Talk to me about pensions

Discussion in 'General Chat' started by zed4, Aug 21, 2012.

  1. zed4

    zed4
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    Hello,

    So, I'm 27, just bought my first house (which is big enough to stay in for many years) and have a good salary in a job I enjoy.

    I've been saving hard with a First Direct 8% regular savers account since we moved in, in anticipation of the end of the fixed rate period of our mortgage. In 2 and a half years time we'll be onto a variable rate, so I wanted to have some money put by in case interest rates rise and we need to make an lump payment on the mortgage to reduce the LTV. So, that's in hand, and I have a bit left over each month and have been told I must pay into a pension!

    So, talk to me about pensions. What do I need to know? I'm quite well clued up on savings, mortgages, properties etc. but know nothing about pensions! :confused:

    How much should I be putting away? For how long should I be putting money away? Are there different types of pensions?

    My girlfriend and I are also really keen on buying a second property to let out, as soon as we can afford to (her parents have numerous buy to lets), so I'm keen to continue saving for this as well. Not sure how realistic it is, as I don't know what I should be paying into my pension right now.

    Any help appreciated.

    Thanks,

    Dan :smashin:
     
  2. domtheone

    domtheone
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    I have limited knowledge about pensions too but their reputation is about rock bottom now.

    Mine is on hold now (can't access any of it till i'm 55 anyway).

    Cash Isa and investing in shares. I'll do it myself so if anything goes wrong, there's only one person to blame. I've about lost trust in letting anyone else take care of my savings.

    There's several semi pros on the subject that'll be along soon to offer more professional advice.
     
  3. Philly112

    Philly112
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    Well, you are fairly young so have some time to save.
    Do you have a final salary pension scheme with your employer? If so, then you will be fine.
    But you probably don't have one.
    If not, you will need to save into a pension scheme. You will get tax relief on this.
    Now - annuity rates. This is very important. When you amass loads of dosh in a pension scheme, you will give all that dosh over to a company who will then pay you out a load of money every year until you die. So, you give them £100k say, and they will pay you a monthly sum. At 60. Sounds good?
    15 years ago. Annuity rates would be 10% or so. So, you give them said £100k, and get back £10k a year. Not too bad? Well, of course, it sounds good, but of course that would be a flat rate, not accounting for inflation.
    Up to the present day. Annuity rates are around 5.5%. So you would get back £5500 a year. Still sound good? Well, if you want to index link that. What do you think you will get? Around 2.8%. So to get £20k pension, RPI linked, at today's annuity rates, you will need a pension pot of around £740,000. At 60.
    Not wanting to dampen your enthusiasm or anything. Pensions are a vey good tax efficient way of saving. But unless annuity rates increase dramatically, we are all going to be retiring into poverty, or working until our mid 70's.

    Phil
     
    Last edited: Aug 21, 2012
  4. Ed Selley

    Ed Selley
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    Try and get hold of Sidicks (generally in the politics sections using :lesson: in most of his posts). He's pretty clued up on pensions. Generally, private pensions in the 21st century involve paying a fortune for years and losing huge amounts in fees and dubious investments. If it does make money, the Government of the day will come and take a big chunk off you. When you retire, you can look forward to massive inflation making you hard earned totally inadequate to live on.

    Happy saving!
     
  5. zed4

    zed4
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    Thanks for the info. Need to get my head around all of it.

    I'm of no persuasion what I do, it's just I get told by my parents that I should have one! Apart from building a bit of a property portfolio, I've had no thoughts about what I'm going to do in the future.

    I have no pension pot at work, no. :( It's only a small company and there's no health or pension plans here.
     
  6. zed4

    zed4
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    :D :arty: :D

    Sounds good. Any other good news?! What's the alternative then? :confused:
     
  7. Ed Selley

    Ed Selley
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    When I can't work any more, I'm going to find a Z list celebrity and kill them in such a depraved fashion (waistcoats of skin, cannibalism etc) that I'm put in Broadmoor for the rest of my life. Bed and board and I might get a book deal out of it.

    Foolproof.
     
  8. Philly112

    Philly112
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    That's not really helpful to be honest. No one knows what inflation will be in 40 years.

