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Value Of Private Pensions Falls By Nearly A Third In Three Years

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http://www.telegraph.co.uk/finance/personalfinance/pensions/8814750/Value-of-private-pensions-falls-by-nearly-a-third-in-three-years.html

Research published today suggests that many people with private pensions will be as much as 30 per cent worse off compared with those with similar savings who finished work in 2008, because of a combination of tumbling stock markets and interest rates at a record low.

PricewaterhouseCoopers, the accountants, said those facing retirement this year would be left "between a rock and a hard place", forced to consider putting off claiming a pension until market conditions improve.

The warning comes after the Bank of England resumed its quantitative easing programme, injecting £75 billion of new money into the economy. That decision alarmed pension managers, who said this would make it harder to fund retirement schemes.

An impressive achievement. Meanwhile I'm sure those running the private pension schemes won't have seen there wages decreased by 30%.

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Research published today suggests that many people with private pensions will be as much as 30 per cent worse off compared with those with similar savings who finished work in 2008, because of a combination of tumbling stock markets and interest rates at a record low.

An impressive achievement. Meanwhile I'm sure those running the private pension schemes won't have seen there wages decreased by 30%.

particularly impressive stat given that short term interest rates are the same level as they reached in 2008 and the stock market is 50% higher than it reached in 2008

Clearly a superb article with no holes bigger than a planet

Edited by Tamara De Lempicka

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PwC has calculated that falling gilt yields have cut pension incomes sharply. Three years ago, every £100,000 a worker saved into a pension pot bought an income of £7,500. Three months ago, that figure was £6,500. And this week, the same sum would pay only £6,160.

The National Association of Pension Funds has warned that the resumption of QE will further depress gilt yields because the Bank injects money into the economy by buying gilts from financial institutions.

When falling gilt yields are combined with the reduction in the size of many pension pots, the fall in pension incomes is even more dramatic.

For example, a 15 per cent fall in share prices could reduce the value of a £100,000 pension pot to £85,000, which would in turn now buy an annual income of only £5,236.

Peter McDonald, a partner in the pension practice at PwC said that compared with three years ago, a typical “money purchase” pension is now worth around 30 per cent less than it was.

Have they got there sums wrong then? If so how far out are there figures?

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Have they got there sums wrong then? If so how far out are there figures?

it depends what date you use they have clearly used a specific arbitrary date for the calculation (probably May 08 when it was 6300, i very much doubt everyone was born and hence retired in May, i used an equally arbitrary date of October when the FTSE was 3600 to highlight the stupidity of stating 2008 as a year,

Ultimately there is no way out for asset holders/pensions they can take a hit from artificially depressed gilt yields or alternatively take a hit in the artificially supported asset value realistically anyone retiring in the next 10 years and solely relying on that pension is quite a bit fcked particularly those retiring at the back end. Its why all these nonsense threads about boomers are flawed as they project current conditions forward indefinitely, things are still playing out

Edited by Tamara De Lempicka

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2008 pensions were already down by a lot more than 30% compared to those who retired before the Equitable crash. It's demographic inevitability that Barbara-Castle-generation pensions couldn't survive the boomers retiring. And yes, I've been saying that since the 1980s.

But it wasn't inevitable that a government should abandon prudence in about 2000 and proceed to ruin everything :angry:

(Property as a pension is earlier in the cycle: if you're 40 you'll retire into an environment where pensions are finally improving again, but housing will be suffering a long-drawn-out overhang from its bubble).

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When everyone bought shares for their pension as they worked.. share prices rose and rose. When they all go to sell when they retire, shares prices will fall and fall.

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Don't worry about it. They are going to make us work until we drop so you won't need a pension.

The older people only needed more money before because there weren't enough jobs to go around.

a 65-year-old man retiring with a £100,000 fund would get an income of just £6,360 today, compared with the £15,490 he would have got 20 years ago.

http://uk.finance.yahoo.com/news/How-boost-pension-income-30pc-tele-2207154826.html?x=0

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a 65-year-old man retiring with a £100,000 fund would get an income of just £6,360 today, compared with the £15,490 he would have got 20 years ago.

It's the generation who retired 20 (and more) years ago who are living so much longer than their pension providers anticipated and draining the funds.

My parents are classic 'poor pensioners' in social-commentator speak, but have far more disposable income than they had when they were supporting a family and a mortgage.

