Pensions - if anyone wondered what's wrong
Discussion
Just an illustration to show what is crazy about them currently - I have just opened a statement for a pension, it is telling me that the total fund value is £46,808. Then it tells me that the pension aged 60 'could be' £107 a month.
Now £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
Now £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
I remember when the private pensions explosion started in 1988. But in hindsight, it was little better than privatising utilities. Many many very smart people jump in the gap and hoover out all the gain. Result - you pay more for less, and eventually I think the birds are going to come home to roost and there's going to be a storm that makes endowments and PPI look like Toytown. We shall see.
Simpo Two said:
I remember when the private pensions explosion started in 1988. But in hindsight, it was little better than privatising utilities. Many many very smart people jump in the gap and hoover out all the gain. Result - you pay more for less, and eventually I think the birds are going to come home to roost and there's going to be a storm that makes endowments and PPI look like Toytown. We shall see.
Except that the sums of money involved are, as you say, so vast that neither the pension companies nor the Government (or rather us taxpayers) can afford the compensation so I doubt that it will happen. Note the rapid backtracking by the FCA earlier this week. Instead I expect that those eking out a retirement on the state pension + £107 / 4 = £26.75 p.w. will be given just a little more state pension - doesn't need to be paid until they retire many years hence, then only paid in instalments every week rather as a whopping lump now and will be another politician's political problem.
Siscar said:
Just an illustration to show what is crazy about them currently - I have just opened a statement for a pension, it is telling me that the total fund value is £46,808. Then it tells me that the pension aged 60 'could be' £107 a month.
Now £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
IndeedNow £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
Its quite enlightening that the annuity companies predict a 75% drop in take-up. The product is that rubbish people don't want to know... I feel sorry for anyone who took them out in the last few years, hopefully government will allow people to dump them if they wish.
Siscar said:
Just an illustration to show what is crazy about them currently - I have just opened a statement for a pension, it is telling me that the total fund value is £46,808. Then it tells me that the pension aged 60 'could be' £107 a month.
Now £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
Insurance company projections are hugely unhelpful - I'm an actuary and I couldn't read one and figure out any sensible estimate of my retirement income.Now £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
But there is a lot missing from your analysis which makes it plain wrong. You say it increases in payment but ignore that in your calculations - if you included increases then (with inflation at about 3% pa) payback would be around about age 83 rather than 96 - i.e. your under the mattress approach would mean you ran out of money at age 83.
Also, we don't know how old you are (i.e. how long to age 60), what investment return is assumed in your projections, is the figure quoted "in today's terms" (i.e. inflation between now and retirement stripped out), does the retirement income quoted assume you take 25% of your fund as tax-free cash, etc.
Typically, with investment returns (bearing in mind that insurers have to back annuities with very low-risk assets), payback on an annuity is around 87/88 at the moment, which is pretty much in line with life expectancy projections for someone with a decent retirement income.
Plus, notwithstanding the Budget, never take an annuity from your pension fund provider without checking what other providers would give. That would be even more stupid than renewing your car insurance with your current insurer without getting a few more quotes and then complaining that car insurance is expensive.
Revisitph said:
Except that the sums of money involved are, as you say, so vast that neither the pension companies nor the Government (or rather us taxpayers) can afford the compensation so I doubt that it will happen.
True, there can be no meaningful compensation, just unplanned poverty and perhaps civil discontent.Zigster said:
Insurance company projections are hugely unhelpful - I'm an actuary and I couldn't read one and figure out any sensible estimate of my retirement income.
But there is a lot missing from your analysis which makes it plain wrong. You say it increases in payment but ignore that in your calculations - if you included increases then (with inflation at about 3% pa) payback would be around about age 83 rather than 96 - i.e. your under the mattress approach would mean you ran out of money at age 83.
Also, we don't know how old you are (i.e. how long to age 60), what investment return is assumed in your projections, is the figure quoted "in today's terms" (i.e. inflation between now and retirement stripped out), does the retirement income quoted assume you take 25% of your fund as tax-free cash, etc.
