Pensions! Yeah exciting I know...

[Feasty]

I've been working all my life (well for the past 13ish years) and most of that has been spent being a permanent employee for one IT company or another.
I'm happy because the work isn't too difficult, the pay is pretty good and I don't have to put too much thinking into it all! (Lazy git I know).

However, one thing that is always worrying me in the back of my mind is pensions. I've never understood them, I've never tried to understand them but I've always paid into them! I know they are for later in life when I'm retired, and I've decided I really must find out what they are all about - this could have a big effect in my last years of peace and quiet! In fact I'm not even sure what type of pension I have, but I think it's a 'final salary' pension, whatever that means.

So are there any clever sods on here who know about these things that could either explain some of it or point me in the right direction of an idiots guide!? Or are most of you in the same boat as me, not having a clue but paying out anyway!?


____________________
Previous: Aprilia Habana Retro 50cc (beauty), Yamaha SR125 (fell apart), Honda XR125 (nippy little commuter), Honda SLR650 (Geewhizz), Yamaha Diversion 900S (Smoooooth) written off courtesy of a stupid escaped horse.
(7 year gap), BMW F650 (Relaxing ride). Aprilia Caponord ETV1000 (Big and bold). Yamaha FZS600 (got me in trouble too quick!).
Current: Yamaha TDM 900 (Comfy, light but big, power when needed).

[The Shaggy D.A.]

https://www.thepensionservice.gov.uk/planningahead/home.asp

https://www.moneysavingexpert.com/savings/discount-pensions
____________________
Chances are quite high you are not in my Monkeysphere, and I don't care about you. Don't take it personally.
Currently : Royal Enfield 350 Meteor
Previously : CB100N > CB250RS > XJ900F > GT550 > GPZ750R/1000RX > AJS M16 > R100RT > Bullet 500 > CB500 > LS650P > Bullet Electra X & YBR125 > Bullet 350 "Superstar" & YBR125 Custom > Royal Enfield Classic 500 Despatch Limited Edition (28 of 200) & CB Two-Fifty Nighthawk > ER5

[D O G]

If it is a final salary scheme then you are a lucky boy, and I would suggest you don't leave your employer until you retire!

In pensions as a whole, you pay into a pension fund, the employer contributes also, and the pension fund then invests these contributions for you, so that they increase in value over the life of your employment and when you reitre they pay out. When markets perform poorly (like now), the assets of a pension fund decrease in value, which puts pressure on the ability for funds to service their retired members.

A final salary (or defined benefit) scheme is one where the pension your receive is based on a proportion of your final salary, and typically depends on length of service.

For example, let's say for each year you work the company will give you an annual pension post retirement of 2.5% of your final salary. If you work there for 10years, when you retire they will pay you, every year for life, 25% of your final salary (although typically it is the average salary for the last couple of years). Your contribution to the pension fund is fixed throughout your employment at a proportion of your income (say 4% again for the sake of argument).

Final salary schemes are now virtually unheard of in private companies, since they create a huge problem in that the pension fund must service the ongoing pension liability until the person dies. Similarly, poorly performing markets also cause problems as the assets of the fund do not increase enough to service the members.

This all came to a nasty head about 5 years ago, when calculations showed that virtually all pension funds were in massive defecit, i.e. the expected payments out of the fund exceeded their assets. The buck generally stops at the employer to correct this defecit, and so companies had to pour money in their funds to sort it out. One of my clients contributed £15m over two years to correct its fund defecit, which is not a number to be sniffed at, and pretty much represented most of the cash it generated from its trading in those years.

All new pensions are now what they call Defined Contribution or Money Purchase pension schemes. You pay a proportion of your income into a fund, the company makes an additional contribution, and you build up your own asset pool in the fund, who goes off and invests your and the other members money to make it grow. The pension that you get in the end purely depends on how big your personal pot is - just like a savings account.

