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How Unfunded Pensions Will Destroy Your Retirement


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24 minutes ago, The Spaniard said:

I came across this informative and concerning YouTube video and thought to post it here on HPC for comments.

This guy lost me 5 minutes in when he said that the 1970s inflation was primarily caused by baby boomers entering the workforce and buying tables and chairs for their houses.  As well as making no sense (how could youngsters on the lowest wages of their careers generate 15-20%pa inflation?) I'm also squarely with Milton Friedman - "Inflation is always and everywhere a monetary phenomenon" - and that it's coming off the gold standard and moving to fiat money that caused this.

Later in the video though he says some things I agree with - US Equities are overvalued, and US Pension Funds underfunded.  But - in my view - UK Equities are not overvalued and UK Pension Funds are considerably better funded and better hedged (in total - of course there are exceptions).

In summary: he's got a few valid points in my view re the US, but not sure it all directly translates here. 

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9 hours ago, scottbeard said:

This guy lost me 5 minutes in when he said that the 1970s inflation was primarily caused by baby boomers entering the workforce and buying tables and chairs for their houses.  As well as making no sense (how could youngsters on the lowest wages of their careers generate 15-20%pa inflation?) I'm also squarely with Milton Friedman - "Inflation is always and everywhere a monetary phenomenon" - and that it's coming off the gold standard and moving to fiat money that caused this.

Later in the video though he says some things I agree with - US Equities are overvalued, and US Pension Funds underfunded.  But - in my view - UK Equities are not overvalued and UK Pension Funds are considerably better funded and better hedged (in total - of course there are exceptions).

In summary: he's got a few valid points in my view re the US, but not sure it all directly translates here. 

Correct.

The return used used by US public sector pension funds is laughable.

You cna make a case that, if GILTS return to semi-normal, then most UK private pensions will be more than OK.

Of course theres the problem of UK public sector pensions.

And the problem problem of people in no pensions, including someone I know who stopped contributing to a pension so he could buy a ~500k house. Apparently pensions are a rip off; housing the way to go.

I doubt he'll ever see what he paid for the house - assuming he can still afford the mortgage.

Me? Ive ~300k house, 15k mortgage  and ~600k pension fund.

 

 

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1 hour ago, spyguy said:

Correct.

The return used used by US public sector pension funds is laughable.

You cna make a case that, if GILTS return to semi-normal, then most UK private pensions will be more than OK.

Of course theres the problem of UK public sector pensions.

And the problem problem of people in no pensions, including someone I know who stopped contributing to a pension so he could buy a ~500k house. Apparently pensions are a rip off; housing the way to go.

I doubt he'll ever see what he paid for the house - assuming he can still afford the mortgage.

Me? Ive ~300k house, 15k mortgage  and ~600k pension fund.

 

 

Then again, a relative entered the London housing market many years ago.  He now has a house worth £1 million.

I've been contributing to pension schemes my whole life and have a accrued only a fraction of that. 

My house up north has only barely exceeded inflation, and anyway there is nowhere much cheaper to move to in order to realise any cash value from it.  in contrast my relative could realise £750k cash by moving out of London for retirement.

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13 minutes ago, cbathpc said:

Contributing to a pension pot feels a lot safer than housing.. but then again we've all been waiting for house prices to crash for a while now

The only thing with Pension pots is they can be nationalised like in Argentina, or perhaps super-taxed at some point

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1 hour ago, kzb said:

Then again, a relative entered the London housing market many years ago.  He now has a house worth £1 million.

I've been contributing to pension schemes my whole life and have a accrued only a fraction of that. 

My house up north has only barely exceeded inflation, and anyway there is nowhere much cheaper to move to in order to realise any cash value from it.  in contrast my relative could realise £750k cash by moving out of London for retirement.

That's a one off lucky draw.

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Just now, Si1 said:

The only thing with Pension pots is they can be nationalised like in Argentina, or perhaps super-taxed at some point

Same with houses though - how long before the "mansion" tax applies to everything bigger than a 1-bed flat, in the same way the income tax and inheritance tax were originally supposed to be just paid by the richest fraction of the population....

More likely I think actually is that the pensions regime will be abolished and replaced by ISAs, where there is no deferral of tax and no tax free lump sum.

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2 minutes ago, scottbeard said:

Same with houses though - how long before the "mansion" tax applies to everything bigger than a 1-bed flat, in the same way the income tax and inheritance tax were originally supposed to be just paid by the richest fraction of the population....

Agreed

2 minutes ago, scottbeard said:

More likely I think actually is that the pensions regime will be abolished and replaced by ISAs, where there is no deferral of tax and no tax free lump sum.

Also works against means tested benefits

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At a guess throughout the 80s and 90s up until opt out.......millions of self-employed, those working for small and medium sized firms and businesses didn't put anything away towards a personal pension, nobody mentioned it to them, never discussed.....their pension if they could look that far ahead was their NI contributions towards a state pension, that was and still is their only pension worth anything to them.?

