Lee_M
Guru
if your employer is giving you 6% then its a 6% growth straight away - not to be sniffed at
Pensions
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if your employer is giving you 6% then its a 6% growth straight away - not to be sniffed at
Whilst all of he above is a fair enough pov, one shouldn't ignore the effect of the employer's contribution. That in itself makes it an attractive scheme. As I said, I reckon there has to be a damned good reason not to go with it.
Note also what bicyclist says...
...it's sound advice, particularly considering the govt mood re state pensions, and undoubtedly there'll be more changes in the future.
400bhp
Guru
1. You get tax and NI relief at source. Once retired you do pay tax on any income, but (generally, given your retirement/work status) not NI and also you can take 25% of the pot tax free. So, there's a tax/NI saving for most.
2. Past is no guide to the future. You're referring to equity returns, which are the same no matter where your money is tied up (ISA, general investment, whatever) and so comparing them to a "savings" account is a misnomer. Broadly, over the long term (which is what investing to retirement is) equities should outperform inflation. That's not to say they will of course. The problem isn't the asset class itself, it's people's lack of understanding. Most private sector defined contribution pension schemes give a choice of asset class as to where the money is invested. So, you could invest in a less risky asset (like something broadly as a bank savings account) but are likely to suffer lower returns in the long run.
3. Any additional contribution from the employer is usually a take-it or leave it offer. They won't generally give you the additional % on top of your salary if you choose not to take up a pension at your employer.
4. Generally, these days, fund charges are pretty low. I accept that in the past some funds have had pretty high charges though.
accountantpete
OAP
The problem is that Equities historically have returned around 5% adjusted for inflation. However for a Pension the provider has to invest a large percentage in much safer options (bond markets etc) which return a lot less.
Then have a look at the charges that are then made by the Pensions Providers,stir in inflation running at 3% and you probably get the basic rate tax break covered. So you end up getting what you have paid in.
The contribution match is a benefit - but if that is at the expense of a pay increase then it's not quite the gift horse.
Archie_tect
De Skieven Architek... aka Penfold + Horace
- Location
- Northumberland
Presumably the company doesn't have to pay employer's NI on the pension contribution which saves them paying out the extra 9.5% on top of the additional pension money in lieu of salary, [so on a 5% contribution that's 0.475% of it's total pay bill, which would be considerable monthly amount for a large company to have to find when trying to survive].
Apart from the small risk of the pension fund not performing as well as expected, and the hassle of the administration of it, what's the downside for anyone?
Apart from the small risk of the pension fund not performing as well as expected, and the hassle of the administration of it, what's the downside for anyone?
400bhp
Guru
Sorry, but again you have a poor understanding of pensions.
Fnaar
Smutmaster General
- Location
- Thumberland
I'm looking forward to the challenge of becoming Morisson's best-ever octogenarian shelf-stacker. 
Oh, I absolutely agree. If the employer is contributing significantly as well, it would be daft not to join the scheme. Several people had pointed that out, so I didn't feel I needed to say it as well.
It's in addition to the annual increase.
Granted, but ISAs have the reverse tax structure, you don't lose 75% of a fund to an actuarial valuation, you can take it whenever you want and the charges are much lower. I haven't seen a convincing argument for a personal pension over an ISA unless the employer is also contributing.
I don't agree. A 5% initial charge and 1.5 - 2% annual management fee are still commonplace, and that is the internal fund charge i.e. without the extra charges from the pension provider. Given that most funds don't exceed even the FTSE 250 index over time, if all charges are included, people are being charged royally for doing something that they could do themselves far more cheaply and without taking any additional risk.
400bhp
Guru
1. Nope-it isn't as straightforward, due to the fact that the marginal tax rates before and after retirement will be different. (25% tax free cash, no NI on pensions both in and out). Plus, having a deferred tax arrangement means you can enjoy the investment returns on that money.