Typically, with investment returns (bearing in mind that insurers have to back annuities with very low-risk assets), payback on an annuity is around 87/88 at the moment, which is pretty much in line with life expectancy projections for someone with a decent retirement income.
Plus, notwithstanding the Budget, never take an annuity from your pension fund provider without checking what other providers would give. That would be even more stupid than renewing your car insurance with your current insurer without getting a few more quotes and then complaining that car insurance is expensive.
I appreciate that there is a lot of detail I didn't post, and agree with what you are saying, I'm no professional but nor am I without a decent level of knowledge in these matters. I appreciate the limitations of the analysis, I realise that the 'money under the mattress' approach has it's naivety, but the issue remains that few people reading the figures would believe that £107 a month would be a good return out of £46k.But there is a lot missing from your analysis which makes it plain wrong. You say it increases in payment but ignore that in your calculations - if you included increases then (with inflation at about 3% pa) payback would be around about age 83 rather than 96 - i.e. your under the mattress approach would mean you ran out of money at age 83.
Also, we don't know how old you are (i.e. how long to age 60), what investment return is assumed in your projections, is the figure quoted "in today's terms" (i.e. inflation between now and retirement stripped out), does the retirement income quoted assume you take 25% of your fund as tax-free cash, etc.
Typically, with investment returns (bearing in mind that insurers have to back annuities with very low-risk assets), payback on an annuity is around 87/88 at the moment, which is pretty much in line with life expectancy projections for someone with a decent retirement income.
Plus, notwithstanding the Budget, never take an annuity from your pension fund provider without checking what other providers would give. That would be even more stupid than renewing your car insurance with your current insurer without getting a few more quotes and then complaining that car insurance is expensive.
Maybe that is naive, and obviously you would shop around, but the point remains that it looks like a dog, and that is enough to stop people having any faith in what they are investing into. I am fortunate, I have a lot more money than most, this pension is not significant to me, but the current mantra of putting money into BTL rather than a pension takes some disputing against this sort of background.
Siscar said:
Just an illustration to show what is crazy about them currently - I have just opened a statement for a pension, it is telling me that the total fund value is £46,808. Then it tells me that the pension aged 60 'could be' £107 a month.
Now £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
But if you put fivers under your bed then your pot would be substantially lower than £46k as you'd have been saving from your net income. So take 40% off and you're down from 36 yrs to 22 yrs, so 60 to 82 yrs old. With no indexation. Now £46,808/£107 gives you 36.45 meaning that if you just put that £46,808 in used fivers under the bed and took out £107 a month it would last until I was 96 before it ran out.
Now OK there's issues of it continuing to pay my wife 50% if she outlives me, index linked as well, but frankly to call it unimpressive would be an understatement.
So roll on the changes planned.
I'm not saying the situation isn't crap, I'm just highlighting what I saw as a flaw in your calcs.
mrmr96 said:
But if you put fivers under your bed then your pot would be substantially lower than £46k as you'd have been saving from your net income. So take 40% off and you're down from 36 yrs to 22 yrs, so 60 to 82 yrs old. With no indexation.
I'm not saying the situation isn't crap, I'm just highlighting what I saw as a flaw in your calcs.
I'm not talking about the accumulation of the £46k I'm talking about the return from it. I'm not saying the situation isn't crap, I'm just highlighting what I saw as a flaw in your calcs.
But of course you are right, it should be include accumulation of the capital as well as the subsequent return on it, the only problem there is that it all becomes a much bigger issue. My perception is that my investments in equity ISAs have, for example, outgrown my pensions to the point of overtaking the lower starting point of being post tax.
But the issue remains that the return of 2.7% the figures represent does not seem to many to represent a good return when the capital is forfeited at the end of the period.
Siscar said:
I'm not talking about the accumulation of the £46k I'm talking about the return from it.
But of course you are right, it should be include accumulation of the capital as well as the subsequent return on it, the only problem there is that it all becomes a much bigger issue. My perception is that my investments in equity ISAs have, for example, outgrown my pensions to the point of overtaking the lower starting point of being post tax.
