back to article Nobody has any idea about new pension thing happening

More than half of workers are "totally unaware" that they will be auto-enrolled into a pension plan when changes to the law come into force next year, according to a survey. The Chartered Institute of Personnel and Development's (CIPD) quarterly 'Employee Outlook' (12-page/370KB PDF) revealed that young people and those in non …

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Pensions: the new tax

Problem is, people have now wised up, and know that any money you put into a pension, will be raided by the government, and you'll be left with **** all.

Witness one G. Browns nasty little trick of slicing the tax relief off pension funds, netting £5 billion ... A YEAR.

I'm so pleased I never signed up for a pension ... I may be poor in my old age, but at least I won't have the pain of having my delusion of being provided for in my dotage smashed.

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Slicing off?

"Tax relief" is money given to you by the government to offset the tax you paid. But pension funds didn't pay the tax which led to the relief (which was related to notional dividend tax credits), so they were getting money for nothing. In other words, you, with no pension but paying income tax and VAT etc, were funding the pensions of CEOs with expensive accountants and offshore tax havens.

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Meh

I started saving young.

I saved with a respectable pension provider too - Standard Life.

My savings are worth *exactly the same* as if I had put all the money in a biscuit tin under my bed. If not, slightly less.

The only difference being I am not allowed to access the savings in my pension fund until I retire.

I wish I had never ever bothered with a personal pension, and kept the Cadbury Roses tin from Christmas 1988.

Personal pensions are a scam. Kids: pay off your mortgage first.

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Please explain the scam!

A pension is just a wrapper for investments in many different types of asset classes: unit trusts, companies, bonds, etc. If you choose an investment which goes nowhere it is not the fault of the wrapper. There is no pensions scam, just bad decisions on your part.

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Mushroom

Re: Please explain the scam!

"If you choose an investment which goes nowhere it is not the fault of the wrapper."

What the hell are you talking about?! The whole point of choosing a pension provider or fund manager or whatever is that they do all the legwork and bloody well make sure that the investments actually appreciate in value, not that the punter has to work the stock and bond markets themselves, placing orders every day while they are actually supposed to be working. You know, in that real job that pays the money the punter has to invest in the first place.

"There is no pensions scam, just bad decisions on your part."

Bollocks! I'm tired of all this "ooh, shop around" where you spend all of your fucking time doing that because a bunch of people are unable to do the job they have been asked to do. If they can't make a better return than the market, for example, they should stop pretending to be in the investment business. It should not be the job of the punter to nanny the different fund managers and/or jump from horse to horse like in some fucking western movie.

People wouldn't be so pissed off at the finance industry if those working in it actually owned up to their failings, but given that they appear to take a management fee regardless of how shit their performance is, no-one should be surprised that the pitchforks are out when these people reward themselves handsomely year in, year out as the punter's investments can't even match inflation.

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FAIL

Re: Re: Please explain the scam!

Did you get a guarantee? No? So where's the scam?

I think what you mean is "I made some bad decisions and it's someone else's fault". What I asked was "please explain the scam".

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Mushroom

Re: Re: Please explain the scam!

"Did you get a guarantee? No? So where's the scam?"

I think that if people are being truthful and really have seen their pensions evaporate gently rather than appreciate then that is a scam in itself purely because of the general perception of what pension funds are supposed to do.

Or is anyone allowed to call their product anything they like, using commonly understood words, and then have the product do anything but, with a bunch of small print to let them off the hook? If it's like any other finance-related set of small print, it's the length of a small novel, standardised with all the other players so that the punter is screwed regardless.

Yes, you fail, even as an apologist for the incompetent end of the finance business. There are good reasons why markets are regulated, why bad products should not be on sale, and why bad providers should not be able to weasel out of their commonly understood obligations.

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Gimp

Another Slush Fund..

For the government go to out and spend before going "sorry! was that yours!?, guess we'll have to raise taxes to get it back" or "ah well though luck! you should of prepared yourself!".