    Phil
     
  9. Ed Selley

    Ed Selley
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    Based on it consistently being above Government targets for over a decade now, (and the rate they are printing money at), I'm not going to bet on it being benign. You?
     
  10. Philly112

    Philly112
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    Honestly, I don't know. You mentioned 'massive'. What is that? 5% pa. 10% pa. 2000% pa?
    Inflation has been very low for the last decade.

    This has a table showing inflation since 1948. It's been up and down. None of us knows what it will be in the future.

    http://www.guardian.co.uk/news/datablog/2009/mar/09/inflation-economics

    Phil
     
    Last edited: Aug 21, 2012
  11. Ed Selley

    Ed Selley
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    The problem is, (as I am sure you appreciate) it is cumulative. Continuously missing the monthy targets, builds and builds and builds, even if as you say, the monthly increments are small. The fact that every increase in inflation reduces the real size of government debt means that I can't see any party trying that hard to sort it either.

    I'm not saying don't get a pension. I am saying be sanguine about the likely returns (ie don't believe what the tit in the suit tells you).
     
  12. andyparksy

    andyparksy
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    I might be wrong but I thought by law all companies had to at least offer one - not sure if it means they have to contibute though, which is the important bit.

    I, like a lot of others, pay in the minimum to ensure that the emplyer contributions are as high as I can get, but also think it's a bit of a minefield.

    Although I have a pension I am more thinking about other ways to get the income later, and even if not as tax efficient property may be one way (although am sure anyone getting stung by the recent colapse would probably not agree with me). If you are starting out I would definitely speak to an advisor, and ask them about other potential investments - the rules changes a few years ago so you no longer just have to build up cash for an annuity to get the tax savings so it might suit you to put the money elsewhere.

    Need some better advise than I can give though!
     
  13. BISHI

    BISHI
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    Forget about a pension, get as many properties as you can and live off those .
     
  14. andyparksy

    andyparksy
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    Oh, and remember to look at things as long term as you can - even with some of the scary numbers posted above about how much pot you will need, there are still some people in the world that think your investment may actual go up in value over time (!) and so would not be anywhere near that number that you would actually have to put in yourself......
     
  15. stetash

    stetash
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    IMO if you can afford to buy a rental property or properties they are almost certainly a better long term investment than any private pension will be, a foreign rental property perhaps even moreso as you get a nice holiday home too.

    I currently pay into my company pension but recently stopped my AVC's (voluntary contribution) as I decided I would rather have the extra to enjoy now whilst I young.

    Most of the pension thread I have seen on here end up with polar differences in opinion so ultimately whatever you invest in is risky it's just how lucky you get IMO.
     
  16. FZR400RRSP

    FZR400RRSP
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    Amen to that.
    My BIL just downsized his house and bought an ex-council house with some of the money left over.
    On an investment of £130k, he's getting £1450 a month in rental back, and he still has the asset.
    Makes a mockery of any pension.
     
  17. zed4

    zed4
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    How on earth is he getting that from an ex council house?! Where is it? What value is the house?
     
  18. FZR400RRSP

    FZR400RRSP
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    Aberdeen, near a university.
    Four students x £350 a month each.
    Although I think one pays £400 because she gets the en-suite room, which makes the £1450.
    And he had fourteen groups of 4 students wanting it, so he could theoretically have rented 14 houses out in the area.
    Value-wise, if would be around £140k.
    If you want to see houses of the ilk in that area, google 'Garthdee' in Aberdeen.
     
  19. zed4

    zed4
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    Sounds great. No big houses that cheap down here! Scotland is a bit far, although a decent agent could look after it I suppose!
     
  20. imightbewrong

    imightbewrong
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    A good risky option is to manage it yourself in a SIPP - this is what I do with a large chunk of my pension. You can also buy a commercial property with a SIPP (not a residential buy-to-let unfortunately) - a good wheeze if you have your own business is to buy an office with your SIPP (you can get a mortgage within one) and the rent it to your company - then all that rent comes into the pension every month tax-free.
     
  21. signs

    signs
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    Forget about a pension and pay the pension amount you allocated into paying your morgage off and watch the years just fall away :)
     
  22. wookielover

    wookielover
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    id go with that.
     
  23. zed4

    zed4
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    I'm going to need to with my huge mortgage! It does feel quite amazing that in years to come I'll have no mortgage at all!
     