But the issue remains that the return of 2.7% the figures represent does not seem to many to represent a good return when the capital is forfeited at the end of the period.
All an ISA or a pension is is a (tax efficient) wrapper around some investments. If your ISAs have performed so much better than your pensions, this must reflect the assets held within each (e.g. equities, bonds or so on).But of course you are right, it should be include accumulation of the capital as well as the subsequent return on it, the only problem there is that it all becomes a much bigger issue. My perception is that my investments in equity ISAs have, for example, outgrown my pensions to the point of overtaking the lower starting point of being post tax.
But the issue remains that the return of 2.7% the figures represent does not seem to many to represent a good return when the capital is forfeited at the end of the period.
You're blaming the pension when it is the funds held within that pension which have underperformed relative to the funds held within the ISAs. This might be entirely reasonable - it might simply reflect a completely different strategy within each. For example, many pensions have a "lifestyling" option which moves the assets into a mix of cash and bonds as you approach retirement to better the tax-free cash and income stream you will (historically, at least) to which you will convert that pension on retirement.
So it isn't enough to call them ISAs and pensions, you need to consider the assets held within each vehicle.
Zigster said:
All an ISA or a pension is is a (tax efficient) wrapper around some investments. If your ISAs have performed so much better than your pensions, this must reflect the assets held within each (e.g. equities, bonds or so on).
You're blaming the pension when it is the funds held within that pension which have underperformed relative to the funds held within the ISAs. This might be entirely reasonable - it might simply reflect a completely different strategy within each. For example, many pensions have a "lifestyling" option which moves the assets into a mix of cash and bonds as you approach retirement to better the tax-free cash and income stream you will (historically, at least) to which you will convert that pension on retirement.
So it isn't enough to call them ISAs and pensions, you need to consider the assets held within each vehicle.
Yes, I know. You're blaming the pension when it is the funds held within that pension which have underperformed relative to the funds held within the ISAs. This might be entirely reasonable - it might simply reflect a completely different strategy within each. For example, many pensions have a "lifestyling" option which moves the assets into a mix of cash and bonds as you approach retirement to better the tax-free cash and income stream you will (historically, at least) to which you will convert that pension on retirement.
So it isn't enough to call them ISAs and pensions, you need to consider the assets held within each vehicle.
The difference is that the ISAs have been administered properly, my investment manager and I talk fairly regularly and he manages them and my other investments actively but to have someone like him working on it requires a little more that the sums involved in this pension. This is one I'd largely forgotten or at least ignored but it's an example of what happens to the people who are just buying the standard products from the usual suspects. The money goes in, grows uninspiringly and then gives a pretty mediocre return at the end unless they know anything about it to help themselves be in a better place than that.
Siscar said:
Yes, I know.
The difference is that the ISAs have been administered properly, my investment manager and I talk fairly regularly and he manages them and my other investments actively but to have someone like him working on it requires a little more that the sums involved in this pension. This is one I'd largely forgotten or at least ignored but it's an example of what happens to the people who are just buying the standard products from the usual suspects. The money goes in, grows uninspiringly and then gives a pretty mediocre return at the end unless they know anything about it to help themselves be in a better place than that.
1) you choose the investment strategies, so if they are different between the pension and the ISA that's your fault!The difference is that the ISAs have been administered properly, my investment manager and I talk fairly regularly and he manages them and my other investments actively but to have someone like him working on it requires a little more that the sums involved in this pension. This is one I'd largely forgotten or at least ignored but it's an example of what happens to the people who are just buying the standard products from the usual suspects. The money goes in, grows uninspiringly and then gives a pretty mediocre return at the end unless they know anything about it to help themselves be in a better place than that.
2) by ignoring the inflation linked benefits and the Spouse's pension in your analyse you are showing a totally misleading (and flawed) comparison
sidicks said:
Siscar said:
Yes, I know.