And all the money going in is next to pointless anyway, with the amout of inflation and devaluation at work you'd be lucky to afford to put a roof over your head by the time some of us get to retire (if ever).

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Another one

The funds are not under the government's control. If they wanted another slush fund they'd have increased NI and kept the money instead of telling us to pay into pensions and keep it ourselves.

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Happy

And yet..

..noting all the comments about lousy pensions and surprise I'm puzzled. I got my first full-time job in 1987. That very lunch time I went into town and set up a private pension. Even back then I knew that I couldn't rely on a government handout. Throughout most of my working life my payments have been a fairly low %ge. They've risen a lot recently but that's because I asked for a 10% escalator over a decade ago which has outstripped pay rises and I can't be bothered to reduce it.

Anyway my projected pension is looking very healthy and should allow me to retire comfortably at 55 in ten years. Cold comfort to some of you I expect but my observation can only be:I saw the problem over twenty years ago. I fixed the problem over twenty years ago. Why didn't you?

Now for those of you still in the early years (like your 20s) maybe things are different but my experience suggests that if you start early it will all come good. Oh and BTW - I paid off my mortgage last year as well :)

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Timing

Well done, but you sure picked a very good time to be 21!

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Meh

I did take stock. Still isnt working.

As mentioned I was in one of the best final salary schemes around from the moment I could join it. And at age 24 I spoke to an IFA about early retirement so made provision to pay extra into AVCs so I could get out at 55.

After all that the figures still dont add up and its not going to be anywhere near enough to get me to retire at 75 let alone 55. It appears the sums needed go up exponentially.

Dont rely on pensions. It appears property and hoping on the lottery are still better options.

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Mushroom

Best of luck to you

and as you start paying more taxes on fuel, VAT and anything else the government (of any stripe) can think of, you'll see all those that didn't pay a penny are busy voting for governments that will tax YOU and pay THEM.

And this being a democracy, who'll win ?

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Yeah

>picked a very good time to be 21

Very true. To be honest I think the idea of what a pension is will change now. It's going to go back to 'If you're unlucky enough not to die on the job then you'll have an income to keep you going until you do'. The current idea of retirement being the third phase of life (Education, employment, retirement) appears unsustainable. I'm just old enough to be able to have that luxury. Today's teenagers are probably going back to 'work until you die'. Poor buggers :)

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FAIL

Pensions don't pay back

Seriously they don't..... you need 20 to 40 times the amount of your pension pot vs the amount of income you want.

So you want 10K? you need about 400K in your pension pot.

You reckon you'll have 400K in your pension pot?..

This forgets inflation. Go ask your dad how much a beer cost or a loaf of bread cost 30 years ago. £10,000 in 2050 or 2060 when you retire will be WORTHLESS....

My dad paid massive amounts into his pension when he was young. In the 70s and 80s he was promised about 130 a month a lot of money they.... 2011 he gets 130 a month. Which buys bog all compared to the purchasing power he put into it.

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Anonymous Coward

I think you are being somewhat pessimistic here, Kenno Old Chap

Firstly, you can work out the rough relative worth of your cash by dividing 72 by your chosen inflation rate - if you say inflation will be a constant 5% per annum (unlikely but hey, you get to chose your own numbers) then you get 72/5= 14.4 which means your money will halve in value in 14 years. If you pick a more reasonable 3% then your money will halve in value in 24 years.

So, I intend to retire in about 20 years, which means I would need roughly twice as much money when I retire to buy the same things. As your dad has just retired I assume you are a similar age to me and will broadly need the same requirements.

Now you need to decide how much you will need to live on when you retire. But first you need to accept a few facts, that most people ignore when they look at funding a pension:

Firstly you will have paid off your mortgage. This is almost guaranteed as your mortgage lender will not just let you retire before the mortgage term is up (you are asked about this when you take a mortgage - good luck on lying about it). That is a lot of disposable income returned.

