that's it pot gone? If you both died a week after retirement it's all gone up in smoke? i.e. you could of contributed hundreds of thousands of pounds and your kids see nothing?
[i]Quick query as there seem to be few clued up people here. How big a pot would I need for 24k a year at age 55? [/i]
I'll stab at a million, give or take a hundred grand either way.
@danstw 30% is an outstanding return well above the market norm and the vast majority of hedge funds. Hedge funds today are targetting around 10%. I don't think we can use that as a benchmark for the rest of us.
All I am saying is that in my 35 years of working my external investments in things like property have massively outperformed my pensions. What Tom and I are saying is that you should have both. Also the most significant issue with a pension is your pot buys you a pension with no value at the end, zero. If you have, say, a buy to let property its yielding 5% min today versus equiv 3.5% from an annuity pension and when you die you still have the asset which has almost certainly gone up in value.
If you have a work scheme with employer matching and are paying higher rate tax then a standard pension is a good option but do not discount external investments as they can grow faster and you have much more flexibility
Also fwiw I manage money for various types of clients including pension funds.
That's really interesting. I am 55, but not retiring for another 5 years. Just compared my predicted pension at 60 with what annuity the predicted pot could buy. Even if I exclude having an annuity payment to my partner or guaranteed terms of payments, the pension is way way better...
Mitusminkey, mine will pay my kids till they are 24 if my partner dies. But I think pensions vary so hugely for your question to be very hard to answer.
Also the most significant issue with a pension is your pot buys you a pension with no value at the end, zero.
That's not strictly true though. You are assuming the pension pot buys an annuity. There are other possibilities...
i.e. you could of contributed hundreds of thousands of pounds and your kids see nothing?
Yes, if you're silly enough to put it all in an annuity.
@br depends if you want it to rise with inflation or be a fixed amount. Probably around £750k today as ultra low interest rates are killing annuity rates as the two are closely linked.
£750k in property would give you £35k+ pa and in 25 years property is probably worth £2m (conservative) and your estate has that money, so ignoring inheritance tax for the moment ...
pension £25k * 25 years £625k
Property £35k * 25 years plus £2m = £2.875m and this is very cinservative as the rent you go up with the property value (so in 25 years by my calc rent would be around £100k pa)
So property outperforms pension pot by nearly 5 times
Now in practice you'd have both, company scheme plus external but it shows why property is such a powerful investment. With hindsight I would have done much less in voluntary payments into my pension
@suburban in practice very limited imo. Pensions are fundamentally based on buying annuities.
@suburban in practice very limited imo. Pensions are fundamentally based on buying annuities.
Up until recently that has been the only option. Hence the Pension v Property dilemma.
Times they are a changing; get with the programme grandad!
I am very much "up with the programme". It's my job.
Its not a dilemma, in my view its a no brainer, the last 10 years have seen increasing tax grabs on pensions. Brown's dividend taxation change cut my predocted pension by 30%. Property has massively outperformed "the markets" and imo will continue to do so (supply and demand etc)
All this plus assets plus your pension would can do with as you wish including taking them to another country in particular if it looks like there will be a tax grab for example.
Absolutely no doubt over my working lifetime property (even without leverage) has massively outperformed pension investments
Mitsumonkey-- if you take an annuity-ie you exchange your fund for a guaranteed sum for life then that is true, you take a chance and so does the provider giving you the cash. You can however set it up in different ways so your spouse gets more or less if you die but it affects the sum you initially get. Now however you can put your pot in a drawdown fund which remains invested and you take bits out on a regular basis. The general rule of thumb is that you should theoretically be able to draw 4% of your fund annually and still keep your capital intact but you need a pretty big fund to obtain enough to live on. The big advantage is that you can pass the money on if you die before using it all. The downside is that returns aren't guaranteed unlike an annuity which guarantees to pay you until you die. With a final salary scheme I'm not sure if you have the option of drawdown as you haven't got an invested pot to drawdown. Perhaps someone else can fill that bit in.
Absolutely no doubt over my working lifetime property (even without leverage) has massively outperformed pension investments
You've got the wrong investments then fella!
The problem with your property assumption Jamba is it assumes the market can sustain the price growth of the last 20 years indefinately. It's a pyramid scheme, at some point that pyramid will either need sorting out or it will sort itself out.
The odds of it growing for the next 30 years till I retire and continuing to for 30 after that? Slim to f*** no!
Jambalaya - the biggest problem with property v pension is the lack of tax relief. You can't double your money every year with a property, but you do with pension tax relief (as a higher rate earner)
Every time I look at my pension estimates I get depressed.
Surprised at some of the high contributions here though. I've never known how much to do, and IFA would never really tell me, just gives me stuff to look at and decide myself.
Self employed and MyCo pays the lot which works out sort of at 12% (the monthly is a fixed amount, the amount I bring in varies so what I earn year to year goes up and down a bit).