What generally happens is that people then take that pot of money, take some as a lump sum and use the rest to buy an annuity, which promises to pay a guaranteed amount until you die. Clearly, bigger annuities cost more.

That's a quick and dirty breakdown of how they work.

Personally I have never paid into a pension fund, which is a bit thick really since you are turning away free money - the employer contribution, which also is not taxed as part of your income. I will contribute in probably my next job.

What I will say is that the days of relying on your pension to provide you with a decent retirement are long gone. I plan to be working pretty much until I die, although not full time, I'll just wind down.

You can probably do the same, given that you are in IT, as long as you keep yourself current.

The realy bitch is for those people who do manual jobs, which will be physically impossible to do when they're 75, and are typically less well paid, and so they have smaller pension funds. The govt pension is a joke, so I would expect to see many more old people working in shops and the like in the next few decades.

[Itchy]

Pension short version

Handing over your money to somebody who will go to a roulette table to gamble your money , and win or lose will take a cut each and every year.

Remember to use discounted future values when pension providers quote how much money you will receive per month..

If you are unsure as to what this means , ask your dad how much a pint of beer and a loaf of bread cost when he was 15 20 25 30 and 35 years old same with rent electricity and gas.

People like my dad were promised 900 pounds a year in 1965 which was a massive amount of money then and thus he paid massive amounts into his pension, fast forward to his retirement in 2002 and he got his promised 900 a year and was disgusted.

Pension companies scam you by saying hey hey you will get 15K per year , which sounds ok , discount the future value of it with an interest rate of merely 5% , and the present day value factor falls to about 800-1000 pounds year , EVEN considering growth and the tax free bit you get ontop. Can YOU live on 1K a year? Fiscal drag and falsified inflation mean it is even worse ....

Gordon Brown says inflation is 4.1% (last time I checked) , in reality inflation is about 17% based on money supply hence. Check out how fraudulent CPI is its a joke...Also under labour it was found pensions 'grew' by -26% hence you put 100 quid away , you get what 20 quid tax relief, the fund manager takes 2-5% cut, the value of the 100 each year deflates by 4.1% (official) or 17% as I think it does.Then it 'grows' -26% etc.



I've worked wit the actuary roz altmann her rule is x25 the amount you want to retire on , thus you want 10K per year your funds you need 250K in yor pension fund, which is still worthess due to discounted values factor.


What am I saying? pensions my first sentence described it perfectly.

Just to balance out Damogs arguement
____________________
Spain 2008France 2007Big one 2009 We all die. The goal isn't to live forever, the goal is to create something that will. In the end, your life will flash before your eyes. Make sure it is worth watching.

[Feasty]

Thanks for that breakdown Damofo D.O.G.

Well I guess I've been lucky for a fair while, unfortunately part of the reason I'm now looking into all this is because my company will shortly be stopping the final salary pension scheme. I've heard it can sometimes be better to join a private pension scheme instead of these Defined Contribution or Money Purchase pension schemes?

On another note I'm really hoping my and my families retirement finances will be helped by the rich in-laws who might one day pass it all on!
____________________
Previous: Aprilia Habana Retro 50cc (beauty), Yamaha SR125 (fell apart), Honda XR125 (nippy little commuter), Honda SLR650 (Geewhizz), Yamaha Diversion 900S (Smoooooth) written off courtesy of a stupid escaped horse.
(7 year gap), BMW F650 (Relaxing ride). Aprilia Caponord ETV1000 (Big and bold). Yamaha FZS600 (got me in trouble too quick!).
Current: Yamaha TDM 900 (Comfy, light but big, power when needed).

[D O G]

So what would you do then, Itchy?

[Itchy]

Before anybody asks ...

My 'pension pot' is:

My general health (keep it good).

My skills (keep them up to date).

Some silver , some gold which I always buy when its rock bottom prices

Shares in weapons firms. (bought at IPO) for nowt

Shares in various commodities again bought at IPO for nowt

Shares in choke point companies only military strategists will understand this again bought at IPO again for nowt.