Secondly, you may want to downsize your house, you may not, but with no kids at home and no need to be in the commuter belt anymore you may find it makes sense to move house. If you do so you can get a nice big chunk of equity towards your pension.

Thirdly, you won't need the same amount of cash as you do now, you won't need two big cars, you won't do all that commuting miles and you won't need to pay all of the work related outgoings that you do now, and you won't pay the same level of income taxes as you do now - pension tax rates are quite generous and with the rise of the tax free level to £10,000 you will get a far bigger percentage of your money as take-home than you get from your salary. Obviously you won't need to pay into your pension either.

Finally, it is unreasonable to expect that you will get the same amount of money when you retire as you get when you are working - even final salary deals (if you can get one) work out your pension based on 60ths if you are lucky or more likely 80ths - realistically a final salary pension should be expected to pay about half your final salary, as a good guideline.

So, how much do you actually need? My monthly outgoings less pension and mortgage are about £600, not including food, petrol etc (I am basically talking about direct debits here), we spend about £150 a week on food and need another £300 per month for yearly car stuff like tax and insurance, and another £300 for fuel. So if we look at a base of about £1500 per month which is about £18000 per year, give or take.

And there are two of us, so that equals 9 thou a year to pay all the bills, run a car and eat stuff. Obviously if you are on your own you need to earn the money all on your ownsome, but you would need less food, a smaller house, fewer cars etc and you'd have to do your own maths.

However, £9k in today's cash would need to be £18k in 20 years time. To achieve that, and starting now, I would need to put away somewhere in the region of £600 per month to meet that, which is an amount I can justify (I already put £600 a month away and I have been paying into various pensions for the last 15 years) - I know my maths don't include any spending money, but I am assuming the reductions in current spending will make up for that, particularly the car running costs.

OK, if you are planning on working for the next 40-50 years like you say then you would need more money in the pot, but you would have more than twice as long to pay for it (and assuming you are at least mid thirties now you would be 75-85 so you would get a very good deal on your pension) and if you are much younger than that then what the hell are you doing worrying about pensions for? Buy a house for Christ's sake.

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High yield and drawdown

Kenno, you should look at Stephen Bland's articles on High Yield Portfolios for the Motley Fool. He created a hypothetical portfolio of shares in 2000 which was designed to provide a growing income (from dividends) and growing capital, starting with £75,000. In the first year the income was £3451 (4.6%). There are plenty of companies and funds which increase their dividends faster than the rate of inflation. Nothing has been done to the share selection since 2000 (AFAIK) so it's not a great example, but the income did grow to over £5000 in 2007/8 (40% in 7 years). It fell back since but the capital value at the end of last year was £114,000 and, if you're not planning to live forever, you'd be able to spend some of this. If you have someone manage the investments (and who uses a similar strategy) then you might not fare so badly on the income front. So, with maybe 5.5% income/year if you include drawdown of capital, you'd need about £180,000 to get £10,000 per year. It's useful to have the security of an annuity alongside this, of course. Consider moving your pension into a SIPP sometime before retirement so you have more control over what you can do with it.

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And where do I get this money from?

I'm not exactly well paid.... my job has been outsourced multiple times and salaries are absolutely static and have been for years. So all this put 2K aside a year doesn't really work as rent is cripplingly high as is cost of living and my wages aren't great either.

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Mushroom

Political Pension

Alternatively get old with your peer group and around aged 65 vote in your millions for a Government that will pay out for you and stiff's your children.

Worked for my parents.

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Angel

Pensions are tax allowable.

What people forget is that pensions are tax allowable - so if you are a high rate taxpayer you are effectively getting £100 into your pension for £60 (or £50 if you pay the 50% tax) of your own money.

Of course the flip side is that the government gets to tax your pension as income when you draw it later in life - but the idea is you put money away today when you tax rate is (probably higher) and draw it later in life (when it's probably lower).