2. You're looking at a particular pension arrangement (which you have also done in 1 when taliking about actuarial valuation, which by the way you haven't understood the product correctly), one that isn't commonplace these days. You're looking at pensions run using smoothing approaches, not using unitised over the counter funds that generally invest your money in some index that broadly follows (or often exactly follows) a common known investment type (e.g the FTSE all share). Charges on these can be as low as 0.5% (or lower if it's a group arrangement).
threebikesmcginty
Corn Fed Hick...
- Location
- ...on the slake
gam001
Über Member
Good question redcard
Pensions have had a bad rap recently, but overall, I think pensions are still valuable (see below). However, this will depend on your personal circumstances and your life-view (amongst other things), and there are also potential downsides as you say (also see below).
There are lots of things to consider, but generally I see pensions like this (these are generalisations and therefore not financial advice
)...Main Pros:
- Getting money for nothing off employer (not to be sniffed at these days)
- Get tax relief on your contributions - so if you are a 20% tax payer, for every £8 you invest the government also add £2 - if you are a 40% tax payer then it's even better, for every £6 you invest the government invests another £4 (again, not to be sniffed at these days)
- If you live a longer than average after you have taken your pension then you "win" financially over the annuity provider
- Investment returns may be good over the next few years if we're currently in a recession (debateable, and it is usually the long-term forecast that you need to consider for pensions products)
- Growth in investments is tax-free (like ISAs) on most assets that pension funds invest in
- Can take upto 25% of the value of the fund as tax-free cash (currently upto a limit of around £375k !)
Main Cons:
- Lots of pensions rules means it's less easy to get your hands on your money (compared to say ISAs), e.g. you (usually) have to take at least 75% of the value of your pension as a regular income of your lifetime
- Investments can go down (as you say)
- When you buy an annuity at retirement, this can be costly, as insurance companies need to make a profit - it mainly depends on financial conditions and competition in the market at the time you buy, which is hard to forecast in the long-term
- If you die sooner than expected after retirement you will "lose" financially (although if you choose a 'spouse's pension' at retirement then that may be OK if spouse lives a long time)
Good luck pal and if in doubt get some professional financial advice
400bhp
Guru
Good question redcard
Pensions have had a bad rap recently, but overall, I think pensions are still valuable (see below). However, this will depend on your personal circumstances and your life-view (amongst other things), and there are also potential downsides as you say (also see below).
There are lots of things to consider, but generally I see pensions like this (these are generalisations and therefore not financial advice
Main Pros:
- Getting money for nothing off employer (not to be sniffed at these days)
- Get tax relief on your contributions - so if you are a 20% tax payer, for every £8 you invest the government also add £2 - if you are a 40% tax payer then it's even better, for every £6 you invest the government invests another £4 (again, not to be sniffed at these days)
- If you live a longer than average after you have taken your pension then you "win" financially over the annuity provider
- Investment returns may be good over the next few years if we're currently in a recession (debateable, and it is usually the long-term forecast that you need to consider for pensions products)
- Growth in investments is tax-free (like ISAs) on most assets that pension funds invest in
- Can take upto 25% of the value of the fund as tax-free cash (currently upto a limit of around £375k !)
Main Cons:
- Lots of pensions rules means it's less easy to get your hands on your money (compared to say ISAs), e.g. you (usually) have to take at least 75% of the value of your pension as a regular income of your lifetime
- Investments can go down (as you say)
- When you buy an annuity at retirement, this can be costly, as insurance companies need to make a profit - it mainly depends on financial conditions and competition in the market at the time you buy, which is hard to forecast in the long-term
- If you die sooner than expected after retirement you will "lose" financially (although if you choose a 'spouse's pension' at retirement then that may be OK if spouse lives a long time)
Good luck pal and if in doubt get some professional financial advice
Shurrup - you don't work in pensions any more.
Good to see you're active again.
gam001
Über Member
Ha - I know 400bhp - I can't help myself.Shurrup - you don't work in pensions any more.
Good to see you're active again.
Plus, I still know bugger all about Life Insurance after 9 months, so feel I have to justify myself somehow