The difference is that the ISAs have been administered properly, my investment manager and I talk fairly regularly and he manages them and my other investments actively but to have someone like him working on it requires a little more that the sums involved in this pension. This is one I'd largely forgotten or at least ignored but it's an example of what happens to the people who are just buying the standard products from the usual suspects. The money goes in, grows uninspiringly and then gives a pretty mediocre return at the end unless they know anything about it to help themselves be in a better place than that.
1) you choose the investment strategies, so if they are different between the pension and the ISA that's your fault!The difference is that the ISAs have been administered properly, my investment manager and I talk fairly regularly and he manages them and my other investments actively but to have someone like him working on it requires a little more that the sums involved in this pension. This is one I'd largely forgotten or at least ignored but it's an example of what happens to the people who are just buying the standard products from the usual suspects. The money goes in, grows uninspiringly and then gives a pretty mediocre return at the end unless they know anything about it to help themselves be in a better place than that.
2) by ignoring the inflation linked benefits and the Spouse's pension in your analyse you are showing a totally misleading (and flawed) comparison
Siscar said:
The difference is that the ISAs have been administered properly, my investment manager and I talk fairly regularly and he manages them and my other investments actively but to have someone like him working on it requires a little more that the sums involved in this pension.
I'd be amazed if your invesmtent manager wasn't happy to consider your pension as part of your broader portfolio, and give you advice accordingly. In fact I'd even go as far as to say if they aren't, they aren't doing their job properly!CaptainSensib1e said:
I'd be amazed if your invesmtent manager wasn't happy to consider your pension as part of your broader portfolio, and give you advice accordingly. In fact I'd even go as far as to say if they aren't, they aren't doing their job properly!
It's a little fund dating from a job long ago that I'd forgotten I had. He's no idea it exists.the accused said:
The ones who have personal private pension plans all think they've been a waste of time and money. And none of the people who'll be living well at 65+ will be doing so on pension proceeds. Not a single one.
And the alternative is? Keep on working?I know people who were living well at 55 on pension proceeds - they made saving for their retirement a priority.
I have one of these private pensions and receive a similar puny projections on my pot too.
My employer puts 8% of my salary in and when I reach 35 that goes to 11 % and continues to rise with age to 20%.
I personally think it's a pretty good contribution for normal employees, but the end projections are so disappointing, especially compared to my mate at the firm who is on the old defined benefit scheme and is receiving projections he'll get 66% of his end salary
I hope the rules change, I'd much rather take me entire pot and get a FA to advise me. Sods law would have me die after a couple of years into retirement and some investment portfolio gets to keep all my money
My employer puts 8% of my salary in and when I reach 35 that goes to 11 % and continues to rise with age to 20%.
I personally think it's a pretty good contribution for normal employees, but the end projections are so disappointing, especially compared to my mate at the firm who is on the old defined benefit scheme and is receiving projections he'll get 66% of his end salary
I hope the rules change, I'd much rather take me entire pot and get a FA to advise me. Sods law would have me die after a couple of years into retirement and some investment portfolio gets to keep all my money
decadent said:
I have one of these private pensions and receive a similar puny projections on my pot too.
My employer puts 8% of my salary in and when I reach 35 that goes to 11 % and continues to rise with age to 20%.
I personally think it's a pretty good contribution for normal employees, but the end projections are so disappointing, especially compared to my mate at the firm who is on the old defined benefit scheme and is receiving projections he'll get 66% of his end salary
I hope the rules change, I'd much rather take me entire pot and get a FA to advise me. Sods law would have me die after a couple of years into retirement and some investment portfolio gets to keep all my money
Investment returns are lower because inflation is lower.My employer puts 8% of my salary in and when I reach 35 that goes to 11 % and continues to rise with age to 20%.
I personally think it's a pretty good contribution for normal employees, but the end projections are so disappointing, especially compared to my mate at the firm who is on the old defined benefit scheme and is receiving projections he'll get 66% of his end salary
I hope the rules change, I'd much rather take me entire pot and get a FA to advise me. Sods law would have me die after a couple of years into retirement and some investment portfolio gets to keep all my money
Gassing Station | Finance | Top of Page | What's New | My Stuff