Property V Pensions (Five Live This Morning)

[SarahBell]

£2.50 a day? Thats less than £1000 a year. Assuming a 50 year working life, no jobless periods!, that only £50k plus compound interest, also include employer contribution and tax savings, for maybe £150k to £200k. how the ... Does she get to £750k unless she takes into account inflation. At which point its no longer the price of a cup of coffee! Given how pension funds have performed the kind of increases she is suggesting are highly ambitious.

Isn't this the basis of someone's thing about putting child benefit aside for their kids pension?

[LC1]

No, state pension will get lower as it will get harder to justify, so you will have to work longer (if you can).

Yes, but pensions aren't the only way. Stocks & Shares ISAs, NS&I Certs, Gold, Fine Wine, Property (when it is rock bottom), even the odd lottery ticket or two. Or just create your own business and live off the profit. If you can make money selling vegetables, learn how to grow them. Be resourceful and look for opportunities. Best way to prepare for retirement is to do as much as you can whilst you are able.

Thanks for this, kind of what I've been thinking. I need to look into it a bit more before pulling out of my scheme though I think, then invest in land and seeds perhaps!

[The Knimbies who say No]

Why is it bonkers? I calculate about £600,000 2.50 per day, from age 20-65 45 years, compounded at 8-10% inflation 4% Its possible, 8-10% return on investment is certainly realistic, you could probably do much better if your good at investments.

The point is that you dont have to save much to have a big pension. Just make sure its tax efficent, and you start early so the returns compound. A £1000 investment after 45 years at 8% is £30,000

Nah, 8-10% is not realistic in the long term, especially for large funds under management. Obviously a clued-up private investor could achieve that with diligence and luck, but to make assumptions like that for a large number of people is precisely why we're in the situation we are now in.

If a decent pension could be obtained by investing £75 a month, everyone would have one. End of.

[arrgee1991]

The money I pay into my pension now goes to people currently or soon to be in retirement, so I'm relying on future generations to pay into the same scheme....I

You can't avoid the state pension ponzi!

Most new schemes (money purchase) just let you build up your fund and then you buy an annuity.

I don't really know exactly how a final salary company pension works (probably those paying in fund those who have retired with some investment behind it), but if you have one of these stick with it. Very few companies offer them as they are seen to be beneficial.

If you have a public sector final salary you should stick with that as well, though you can be sure that the benefit of this will diminish over time.

[arrgee1991]

Nah, 8-10% is not realistic in the long term, especially for large funds under management. Obviously a clued-up private investor could achieve that with diligence and luck...

+1

Very difficult to make 9% per annum year on year. My investments (in a myriad of forms) have been very volatile over the last 25 years and despite doing fairly well, I am not at 9%.

Try this with £10K seed and £10K in per year. I'd be a millionaire if I could grow that at 9%/annum.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

[Meat Puppet]

An average return of 9% over 40 year is realistic, but as the last decade has shown it can be less.

You better be counting on 5% inflation to get your 9% return. 3% dividend yield plus 1% per share annual dividend growth is all you can expect long term. Probably won't get lucky with P/E expansion - that boat sailed 30 years ago. Hedging your bets by taking on some bonds and your returns will be lower still.

An almighty crash and prices that remain low for a generation is all that can prevent most of those aged 20 to 40 from working till they die.

[Georgia O'Keeffe]

You better be counting on 5% inflation to get your 9% return. 3% dividend yield plus 1% per share annual dividend growth is all you can expect long term. Probably won't get lucky with P/E expansion - that boat sailed 30 years ago. Hedging your bets by taking on some bonds and your returns will be lower still.

An almighty crash and prices that remain low for a generation is all that can prevent most of those aged 20 to 40 from working till they die.

and thats on actual govt inflation figures

Dow stock index, total return including dividends

The average compounded total return per year 1900 through 2009 is about 6.1%. When corrected by CPI, it's about 2.9%... and with full with CPI+lies corrections included, its about 2.0%. In other words, over 66% or 2/3 of the total return is inflation only... and that's before fees, commissions and taxes.

Its amazing how people are completely oblivious to real returns and thats exactly why Govts love inflation.

Edited May 26, 2011 by georgia o'keeffe

[scottbeard]

I'm pleased this topic has stirred up a good discussion

I'm surprised that there doesn't seem to be a pension thread anywhere in hpc.

Given the current economic climate, does it make sense to trust in this type of ponzi, or would it be better to try to make your own investments to save for retirement?

I'm in my early 30s, but just can't help thinking that many pensions will be next to worthless by the time I'll need them to pay out.

Most pension schemes are not ponzi schemes at all - only the State pension is arguably one.

To paraphrase another poster, pensions are worth the gamble for higher rate tax payers and/or those who benefit from company contributions.

Why do you think the pensions will be next to worthless when you retire?

I don't really know exactly how a final salary company pension works (probably those paying in fund those who have retired with some investment behind it), but if you have one of these stick with it. Very few companies offer them as they are seen to be beneficial.

Private sector final salary schemes (and some public sector ones) have an actual fund of assets which gets built up by employee and company contributions over the years and out of which pensions are paid out.

This is quite different to the State pension, where today's pensioners are paid for by current workers.

[LC1]

Most pension schemes are not ponzi schemes at all - only the State pension is arguably one.

Private sector final salary schemes (and some public sector ones) have an actual fund of assets which gets built up by employee and company contributions over the years and out of which pensions are paid out.

This is quite different to the State pension, where today's pensioners are paid for by current workers.

Thank you, I fear I was confused and ignorant of how they worked....but I have still resolved to take a more proactive interest in how my particular scheme works and what its assets/investments are.

[arrgee1991]

Private sector final salary schemes (and some public sector ones) have an actual fund of assets which gets built up by employee and company contributions over the years and out of which pensions are paid out.

Thanks for the clarification.

I have never seen details of a final salary scheme as I have never been offered one. The downside of these seems to be with the provider. BT have had to plug a £9bn hole in theirs, which had led to redundancies and cost savings leading to a de-motivated workforce.

With the public sector, I guess the tax payer plugs the holes.