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* Shift pension risk from corporates to proles

* Cut annuity rates (with govt help)

* Cut real wages

* Raise pensionage/abolish retirement

* Reduce corporation taxes

Rinse/repeat

Legalised corporate theft.

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it depends what date you use they have clearly used a specific arbitrary date for the calculation (probably May 08 when it was 6300, i very much doubt everyone was born and hence retired in May, i used an equally arbitrary date of October when the FTSE was 3600 to highlight the stupidity of stating 2008 as a year,

Ultimately there is no way out for asset holders/pensions they can take a hit from artificially depressed gilt yields or alternatively take a hit in the artificially supported asset value realistically anyone retiring in the next 10 years and solely relying on that pension is quite a bit fcked particularly those retiring at the back end. Its why all these nonsense threads about boomers are flawed as they project current conditions forward indefinitely, things are still playing out

I thought the hit came from annuity rates as they follow gilt yields towards zero?

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I thought the hit came from annuity rates as they follow gilt yields towards zero?

+1

Exactly. So it's quite possible the article is factually correct. Annuity rates have tanked along with long term safe investments, which is what annuaities are tied to. In 2008 they were still relatively high.

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When everyone bought shares for their pension as they worked.. share prices rose and rose. When they all go to sell when they retire, shares prices will fall and fall.

How low do you reckon P/E will go?

Will we see 20% dividends?

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How low do you reckon P/E will go?

Will we see 20% dividends?

I seriously doubt it, which means if share prices are going to fall then company profits and dividends are going to fall too.

I've been thinking about the demographics arguments after that thread on Harry Dent and this theories. I think it's plausible that we were always going to have a "boom" in the last ten years, and you can make an argument that the boom being directed into property and natural resources has insulated some of the stock market from the boom effects. That might mean the stock market isn't overvalued, certainly PE ratios and dividend yields from blue chip stocks seem to support this, and therefore the stock market might not take the hammering that some seem to think.

Or I might just be looking for validaton for my investment decisions...

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How low do you reckon P/E will go?

Will we see 20% dividends?

Only when inflation is in the 20% ballpark. Or in outlier cases of exceptional circumstances. Or in private companies, where dividends are part of tax planning (my company has paid dividends of several hundred percent in good years, 'cos it's more tax-efficient than PAYE).

So long as dividend yields comfortably beat interest rates we won't see sustainable big falls in share prices. Of course they're volatile, and of course individual shares collapse, but the market as a whole has support from those yields. The joker in the pack is interest rates: if banks go back to paying 10% or 15% on savings then a 2% or 5% dividend looks a whole lot less attractive. Prices eventually follow inflation, but from a lower base. I suspect the recent falls reflect concerns about such a scenario.

Same applies to houses. At today's prices I'd take shares - which have seen a decent correction - over houses. TS has yet to HTF as a bubbly my house is my pension generation retire, and that's likely to be long-drawn-out pain.

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No good a healthy pension pot when your limbs tremble with age, and your strong legs become week, and your teeth will be too few to do their work, and there will be blindness too...you will be afraid of heights and of falling...live your life while you are young healthy and strong because you are gone before you know it.....money is no good when you can't spend it or enjoy it.... ;)

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How low do you reckon P/E will go?

Will we see 20% dividends?

A limiting factor will be if dividends get up to say 6%.. private equity can organize a buyout of the firms with debt from the banks.

My feeling is from reading many balance sheets and income statements over the years, is the reported PE's do not show the real profitability of the companies. Usually they vastly over-estimate the real profit being made.

For example lets say a company made a profit of 4 billion. But then it says it is choosign to invest 3 billion of that in capital plant. Yet that new capital plant does not generate additional profit a few years from now, merely allows them to keep making 4 billion(and having to keep investing 3 billion of that). I would argue in that case the real profit is 1 billion, not 4 billion.

The dividend is generally true though. However, even there we saw with the banks how a large dividend can disappear overnight.. and the investor can lose most of his capital. Thats a risk that isn't there with bonds, so historically(looking over 300 years) stock dividends have been higher on average than bond yields.

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A limiting factor will be if dividends get up to say 6%.. private equity can organize a buyout of the firms with debt from the banks.

My feeling is from reading many balance sheets and income statements over the years, is the reported PE's do not show the real profitability of the companies. Usually they vastly over-estimate the real profit being made.

For example lets say a company made a profit of 4 billion. But then it says it is choosign to invest 3 billion of that in capital plant. Yet that new capital plant does not generate additional profit a few years from now, merely allows them to keep making 4 billion(and having to keep investing 3 billion of that). I would argue in that case the real profit is 1 billion, not 4 billion.