Speaking to IFA about how it looks rubbish and he just basically agreed and said not to rely on pension alone. Meanwhile he's earning a nice chunk out of my pot for each investment and reinvestment. Yeah, that's how I get a decent retirement, become a pension adviser.
I'd up my contributions if I thought it would make a significant difference but it's no use if it's all going to go down the drain.
Deadkenny - my pension provider charges @0.1 - 0.5% p/yr on my funds.
I think we would all love to have a bit of he property boom of the last 20 years, but I would caution throwing all your retirement planning into property now, hoping for the same returns.
It's interesting seeing some of the views on here. I started saving when I was 28 (2008) and a whole 8 years later I have 3 pension pots that together are worth just under £50,000. If I'd foolishly decided to take home that money instead, I would have had around £12,600 in earnings to spend - so basically it's a winner due to employer contributions and stockmarket growth.
I'm very jealous of the people out there with final salary schemes, but the door seems to be shut on nearly all of those now, so us young/middle aged people are now all in the same boat at least!
Some interesting opinions and points of view ... of course in hindsight it would have been nice to have gotten into property 15-20 years ago and ridden the wave, but you'd be a fool to chuck all your money into property right now - a correction there is long overdue in my opinion (but many of you will disagree on that one! I own a house with a mortgage but it's primarily a place to live rather than an investment).
I do think the pension rules will change massively by the time I retire and that's difficult to plan in any way for. My predictions:
[list][*]Some sort of stealth tax on final salary pensions over a certain threshold - will only affect a minority of people and will probably be a vote winner in 10-20 years time[/*]
[*]Means testing of the state pension, or complete abolition. Things obviously can't continue as they are.[/*]
[*]Default retirement age continues upward trend (unless a major shock occurs such as widespread antibiotic resistance / world war etc etc)[/*][/list]
There must be painless ways to die out there, so that once your money runs out you go somewhere and top yourself with dignity? If so we can then stop worrying about this stuff and enjoy our lives now!
dantsw13 - Member
Deadkenny - my pension provider charges @0.1 - 0.5% p/yr on my funds.
Difficult to work out with the confusing literature I get from mine and pages and pages of stuff on charges, but I think it's 0.1% for the "platform", plus odd fees for changes, but the adviser gets 1.2% ongoing!
Read a sample estimate of plan charges and by 60 the adviser gets £50k over the lifetime.
Not sure why it's an ongoing fee as I rarely get advice. I suppose I could demand some each month/year, though looking at the documents there's talk of fees for meetings (£120 per hour. Wish I could charge that!).
Hm - do you really need his advice? Could you switch your fund to an online provider, and manage it yourself?
I am not in any way qualified in this field, but it sounds like you are paying a lot for this bloke simply to put you in cheap tracker funds, which you could easily do yourself.
It's a private pension that started out from a company I used to work for and then I continued on with it when I went freelance, then the company changed product and convinced me to switch (conveniently I notice this was bang on the time when the law changed in 2013 on what they can charge). Seemed convincing and now it's all managed by a company that do come up with regular recommendations on moving things about, but that seems to be the company doing it. The IFA is the guy who arranged it originally and used to do reviews with me every few years but doesn't any more unless I want his advice, but still takes an ongoing fee.
The initial fee examples did show difference between no fees, the company's fees and then with the adviser's fees. Suggests that I could ditch the adviser.
He's a decent bloke, but I'm not getting anything most years for the £1k+ a year he's taking out of the pot! His fees make the vast majority of all my fees.
Civil servant here, decided a few years ago to making additional voluntary contributions - more than the amount that my 5% standard contribution. Similarly to others on here I look at my annual statement and wonder what's the point? I'm hoping to be mortgage free in five years, maybe unrealistically but like others I'm losing faith in pensions.
If and when I retire, would the government of the day be able to turn around and say sorry son we don't care how much extra you were paying a month, you're not getting access to it?
AVC's should be in a completely separate pot, owned by you.
If I had a spare £1k a month for the next 10 years to invest but didn't need any of it for the next 20 years what kind of things should I be looking at?
[i]@br depends if you want it to rise with inflation or be a fixed amount. Probably around £750k today as ultra low interest rates are killing annuity rates as the two are closely linked.[/I]
If retiring at 55 you'd want it linked to inflation, so I reckon my million is a pretty good stab. Also based on watching my grandfolks and folks you start to need less once in your 70's and beyond.
I reckon as well that while property is a good investment once you start to get older it's harder to 'manage', so probably worth divesting later in life.
@br my FIL (who was himself an estate agent) has found managing his real estate more difficult in his late 80's but the kids help him out and he just signs any paperwork or makes the big decsisions. With hindsight I would have made far less voluntary pension contributions.
@km try and find way to buy a property, your cash plus rent. Leave a buffer for rate changes and/or property being empty for a fee months in event of tennet changes.