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And

it's always good to invest other people's money and only pay tax if it turns out well!

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Meh

Blindingly obvious.

"I wish I could use the cash in my pension to pay off the mortgage on the family home. But apparently I'm not allowed to access my pension savings, the reason being 'just because..."

Would not be much of a pension if you could put the money in at 25 and take it out a few years later to pay down your mortgage. They give you tax breaks on investing in a pension but you lose the flexibility of being able to draw it until pensionable age.

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Anonymous Coward

My plan is to die.

I am 38 and honestly cannot afford to pay for a pension. I plan to work until I die as its my only choice.

Apparantly I need to save around 25% of my income. I do not have £500 (before tax NI etc)

Oh well I suppose I better start drinking and smoking more so i die early.

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Devil

Phasing them out...

The problem is many people start a pension far too late in life and £100 put in 10 years ago is (typically) going to be worth a lot more than £100 put in today.

I'd guess most people need to be putting in 15-20%+ of their income into a pension - although by the time you get tax relief and some employers will match your contribution the actual cost out of your pay will be much less.

You can expect to put in 0% now and enjoy anywhere-near the same standard of living when you retire and don't rely on a state pension - the fact is they can't afford to pay for them with people living longer etc. My guess is these reforms are the first part in phasing them out.

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Boffin

The Lotus Eater

now, hands up who didn't have to Google that !

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Linux

Better than nothing!

"I am 38 and honestly cannot afford to pay for a pension. I plan to work until I die as its my only choice. Apparantly I need to save around 25% of my income. I do not have £500 (before tax NI etc)"

Most employers will contribute to your pension and it's tax allowable so would not actually cost you 25% of your take-home income. The simple fact is you do need to find some money to put away as a pension unless you want to rely on the state (don't!!) and the longer the leave it the worse it gets.

See what scheme your employer offers - some will match your contribution - so that's a great offer for a start! Even if you put in £50-100 a month it's better than nothing...

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"Most employers will contribute to your pension"

Not nowadays they won't. There just isn't that kind of money knocking around any more.

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Mushroom

Seems there are three types of folks in the pensions scenario.

1. Those that havent a clue and will go on regardless.

2. Those that think they have done well with their pension provision but will find it doesnt work when they get there.

3. Those that have tried and now know its pointless and just resign themselves to looking at their babyboomer parents in disgust.

I always get a feeling that those in the first group will probably fare much better.

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Anonymous Coward

Don't blame baby boomers

I'm not in that category myself but it's often portrayed that these people are somehow robbing current and future generations. In reality when working they were told if you pay X you will get Y when you retire, so they did. If you were told now that if you contribute a set amount into a pension you would get a guaranteed return, you'd no doubt jump at the chance. Yes the provision of current "baby boomer" pensions is probably unrealistic, but they just did what they were asked at the time. The fault lies with those who designed pension provision at the time.

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Dont get me wrong....

..I agree its not fair to blame them re. their pensions. After all how well will the system work to support them 30+ years into their retirements?

I think its the fact many of that generation were the ones that have put in place the total clusterf*ck of a world we have today and in which future generations will have to endure.

"Thanks folks, I've screwed it all up but now I'm off to my retirement villa in Italy!"

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Gimp

@Lee

"However, £9k in today's cash would need to be £18k in 20 years time. To achieve that, and starting now, I would need to put away somewhere in the region of £600 per month to meet that, which is an amount I can justify (I already put £600 a month away and I have been paying into various pensions for the last 15 years) - I know my maths don't include any spending money, but I am assuming the reductions in current spending will make up for that, particularly the car running costs"

I like the sound of you Lee you sound like a chap with his head screwed on and sleeves rolled up (which is alot more than I can say about some of my own peers these days)

However you've managed to do fairly well for yourself, However £9k a year is more than most people make in this country, the government has used the figure £7,475 because it believes that is the optimal earnings for the largest population grab without it causing too much uproar.

