Pensions - are everyone's losing money or just mine

Pensions - are everyone's losing money or just mine

Author
Discussion

Ginge R

4,761 posts

218 months

Thursday 29th September 2016
quotequote all
I have a young derivitives trader client who has 22% put in. He's 24.

I'm quite certain too, that News International senior staff once (?) had a noticeably higher sum submitted on their behalf. The cost of silence?

sidicks

25,218 posts

220 months

Thursday 29th September 2016
quotequote all
Ginge R said:
I have a young derivitives trader client who has 22% put in. He's 24.

I'm quite certain too, that News International senior staff once (?) had a noticeably higher sum submitted on their behalf. The cost of silence?
My employer pays 12% and I pay 20%, but this will reduce significantly when the contribution cap kicks in.

Ginge R

4,761 posts

218 months

Thursday 29th September 2016
quotequote all
The trouble is this. Tell the average 22 year old that they should save at least 11-15% of salary now for a half decent retirement income, and they will either laugh at you or punch you.

http://www.bbc.co.uk/news/business-37504449

Ginge R

4,761 posts

218 months

Thursday 29th September 2016
quotequote all
JulianPH said:
How much of the 15% contribution to your work scheme is made by your employer? This seems a sensible level and if they
For the cheapest and simplest solution you could go with a Vangaurd 80(equity)/20(bond) lifestyle fund and move to 60/40 and then 40/60 as you get closer to retirement. With five years to go you should know what you want to be doing with this pension money (income drawdown, withdrawal, annuity, combination).

If you need a lump sum for withdrawal (tax free cash and annuity purchase) you could look at the 20/80 strategy to really reduce volatility in the final few years. For money you want an income from start looking for a good income investment (again a mixture of equity income and bonds) ahead of drawing the income. I believe it is prudent to only draw in any year the income generated in the previous year - so you do not erode your pot. Remember to leave some invested to account for inflation too.

You could look instead to pay extra for a fund manager or model portfolio service from a DFM (which is basically exactly what you would get from full on DFM at half the price) to run your pension money. Neil Woodford has a fantastic track record for generating income and growth and really adding value for his fee.

You may also want to keep a small part of your funds aside for self investing into specialist funds/ETFs/stocks. This can be interesting and fun if you do your research and stick with what you know! Look at your employment sector - any investment opportunities you can see and understand? The same with your general interests. Stick with listed companies/bonds though and/or regulated investments.

The whole thing can be very interesting when you get into it, and very satisfying too.

Finally, if you take the time to learn about the different tax wrappers (pension/SIPP/ISA being the main ones) and the investment options available to you you shouldn't need to pay a financial adviser, but if you do need to make sure it is a fixed fee for the hours spent.

I have never understood why people agree to pay away a proportion of their entire investment portfolio each and every year for advice. It's like paying away a proportion of the value of your house every year to get advice about what improvements could make it worth more when you sell it!
Ref those final couple of paragraphs, why not? I'm not precious about any of it, but it seems to miss the point a little, that's all.

Behemoth

2,105 posts

130 months

Thursday 29th September 2016
quotequote all
JulianPH said:
I have never understood why people agree to pay away a proportion of their entire investment portfolio each and every year for advice. It's like paying away a proportion of the value of your house every year to get advice about what improvements could make it worth more when you sell it!
Houses don't change much. The financial landscape is always changing whilst your own asset/debt pile / circumstances are changing, too. All these variables can be very complex keep on top of for mere mortals with better things to do. Why not pay for expert advice when its needed? If you have the time & inclination to keep up with myriad variables & opportunities or if your financial circumstances are effortlessly simple, that's great. I have never understood why people don't think advice is often worth paying for.

sidicks

25,218 posts

220 months

Thursday 29th September 2016
quotequote all
Behemoth said:
Houses don't change much. The financial landscape is always changing whilst your own asset/debt pile / circumstances are changing, too. All these variables can be very complex keep on top of for mere mortals with better things to do. Why not pay for expert advice when its needed? If you have the time & inclination to keep up with myriad variables & opportunities or if your financial circumstances are effortlessly simple, that's great. I have never understood why people don't think advice is often worth paying for.
I'm sure Julian will respond shortly, but I think that his point would be that while an annual review might make sense, this should be charged on a 'time' basis , rather than % of the fund.