Worthless land which has two uses the african dream (where you buy a hut live in the middle and grow your own food) and may one day become valuable due to its location.

Hence I am hedged against myself in various places , ie in war assets and land is seized , but then my weapons shares go up and gold prices jump on the back of printed money to fund such wars.
____________________
Spain 2008France 2007Big one 2009 We all die. The goal isn't to live forever, the goal is to create something that will. In the end, your life will flash before your eyes. Make sure it is worth watching.

[D O G]

[Bofh5]

Well thats really depressed me

I'm in the contribution based scheme where my employer pays in 3 times the amount i do.
Sounds like i'd have been better off using the pension contributions to buy lottery tickets each month as it would probably be a better return on investment considering my pension pot is probably losing money hand over fist !
____________________
(L)users...Disk space is to good for them.

Bikes: Honda 50 / CB125-TDC / 93 CBR600 F2 (Stolen & Trashed) / 2001 SP-1 (Sold) / 95 CBR600 F3

[D O G]

[Itchy]

[D O G]

[Bofh5]

Thanks i'm not so depressed now

Always wondered though what the odds would be if someone went with plan B and bought lotto tickets each month for their entire working life.

Say for example: Pension contribution of £175 per month
= 175 lottery tickets

Obviously you can win anything from £10 upwards so would ahve to add this together over time.

My head hurts now
____________________
(L)users...Disk space is to good for them.

Bikes: Honda 50 / CB125-TDC / 93 CBR600 F2 (Stolen & Trashed) / 2001 SP-1 (Sold) / 95 CBR600 F3

[Feasty]

[JonB]

I really worry for what my parents are going to do, my Dad is a butcher and is now 53, so won't be able to physically carry on with his job in 20 years time. Good news is that they are putting back money into a savings account, but my calculations only see that they will only have about £100,000 saved up by the time they retire, which sounds a lot, but won't last for 20 years (Obviously they good die before then, but this is worst case scenario).

They have just finished paying the mortgage, but I can't see how the state pension alone and this small savings pot is gonna keep things running along. I guess myself and my sister will have to step in and help out. Not that I mind, they brought me up and helped me achieve what I have, so I will make sure I repay them in kind.

To be honest the pensions issue is a ticking timebomb that is surely gonna explode very soon.
____________________
Be careful whose advice you buy, but, be patient with those who supply it. Advice is a form of nostalgia, dispensing it is a way of fishing the past from the disposal, wiping it off, painting over the ugly parts and recycling it for more than it?s worth.

[Itchy]

Depends on the company tbh , in that the last company I worked for said they'd put in 20% to everything I paid in.

The company before that did a bit better at 34p up to a limit.

The problem is one of consistency , how likely are you to stay with your current company and are they likely to go bust or not? how is the company pension managed etc.

And it prevents you from doing jaunts like I am doing currently.

Company H I worked for , had people move their pension pots around as they kept making the terms more unfavorable and and this costs a huge chunk of the pension, so if you get 3 pound for each 1 you put in and your job is secure for life by all means go for it.

The traditional pension does not work for me and I don't really trust them having seen it from both sides, in effect I run a SIPP but it is slightly different in that its not actually a SIPP in that I get tax advantages legally via other means.

The extra work I put in now and again to manage it pays off. Also remember money you stick into a pension is kept under lock and key (though this does not prevent people from stealing it only you from accessing it) until you retire, sure you can do one of those pension release things but they are incredibly unfavorable almost loan sharking.

Hence I don't believe you should make a huge generalised statement about pensions should be at the heart of your pension plan, there are many many alternatives.

But if you do choose a pension remember the x25 rule, I recall a BBC programme where people paid small amounts like 100 quid a month into their pensions expecting 15-20K when they retired, and thus you have to make REALLY big contributions I'd guess at least 2-3K a month as anything below this gets you into the trap...