  24. cunny678

    cunny678
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    Until you retire, leave the premises and try to sell it as there is no longer a tennant:D No tennant = no income and if you cant sell the property no tax free cash:D

    Lots of things sound good at the time and if you retire in a commercial property boom it could be a good investment but not if you retire at the wrong time and no one wants the property:thumbsup:
     
  25. imightbewrong

    imightbewrong
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    Sure, you need to pick the right property and as with all investments you need a bit of luck too - just like you can retire in the middle of a stock price slump or retail housing slump :thumbsup:

    However, even if at is the case here you would have had 20-30 years of effectively rent-free accommodation for your business ;)

    If it's an option for anyone it would be foolish not to investigate it.

    Re: signs point, you can do that, but many companies make pension payments attractive - e.g. Matching the amount you put in your pension each month. So after top-rate tax that could be the difference e.g between £600 in cash for the mortgage, or £2000 in the pension. Each individual would need to work out what is better for them.
     
  26. craig1912

    craig1912
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    I put 8% of my salary in my pension and the company put in 14% - seems a good deal to me.
     
  27. Liquid101

    Liquid101
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    You could do what I did 13 years ago when I was 1 year younger than you and find a reasonably paid job in the public sector that has a final salary pension outside of the civil service scheme.

    It has a well performing scheme that is immune to government cutbacks that pays half final salary and 3 times that as a lump sum on retirement.

    So if you're earning 70k on retirement, your looking at 35k a year and 105k lump sum.

    That said, I also plan to get into property to boost pension income.
     
  28. cunny678

    cunny678
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    Quite a few of the comments are a little out dated, but thats only to be expected as pensions are generally a boring subject.

    The three main constants that have a direct bearing on what you will receive from your a personal pension are:- Charges, investment performance and length of the plan.

    Charges:- In the past this was the biggest problem with personal pensions. However, since the introduction of stakeholder type schemes a few years back the costs have been driven down and total charges are often less than 1% per annum but typically 1 - 1.5%PA. Most are not front end loaded which means that unlike in the past most of your money is invested and not going towards charges and commission in the early years.

    Investment performance:- This can have a huge impact on the accumulated fund you will eventually use to provide an income. Most of the older plans were sold by insurance company direct sales teams and would typically invest in a managed fund which is a diversified investment typically consisting of shares, bonds and commercial property etc.

    The problem was that performance was generally poor and that type of fund was generally not the most appropriate for someone paying in a regular monthly sum over 30 years! Selecting the right fund to invest in is critical over the log term.

    Term of plan:- If you assume an annual return of 7.5% (difficult nowadays) then a lump sum will double in value every 10 years. So if one person were to contribute the same amount to a pension for 10 years longer than another they would have double the pension fund! Looking at it another way, if you start contributing 10 years earlier you will have twice the pension you would have.

    Generally I think personal pensions are more of a no brainer for higher rate tax payers, but less attractive for basic rate tax payers. There may be better alternatives such as stock and shares ISA's in those circumstances or where there are shorter terms to retirement.

    Another option I like is to buy the biggest house you can comfortably afford and then downsize to a smaller property at retirement and use the cash you have left over to fund your retirement. Unless you plan to live a long time that is:facepalm:

    By the way I am going to live until 82:p

    Life Expectancy Calculator

    How about you?
     
    Last edited: Aug 21, 2012
  29. KyleS1

    KyleS1
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    Interesting thread this, and something I have been thinking about for a while. I pay into a company pension, and my employer does also. This seems like free money, so I opted for it. They will match up to 6% plus 0.75%, so if I pay 6% salary, they will pay 6.75% in. Currently I am paying 8.5% as I was late to start a pension (well I say late, I was 29). My pension hasn't lost any money yet, but it also hasn't really made anything in 2.5 years.
    I don't know whether the money I have put into it would have been better elsewhere, or whether the 6.75% that the company puts in makes it worthwhile.
    I am wanting to get a second property and looking into that now, but mortgages are hard to get unless you have a hefty deposit, which I am saving towards. Just need to decide whether my pension contribution is better off going in the second house fund, or whether it is a safe bet to continue paying into the pension.
     
  30. domtheone

    domtheone
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    Last edited: Aug 22, 2012

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