In my experience people choose to pay for advice FBRC as they simply don't want to pay cash up front!

gibbon

2,182 posts

206 months

Thursday 29th September 2016
quotequote all
On a similar note, it often amazes me the number of people who dont realise you have to do a tax return to get your extra tax relief if you are a 40 or 45% tax payer. Must be a lot of wasted free cash out there.

lewisf182

2,084 posts

187 months

Thursday 29th September 2016
quotequote all
Ginge R said:
The trouble is this. Tell the average 22 year old that they should save at least 11-15% of salary now for a half decent retirement income, and they will either laugh at you or punch you.

http://www.bbc.co.uk/news/business-37504449
The fact is most people that age (my age) don't have 11-15% of salary to spare though... Yes you could argue we don't need a half decent car etc but Christ, what's the point in being alive if you can't enjoy what you work for a bit now - might never even reach retirement...

SunsetZed

2,236 posts

169 months

Thursday 29th September 2016
quotequote all
gibbon said:
On a similar note, it often amazes me the number of people who dont realise you have to do a tax return to get your extra tax relief if you are a 40 or 45% tax payer. Must be a lot of wasted free cash out there.
It won't apply to all of them though, many larger companies use salary sacrifice schemes meaning this step is not required.

kingston12

Original Poster:

5,473 posts

156 months

Thursday 29th September 2016
quotequote all
basherX said:
sidicks said:
Trabi601 said:
oyster said:
15% employer contribution?????
Mine do 20% if i put in 7.5% smile
I do hope you pay that 7.5% then!!
We have the same offer (I wonder if it's the same company...). About 40% of people don't elect for the higher rate.
So 40% of people don't pay 7.5% to release 20% from your employer? I find that quite amazing if that is the case. What is the employer contribution otherwise?

schmunk

4,399 posts

124 months

Thursday 29th September 2016
quotequote all
gibbon said:
On a similar note, it often amazes me the number of people who dont realise you have to do a tax return to get your extra tax relief if you are a 40 or 45% tax payer. Must be a lot of wasted free cash out there.
This is generally not true for employer pensions, as the full relief is given through payroll.

N.B. this is itself is not 'salary sacrifice', as noted above. Salary sacrifice requires the employee to sacrifice salary (duh!) on the promise of a pension contribution from the employer. It brings NI relief for both employee and employer, and often the employer will share their 13.8% saving with the employer by making an additional contribution

Edited by schmunk on Thursday 29th September 15:34

Zigster

1,636 posts

143 months

Thursday 29th September 2016
quotequote all
schmunk said:
This is generally not true for employer pensions, as the full relief is given through payroll.

N.B. this is itself is not 'salary sacrifice', as noted above. Salary sacrifice requires the employee to sacrifice salary (duh!) on the promise of a pension contribution from the employer. It brings NI relief for both employee and employer, and often the employer will share their 13.8% saving with the employer by making an additional contribution
My employer does that in that it uplifts contributions by 10% reflecting most of their NI saving. In the extreme (in the 60% tax band between £100k and £120k) it means a contribution of £11,000 to the pension scheme only costs the employee a net £3,800. I would guess most employees who earn in that range take advantage of that and end up with gross taxable income for their tax return of exactly £100k.

basherX

2,464 posts

160 months

Thursday 29th September 2016
quotequote all
kingston12 said:
So 40% of people don't pay 7.5% to release 20% from your employer? I find that quite amazing if that is the case. What is the employer contribution otherwise?
It is the case. The scheme has only been running three-ish years (new hires got DB before that) and the higher rate uptake as a percentage of the total is gradually increasing but not that quickly. We'll see where it settles. If staff don't elect for the higher rate they get 15% employer on a 5% employee contribution so the basic rate's hardly shabby. Nonetheless I still don't see why people wouldn't take the additional 5%.

Trabi601

4,865 posts

94 months

Thursday 29th September 2016
quotequote all
basherX said:
We have the same offer (I wonder if it's the same company...). About 40% of people don't elect for the higher rate.
If it's a big oil company, then it probably is!

