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TheNoSnowMan

Should I Bother With My Work Place Pension?

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I've worked for the same company now since 2005 and was enrolled into their workplace pension scheme at the end of that year. The company contributes 5% of my salary each month regardless of what I put in. For the first 2 years I was paying in 10%. In September 2007 I bought my gaff and decided I needed the extra money and stopped paying in. After a fairly big pay increase just over a year ago I started putting 10% in again and have done so since. Didn't think much of it until I got my forecast a few months back telling me that at the rate I was going I could have a pot of around £205k which would be a yearly income of £6.5k at 65. I know that pensions are crap these days but I didn't realise they were this bad. I earn just under the national average (£25k give or take a couple) and 10% is the absolute maximum I am prepared to give up per month. Thing is, it's money I could use now instead on getting jobs round the house done, more money to overpay the mortgage with... etc etc. I've spoken to a few people and keep getting mixed messages - mainly baby boomers like my Dad are adamant that I must have a pension otherwise I'll have nothing in old age. On the other hand I've spoken to lads at work in their mid to late 40's who think pensions are a waste of time and they're plan is to either sell their (paid off) house and invest the money or buy another house outright and rent it out. I, personally, have no intention of doing the latter and even the former I'm not so sure about as you'd need a sh!t load to invest to be able to cover the rent and living costs. So what do you lot think I should do? Am I just pissing money up the wall while waiting for a future government to raid what I've saved - or is Martin Lewis right and I'm doing the right thing?

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I personally wouldn't rely on being able to sell the house and invest the money (in what?) - where would you live? You'd also be looking at having to make a few hundred grands profit in today's money to have a big enough pool of money to get a reasonable income. Is that really going to come from the average UK house? I guess they are really thinking BTL.

Fact is, for whatever reason - a pension is going to cost you (and me) a lot more than it did previous generations if you want one. It's also worth bearing in mind, that on retirement your living costs will likely be lower eg no kids, no mortgage, no work related costs. While £6.5K might not be luxury, £10K might well give you a similar level of comfort, perhaps even better than you currently enjoy. Also bear in mind that as you get much older ie into your late 70s/80s the chances are you'll have less opportunities to spend money.

The alternative is to throw yourself on the mercy of the state. You won't be alone - and my guess is that there will be some form of subsistence payment available, but it'll be the minimum socially acceptable one. One view is that the prevailing political narrative is very much about creating intergenerational envy and hatred of immigration as a scapegoat for the political/financial classes mistakes. If true, that'll have long term consequences with regards to future benefits for the old, but equally there will likely be more old people who will actually vote too so perhaps things won't get so bad.

You should, of course, do your own research.

Edited by StainlessSteelCat

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My private pension would have been worth more just sat in a savings account.

Paying into a pension seems to benefit the spivs in the city.

Seek alternatives would be my advice.

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The massive advantage of a pension as far as I'm concerned is the higher-rate tax relief, for this reason I have got a SIPP as well as wrokplace schemes. If any government drops this relief then I will stick with my work one but won't put any more into a SIPP, as other invetsments woudl be preferable; such as teh 30% tax relief on VCTs.

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When pensions are means tested you will regret having taken out a pension paying 6.5k per year as you would get a similar amount from pension credits.

Another thing is that retirement age is now 72 or something silly - I never planned on living past 72 and judging by the activities of elder relatives at this age, I won't require much money to sit there watching TV and playing cards.

Your health is far more valuable than a pension, so don't kill yourself making the Banksters rich.

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The other thing to flag up is that annuity rates are on the floor at the moment. When interest rates pick up so will annuity rates.

The lesson from the current low interest-rate period is to retire (or rather to start drawing your pension) when interest rates and annuity rates are high and then you'll get a decent pension from your pot.

I will be giving up work before I retire and then formally retire when I think annuity rates are near their peak.

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The other thing to flag up is that annuity rates are on the floor at the moment. When interest rates pick up so will annuity rates.

The lesson from the current low interest-rate period is to retire (or rather to start drawing your pension) when interest rates and annuity rates are high and then you'll get a decent pension from your pot.

I will be giving up work before I retire and then formally retire when I think annuity rates are near their peak.

I wrote this a while ago when my dad was retiring - might be useful - http://katchytitle.blogspot.co.uk/2011/10/pensions.html

If you have a pension - make sure you know what its invested in and minimise the fees - a 1% fee reduction increases your pension pot by almost 50%

As for how you allocate your savings, You have to take a view using your judgement I'm afraid. A spread between stocks, housing, precious metals, commodities all in a tax relief wrapper like a SIPP and you'll definitely have money when you retire. However, as people are saying, will you have a chance to spend it? A lot of people don't realise that when you retire you get a 25% tax free amount but you cannot withdraw the rest of your pension its trapped and your withdrawal rate is tied to government gilt prices and how much you want to be taxed (that's right you still get taxed) if you take out over appox 10K a year.

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When pensions are means tested you will regret having taken out a pension paying 6.5k per year as you would get a similar amount from pension credits.

Another thing is that retirement age is now 72 or something silly - I never planned on living past 72 and judging by the activities of elder relatives at this age, I won't require much money to sit there watching TV and playing cards.

Your health is far more valuable than a pension, so don't kill yourself making the Banksters rich.

You are right my father has a pension with almost exactly the same return as above ,when you deduct how much he doesn't get in the way of benefits due to means testing from the 6k or so, he is looking at £20-30 pound a week better off max

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I wrote this a while ago when my dad was retiring - might be useful - http://katchytitle.b...0/pensions.html

If you have a pension - make sure you know what its invested in and minimise the fees - a 1% fee reduction increases your pension pot by almost 50%

As for how you allocate your savings, You have to take a view using your judgement I'm afraid. A spread between stocks, housing, precious metals, commodities all in a tax relief wrapper like a SIPP and you'll definitely have money when you retire. However, as people are saying, will you have a chance to spend it? A lot of people don't realise that when you retire you get a 25% tax free amount but you cannot withdraw the rest of your pension its trapped and your withdrawal rate is tied to government gilt prices and how much you want to be taxed (that's right you still get taxed) if you take out over appox 10K a year.

It`s about 4-5K a year now as your state pension is included in the calculation

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The massive advantage of a pension as far as I'm concerned is the higher-rate tax relief, for this reason I have got a SIPP as well as wrokplace schemes. If any government drops this relief then I will stick with my work one but won't put any more into a SIPP, as other invetsments woudl be preferable; such as teh 30% tax relief on VCTs.

But then they tax your pension payments after 40 years of interest have been added.

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Didn't think much of it until I got my forecast a few months back telling me that at the rate I was going I could have a pot of around £205k which would be a yearly income of £6.5k at 65. I know that pensions are crap these days but I didn't realise they were this bad. I earn just under the national average (£25k give or take a couple) and 10% is the absolute maximum I am prepared to give up per month.

I think you are a bit pessimistic about the annuity that a GBP205k pot would buy. According to tables at the FT (http://www.ft.com/in...e/annuity-table ) a 100k pot yields about 6k annually (age 65 at start, single life, no growth). The amount is down to 3.5k if you want the initial annuity indexed to RPI.

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