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19 minutes ago, Si1 said:

The only thing with Pension pots is they can be nationalised like in Argentina, or perhaps super-taxed at some point

Pensions are more mobile than housing, and therefore less of a tax target.

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20 minutes ago, Si1 said:

That's a one off lucky draw.

Not really.  it certainly won't be a one-off, many thousands in London will be in the same position.

In fact hundreds of thousands of Londoners every year sell up, realising the cash and move to Essex or wherever.

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4 minutes ago, Peter Hun said:

Pensions are more mobile than housing, and therefore less of a tax target.

I'm guessing the govt could stop transferability of pensions pretty quickly and easily of they wanted to

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Just now, kzb said:

Not really.  it certainly won't be a one-off, many thousands in London will be in the same position.

In fact hundreds of thousands of Londoners every year sell up, realising the cash and move to Essex or wherever.

But overall that's like they all bet on the same 100:1 horse and it came through. It's still the same one off event that millions of people took a point on.

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15 minutes ago, winkie said:

At a guess throughout the 80s and 90s up until opt out.......millions of self-employed, those working for small and medium sized firms and businesses didn't put anything away towards a personal pension, nobody mentioned it to them, never discussed.....their pension if they could look that far ahead was their NI contributions towards a state pension, that was and still is their only pension worth anything to them.?

Yes, most didn't want to think about pensions.  They were never going to get old.  Being over 50 was unimaginably dreadful so best not to think about it.

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18 minutes ago, Si1 said:

The only thing with Pension pots is they can be nationalised like in Argentina, or perhaps super-taxed at some point

And Poland, New Zealand.

Perfect target for cash hungry politicians to waste on their crazy schemes.  The funds must mostly belong to indigenous persons, if they started dipping into other mutual funds/investment trusts sold throughout the world that would go down as favourably as if we'd voted McDonell and Corbyn in, maybe worse.

Something similar happened with gilts in the 30s and the public lapped it up.

I'm repeating myself when I say that in the mind of a politician the funds are fair game "after all we gave you all that tax relief", time of crisis, national interest blah, blah. 

"It can't happen here, it can't happen here, baby I tell you it can't happen here."

The late Frank Zappa. 

He could be wrong.

 

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1 minute ago, kzb said:

Yes, most didn't want to think about pensions.  They were never going to get old.  Being over 50 was unimaginably dreadful so best not to think about it.

And now they get the new enhanced basic pension to help them stay in their boomer mansions in retirement.

Who'd have thought boomers would get a bail out for their bad decisions?

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14 minutes ago, Peter Hun said:

That statistic is looking at something else - page 13 is "pension assets as a % of GDP" .

I'm talking about "pension assets as a % of the amount needed to fund the pensions people have been promised".

US pension funds often assess their funding level assuming that future investment returns will be 8%pa.  These days UK ones are more likely to budget 2%pa.

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12 minutes ago, Si1 said:

And now they get the new enhanced basic pension to help them stay in their boomer mansions in retirement.

Who'd have thought boomers would get a bail out for their bad decisions?

They'll only get the new state pension if they've paid 35 full years NICs. 

A lot in the building trade avoided paying NI, probably a lot still do.

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47 minutes ago, kzb said:

They'll only get the new state pension if they've paid 35 full years NICs. 

A lot in the building trade avoided paying NI, probably a lot still do.

As did a lot in the public sector.

BUT. people in the building trade have made out like bandits anyway, as have, to perhaps a lesser extent, many in the public sector

Your average middle income job for lifer boomer who just never really bothered with pensions has had his ass bailed out.

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58 minutes ago, Si1 said:

As did a lot in the public sector.

BUT. people in the building trade have made out like bandits anyway, as have, to perhaps a lesser extent, many in the public sector

Your average middle income job for lifer boomer who just never really bothered with pensions has had his ass bailed out.

Hardly anyone in the public sector avoids paying NI !

Persons retiring post-2006 have never had it so bad.  The interest rates have killed annuities and savings don't keep up with inflation.

You are right that self-employed builders often paid in cash have avoided NI and they will be bailed out by Pension Credit if they don't have savings in the bank.  But they won't be living the high life off £165 a week (or whatever it is).

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4 hours ago, kzb said:

Yes, most didn't want to think about pensions.  They were never going to get old.  Being over 50 was unimaginably dreadful so best not to think about it.

Most did not think of pensions....far too busy living today.....£50pm today is not going to pay tomorrows bills.;)

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6 hours ago, kzb said:

Not really.  it certainly won't be a one-off, many thousands in London will be in the same position.

In fact hundreds of thousands of Londoners every year sell up, realising the cash and move to Essex or wherever.

Many do move away.....they not only move away from London but from other major towns and cities....they move to many different places here and overseas......;)

https://www.theguardian.com/uk-news/2020/feb/14/rising-tide-of-londoners-moving-to-northern-england

Two for the price of one with a bit left over.

 

Edited by winkie
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