Trabi601

4,865 posts

94 months

Thursday 29th September 2016
quotequote all
lewisf182 said:
The fact is most people that age (my age) don't have 11-15% of salary to spare though... Yes you could argue we don't need a half decent car etc but Christ, what's the point in being alive if you can't enjoy what you work for a bit now - might never even reach retirement...
You have a 130i MSport, you can afford 15% to provide for your future.

You're right that you have to live a bit - but living your final years in poverty as you blew it all on cars etc, when you were young will be utterly miserable - and you'll regret you didn't scale back your cars in your youth to be able to enjoy your final years.

oyster

12,577 posts

247 months

Friday 30th September 2016
quotequote all
Trabi601 said:
oyster said:
15% employer contribution?????
Mine do 20% if i put in 7.5% smile
What sector is this?

Ginge R

4,761 posts

218 months

Friday 30th September 2016
quotequote all
Ozzie Osmond said:
^^^ This, this, this. A hypothetical person who bought right at the 2000 peak and has done nothing since, except reinvest dividends, will have made a considerable fortune. Especially if they are in a tax free wrapper like ISA or pension.

Even without reinvestment, dividends of say 4% a year will have delivered a return of 4% x 16 years = 64%

In reality no-one will have been unlucky enough to invest everything at the peak so real world returns should be even better.
Some good points. The divi is often (too often) overlooked (it's not what you make, it's what you keep, etc). Yesterday's surge was caused mainly by OPEC deciding to fettle production and that will have helped the oilers with their divi projection. If we assume that, for instance, the FTSE 100 will work as planned and yield c. 3.8% this year (c.4% next?) where will it come from? JPM does a really good quarterly handbook, and the data is worrying. If we assume that healthy earnings cover is two times, this years' divi is based on c.1.5 times. We're reliant on the numbers being skewed by a few big payers (it was Vodafone a few years ago), such as Shell and BP. Their cover has been somewhere in the region of 0.5 times for this year, and a multiple of one projected for 2017.

A bit of an oiler sell off today, as everyone nicks some profits?

red_slr

17,122 posts

188 months

Friday 30th September 2016
quotequote all
Trabi601 said:
lewisf182 said:
The fact is most people that age (my age) don't have 11-15% of salary to spare though... Yes you could argue we don't need a half decent car etc but Christ, what's the point in being alive if you can't enjoy what you work for a bit now - might never even reach retirement...
You have a 130i MSport, you can afford 15% to provide for your future.

You're right that you have to live a bit - but living your final years in poverty as you blew it all on cars etc, when you were young will be utterly miserable - and you'll regret you didn't scale back your cars in your youth to be able to enjoy your final years.
Its about a balanced attitude IMHO. Pensions are not the golden ticket any more either. So don't be fooled into investing your money unless you are sure you know what you are doing. I sure wish I had thought about it when I was 18, because I would probably not have bothered. Over the last 19 years its pretty much made nothing.

Ozzie Osmond

21,189 posts

245 months

Friday 30th September 2016
quotequote all
red_slr said:
So don't be fooled into investing your money unless you are sure you know what you are doing. I sure wish I had thought about it when I was 18, because I would probably not have bothered. Over the last 19 years its pretty much made nothing.
Over that time period most people will have achieved an excellent return - doubled their money as a bare minimum.

The big question is, "what have you been invested in?". The answer isn't "pension", that's just the wrapper. What's the underlying investment, what contributions were paid, and when?

kingston12

Original Poster:

5,473 posts

156 months

Friday 30th September 2016
quotequote all
basherX said:
It is the case. The scheme has only been running three-ish years (new hires got DB before that) and the higher rate uptake as a percentage of the total is gradually increasing but not that quickly. We'll see where it settles. If staff don't elect for the higher rate they get 15% employer on a 5% employee contribution so the basic rate's hardly shabby. Nonetheless I still don't see why people wouldn't take the additional 5%.
Indeed. The basic rate is very good as it is which probably doesn't help with the uptake, but anyone not taking this is giving away free money that is part of their package.