The dividend is generally true though. However, even there we saw with the banks how a large dividend can disappear overnight.. and the investor can lose most of his capital. Thats a risk that isn't there with bonds, so historically(looking over 300 years) stock dividends have been higher on average than bond yields.

pirate equity is a function/result of the credit cycle itself, im pretty confident by the time this is over the tax structure will have made pirate equity a thing of the past/redundant

The tax structure currently remains very much the structure of credit expansion and boom because the belief remains that the boom will return/is the norm. By the time the cycle completes it will look completely different and be very much a structure based around debt revulsion in line with the general social psyche

Edited by Tamara De Lempicka

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Have they got there sums wrong then? If so how far out are there figures?

Those annuity figures look broadly correct. The actual impact on peoples' pensions is harder to judge though since it'll depend also on how their investments have done. In general, I'd expect someone a couple of years off retirement in 2008 to have moved most of their funds into bonds. If they'd gone with mostly gilts, then they'd have made 20-30% over that period, making up some of the shortfall. All the same, I expect a lot of people really have been fecked by all of this.

The real problem here to mind is that very few people really have any bigger picture understanding of just how much they need to save and why. If you consider that long term investment returns are only a 1-2% over inflation at most then factor in a 20-30 year retirement period, it starts to become obvious why saving even a couple of hundred K won't get you much income.

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Those annuity figures look broadly correct. The actual impact on peoples' pensions is harder to judge though since it'll depend also on how their investments have done. In general, I'd expect someone a couple of years off retirement in 2008 to have moved most of their funds into bonds. If they'd gone with mostly gilts, then they'd have made 20-30% over that period, making up some of the shortfall. All the same, I expect a lot of people really have been fecked by all of this.

The real problem here to mind is that very few people really have any bigger picture understanding of just how much they need to save and why. If you consider that long term investment returns are only a 1-2% over inflation at most then factor in a 20-30 year retirement period, it starts to become obvious why saving even a couple of hundred K won't get you much income.

So how much would you say a defined benefit pension is worth? What is the average gap between what they paid in and what they are taking out if they live 30 years after retirement? And how long can we continue to pay for this?

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Without wanting to pick on individual posters I'm struck by the lack of insight and understanding in this thread!!!

Added: Actually having read through once again I'm going to modify that. There are some very thoughtful and carefully expressed responses to even the dumber questions/observations. Sorry!

Edited by Tricksy

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So how much would you say a defined benefit pension is worth? What is the average gap between what they paid in and what they are taking out if they live 30 years after retirement? And how long can we continue to pay for this?

1. a lot more than people with one generally understand

2. no idea, I don't have the stats to hand, but the gap for all the ones I've seen is huge

3. definitely not forever...

A random example from one scheme I am familiar with:

Employer pays 10%, employee pays 5% in order to get a pension of 2% of final salary * years of service at aged 65.

So, if the person earned 100K and was in the scheme for a year starting aged 64, they'd get a 2000 per year pension in exchange for a 15000 total contribution.

An equivalent annuity would cost around 30K, so the final salary arrangement is costing them about half what it should at current rates.

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No good a healthy pension pot when your limbs tremble with age, and your strong legs become week, and your teeth will be too few to do their work, and there will be blindness too...you will be afraid of heights and of falling...live your life while you are young healthy and strong because you are gone before you know it.....money is no good when you can't spend it or enjoy it.... ;)

That's depressing.. makes me feel like quitting my job tomorrow and buying an old 30 footer to sail around the world.

Not sure I'd be very employable by the time I got back though :(

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Without wanting to pick on individual posters I'm struck by the lack of insight and understanding in this thread!!!

Added: Actually having read through once again I'm going to modify that. There are some very thoughtful and carefully expressed responses to even the dumber questions/observations. Sorry!

Apologies folks, but i agree with the first part of Tricksys comment.

If you look into annuities, they currently predict we will all live to the age of 90. Simple maths, £100k pension at 60 gives £3.3k annuitly per year, if you choose to take an RPI link. Pretty similar for 65, 70 etc. Quite worrying that actuaries are paid so much to come up with such simple results.

But if i just stick my pension in an ISA, i take the money out when i want, it grows at a a rate which was historically similar to RPI and i dont get it all taken off me when i die.

Why would i want to give my money to a pension?

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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