Ie people who did save for pensions are ineligible for government benefits as it just pushes them above the limit and thus they end up worse off than they would have been had they not saved at all.


Overrall this is a highly complex topic and you should really seek advice and look at some present value factor calculators online to see how much you will have to live on again asking your dad how much everyday items cost when he was younger can give you a picture of this problem, and don't trust anybody trying to sell you anything.
____________________
Spain 2008France 2007Big one 2009 We all die. The goal isn't to live forever, the goal is to create something that will. In the end, your life will flash before your eyes. Make sure it is worth watching.

[Itchy]

[The Shaggy D.A.]

Just in case you don't have a handy parent to ask, a basic loaf of bread cost...

1970 - 9p
1980 - 33p
1990 - 50p
2000 - 52p
2007 - 94p

And to compare the prices of basic items between 1975 and 2000 :-

250g cheddar cheese : 25p, £1.26
500g margarine : 23p,80p
250g butter (home produced) : 18p,82p
Half dozen eggs (size 2) : 21p,84p
125g loose tea : 11p,81p
1 kg granulated sugar : 25p,55p
800g white sliced bread : 16p, 52p
1 kg old potatoes : 12p, 67p
1 pint pasteurised milk : 7p, 34p
____________________
Chances are quite high you are not in my Monkeysphere, and I don't care about you. Don't take it personally.
Currently : Royal Enfield 350 Meteor
Previously : CB100N > CB250RS > XJ900F > GT550 > GPZ750R/1000RX > AJS M16 > R100RT > Bullet 500 > CB500 > LS650P > Bullet Electra X & YBR125 > Bullet 350 "Superstar" & YBR125 Custom > Royal Enfield Classic 500 Despatch Limited Edition (28 of 200) & CB Two-Fifty Nighthawk > ER5

[the grim reaper]

[GhostRider]

I turned down the chance to participate in my company pension (they ask you once and once only, no exceptions). I was 22 at the time and didn't give a shit.

Not much has changed. I don't understand pensions fully at all, but I see them as you work all your life, pouring money into a pension plan, then when you retire they tax it and give you whatevers left over (a pittance compared to the money put in). You then live a miserable old age scraping cash like you did for the 50+ years you worked to try an avoid that very situation. You do get a free bus pass though.

A small theory.... say you buy a house, three bedroom, garage, garden, nothing flash just a decent house. You have kids, they grow up, leave home. It comes to retirment time, you've got your own savings account which you've been putting money into. You decide that being 70 and largely decrepid you don't need a 3 bedroom house with garage/garden etc, so you sell it and downsize to a 1 bedroom bungalow which you pay off immediately with the money you made from the house, leaving a nice tidy profit on the side. This, combined with your own savings, pays for your existence....

Does anybody know the monthly/annual spend of a 70+ year old? I seriosuly can't imagine it is going to be that high to warrant needing £15k a year - it's not as if you're going to be out on the piss every weekend, maintaining numerous vehicles, feeding a whole family etc etc.

I have a feeling I'll be pretty fed up at that age anyway, so should I be in a state of absolute poverty I'll probably take up heroin and overdose on it and let myself be one with the cosmos.

GhostRider
____________________
I have all the characteristics of a human being: blood, flesh, skin, hair; but not a single, clear, identifiable emotion, except for greed and disgust. Something horrible is happening inside of me and I don't know why. My nightly bloodlust has overflown into my days. I feel lethal, on the verge of frenzy. I think my mask of sanity is about to slip.

[Kickstart]

Hi

Whatever the rights and wrongs of a pension, the one thing that really is dodgy are is stopping people investing in their pensions is that it is easy to have enough pension that you lose benefits. Personally think that it should be made very certain that pensions are in addition to any state old age pension benefit. Until that happens many who are on the borderline will just enjoy spending the money now knowing that the chances are they will be no worse off in the future.

[Itchy]

[Kickstart]

[GhostRider]

[Itchy]