Lease cars and lack of pension provision

[j4ckos mate]

One thing I've noticed over the last twelve months ,

The amount of younger people at work who regular lease a brand new car staggers me

It's not just one that are still at home, it's the ones with small families, big mortgages.
I can't help but ponder their pension arrangements when every couple of weeks a new Cla, s line or fiesta st turns up in the car park.

Each to their own I suppose. I feel like telling them to get a cheaper car and stash it away in a pension

[Sarnie]

Whats the question?

[BoRED S2upid]

It's the way the youth roll. Money is cheap credit easy to get live for the moment.

[Nickbrapp]

I have a lease car and a 17% non contribution pension and I'm 24

[Ginge R]

A) It's in the Guardian, it must be true.
B) It's in the Guardian? Pah. What do they know?

https://www.theguardian.com/money/2017/feb/10/are-...

[j4ckos mate]

No question.
Just an observation on the live for now attitude thst prevails
I've had a pension for over 20 years and I know it won't be anywhere near the 2/3rds of your sallary that they recommend.
Seems a strange lifestyle choice to me but each to their own I suppose
Interesting article that. Cheers for the link.

[Downward]

If your NHS and pay into the pension and use the NHS lease scheme this has an effect on your pension.

I was in a meeting where luckily or unluckily it was decided not to go with a car lease salary sacrifice even though it would save the hospital money because it impacts on pensions.

[brickwall]

Nice blog here from the Bank of England (from last year, but still relevant)

https://bankunderground.co.uk/2016/08/05/car-finan...

[Audemars]

They are probably just copying their careless parents who are doing the same. They also probably finance their holidays and laptops too.

[DoubleSix]

Perhaps they need a reliable car to get to and from the workplace or perform their duties - hobsons choice?

[Dr Jekyll]

Sensible people: Income - savings/pension = money available to spend.

Idiots: Income - spending = money available for savings/pension.

Has been the case before leasing was even thought of.

[stongle]

Maybe younger people are leasing or PCPing cars whilst saving up for a deposit on a house?

Car financing via lease or PCP actually affords the borrower a degree of capital protection not available on outright purchase. In effect the finance arm is taking all the GFV risk, which on certain vehicles is a smart way to purchase (a free zero strike put taking you out of a MTM loss). You'd have to be a mug to think any PCP will have Equity at the end of course!

The biggest mugs will be the people buying run of the mill cars outright or without GFVs. At some point, the 2nd market will be awash with 2nd vehicles depressing values.

The fact that it's a bad investment doesn't stack up with the delinquency rate, or the fact that the debt can still be serviced from savings. Or if you can afford to service the payments in a cyclical downturn, buying outright is dumb.

As per the BOE the biggest risk is to the car finance houses or those buying auto loan debt (or the reinsuer if the assets are under book value).

Of course some people are living well beyond the air means with a have it all know attitude and pay check to pay check living. You just need to be smart about it.

[Sheepshanks]

j4ckos mate said:

I've had a pension for over 20 years and I know it won't be anywhere near the 2/3rds of your sallary that they recommend.

So why bother then?

There's so much negativity over pensions that younger people think that by the time they reach pension age there won't be any money to pay them and they'll probably be required to work until they're 85 anyway.

[NickCQ]

Sheepshanks said:

There's so much negativity over pensions that younger people think that by the time they reach pension age there won't be any money to pay them and they'll probably be required to work until they're 85 anyway.

They are probably right that the direction that the retirement age is only going in one direction - up. It can't be sustainable that the average person spends 40 years of their life working and 40+ years economically inactive (20 years as a child and 20+ years as a pensioner).

Without government redistribution / borrowing, during your working life you'd have to spend 50% of your total income on either (i) supporting your own children, (ii) supporting your own elderly parents or (iii) saving for retirement. For the average UK earner that wouldn't leave them with enough left to support themselves.

[brickwall]

Sheepshanks said:

j4ckos mate said:

I've had a pension for over 20 years and I know it won't be anywhere near the 2/3rds of your sallary that they recommend.

So why bother then?

There's so much negativity over pensions that younger people think that by the time they reach pension age there won't be any money to pay them and they'll probably be required to work until they're 85 anyway.

Because regardless of what you think about pensions, there isn't much better investment than DC at the moment - you find me something where I can immediately get a 40% return, and then all growth thereafter is tax free.

Assuming you don't need the money right now (and that is a big "if") then putting money in is a good idea.

[sidicks]

Sheepshanks said:

So why bother then?

Because something is better than nothing? Isn't that fairly obvious?

Sheepshanks said:

There's so much negativity over pensions that younger people think that by the time they reach pension age there won't be any money to pay them and they'll probably be required to work until they're 85 anyway.

There's certainly a lot of nonsense and misunderstanding about pensions. Given that DC pensions have their own pot of assets, there is no logic to anyone suggesting there won't be any money to pay their pensions wth. Of course the state scheme is entirely different, but that's not optional!

[stongle]

Sheepshanks said:

So why bother then?

There's so much negativity over pensions that younger people think that by the time they reach pension age there won't be any money to pay them and they'll probably be required to work until they're 85 anyway.

Pension education is crap. Any vehicle that enables tax fee savings and potentially free money from your emploer (matched contribution etc), or govt should be top of anyone's agenda. I started pension contributions at 23, now 42 the pot is >500k. Most of that was free money from employers. It's handy as I'm currently self employed, so can throttle pack contributions (for the last year anyway).

Similar with leasing, if used to your advantage you can get out well ahead. Of the 2 cars in the stongle household, the 3 year lease on the wife's Touareg is 15k vs 30k depreciation in the same period. I'd have needed to negotiate > 35% discount new to make buying outright more sensible. We took a massive bath on the F30 Touring we bought outright.

In the main, people need this explaining to them but their are too many shouty idiots either end of the spectrum clouding the issue with noise.

[djc206]

stongle said:

Maybe younger people are leasing or PCPing cars whilst saving up for a deposit on a house?

Car financing via lease or PCP actually affords the borrower a degree of capital protection not available on outright purchase. In effect the finance arm is taking all the GFV risk, which on certain vehicles is a smart way to purchase (a free zero strike put taking you out of a MTM loss). You'd have to be a mug to think any PCP will have Equity at the end of course!

I've just agreed a PX with my PCP'd car 3 months before the end of term and it has £7k of equity in it...

The manufacturers need to strike a balance between making the monthlies attractive by having a high GFMV without overestimating it such that they force people to hand their cars back and go elsewhere. Leaving people with a small amount of equity equivalent to the deposit they initially paid is probably the best approach so that they PCP another car right away. I know Mercedes are very bad at this, when I bought my car you could have a C63 for £600/mth with a 10% deposit. The GFMV was probably bang on what the car would PX for.

But yes we pay everything else monthly, rent/mortgage, utilities, tv, phone, it works well with a budgeting system to pay for a car monthly for many. The old way of bank loans doesn't get you a new car every 3 years which is what people seem to want. I just figure I can have more fun with the money in my pocket than I can with it tied up in a car.

[drainbrain]

sidicks said:

Sheepshanks said:

So why bother then?

Because something is better than nothing? Isn't that fairly obvious?

Nope, it isn't. If you don't own your own home and have a small pension income then you won't get the Housing Benefit you would get if you had no non-state pension at all. In fact you could be worse off than a person with no pension income. (many people finding this out right now). Sad situation.

[PixelpeepS3]

to be fair with all the banks and pension companies going tits up over the last 10 years + shoddy trading i'm shocked when i hear how much hard earned people are piling into pensions, with no guarantee they will get back what they've put in..