Talk to me about pensions

zed4

Member
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:
 

domtheone

Distinguished Member
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.
 

Philly112

Distinguished Member
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
 
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Ed Selley

AVF Reviewer
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!
 

zed4

Member
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
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.
 

Ed Selley

AVF Reviewer
Sounds good. Any other good news?! What's the alternative then? :confused:
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.
 

Ed Selley

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

Phil
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?
 

Philly112

Distinguished Member
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?
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
 
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Ed Selley

AVF Reviewer
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.

Phil
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).
 

andyparksy

Well-known Member
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!
 

BISHI

Well-known Member
Forget about a pension, get as many properties as you can and live off those .
 

andyparksy

Well-known Member
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......
 

stetash

Well-known Member
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.
 

FZR400RRSP

Banned
BISHI said:
Forget about a pension, get as many properties as you can and live off those .
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.
 

zed4

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

FZR400RRSP

Banned
dan yeates said:
How on earth is he getting that from an ex council house?! Where is it? What value is the house?
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.
 

zed4

Member
FZR400RRSP said:
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.
Sounds great. No big houses that cheap down here! Scotland is a bit far, although a decent agent could look after it I suppose!
 

imightbewrong

Distinguished Member
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.
 

signs

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

wookielover

Well-known Member
signs said:
Forget about a pension and pay the pension amount you allocated into paying your morgage off and watch the years just fall away :)
id go with that.
 

zed4

Member
signs said:
Forget about a pension and pay the pension amount you allocated into paying your morgage off and watch the years just fall away :)
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!
 

cunny678

Distinguished Member
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.
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:
 

imightbewrong

Distinguished Member
cunny678 said:
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:
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.
 

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