Now £7,475 / 12 = £622.91 - so £622.91 per month might be enough to have your happy future retirement but they just may just starve before they get there. ;-)

But seriously, rent (which is what most people do) or depending on mortgage rates your looking at between £300 and £450 per month then food heating and travel costs, your average person isnt going to put very much into this at all.

You took in inflation but you didnt put in devaluation, I dont know if you are aware of the race to the bottom at the moment going on in most of the major currencys in the world but if it keeps up at this rate come 20 years from now your notes could have extra zero's on the end of them but yet buy less than a pound coin does now. (your right you can use any figure you like in there but in my opinion your being far to conservative, almost generous in fact)

And most governments around the world are already dipping their fingers into public sector pension funds and moving the figures around, put that together with the fact that most banks only hold 7% of the funds they lend out, then there is a good chance the company you have your pension with will no longer exist by the time you come to collect.

The issue isnt simply with pensions, its the whole entire monetary system that is at fault.

For too long it has rested on Greed and Fraud and its getting to the point where its going to fail (and fail it will because that is the only logical out come) it may not fail this time or the next but each time the problem gets bigger and the results of which become more devastating.

The "pension crises" is just one small area of a much much larger monster, a monster everyone is ignoring because they dare not look under the bed and face it.

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Anonymous Coward

Pension or mortgage

Could this have been done via the already high employer and employee national insurance contributions?

Is this an effective tax increase by reducing beneifts while maintaining revenue?

Would it be more effective and of benefit for the youngsters to pay off their massive mortgages first?

Just another stealth tax IMHO personally i'd raise the tax and national insurance free allowance up to full time min wage level and let the money circulate (and tax revenue increase - yes you govt twits you have the math wrong)

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Total scam

Just buy a bar of gold every few months

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Happy

I prefer Sovs

As Sovs have no CGT on them.... I;ve a stack of them since Sovs were £130 each, they are now £290 each....

Sovs and gold are 100% inflation proof as you cannot printy printy the purchasing power away..... like you can with paper money and electronic money...

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Anonymous Coward

Don't forget inflation...

... the biggest hidden tax of all. Governments borrow on an industrial scale, then deliberately devalue their own currencies to reduce the value of what they eventually pay back. Inflation is also a neat way of encouraging borrowing by individuals and companies, who are invisibly subsidised by the retired and others living off their savings.

If you don't include allowance for inflation in your calculations - for pensions or anything else - don't be surprised when the outcome is nothing at all like what you expected. In this wonderful advanced oh-so-civilised world of ours, money behaves jsut like ice cream on a hot day: it melts rapidly.

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Silver badge

There is another option...

You can move to Greece, and "retire" at 50-55 years. They seem to have a nice scheme.

Oh, wait that country is going broke.

Originally the retirement age of 65 years was set when the mean lifespan was 64 years. Now that healthcare has improved (at great cost to governments everywhere) the lifespan has improved so that we net a few more years (15-20) over the "retirement" age.

The only solution is to raise the retirement age a few years (which they are already doing here in the states!).

Oh, well.....

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FAIL

Kidding right?

I earn what is meant to be an above average, even decent wage, but with cost of traveling , rent etc I barely scrape through each month with food in the cupboard and rent paid.

I like many others are in a catch 22 where we can't afford NOT to put away for our future but neither can we afford TO put away for our future as it's hard enough just surviving day to day.

There is no way I'll ever save up enough for a deposit for a Mortagage, let along have assets for retirement, I'm just another work till I die pleb :(

My company has a very generous contribution plan for Pensions but I need to put something insane like 1/4 of my monthly take home in which I can do if I stop paying my rent and eating maybe....

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Anonymous Coward

I'm glad I bit the bullet..

...sure I got the feeling I was being ripped off for all the years I paid into a pension but I am now retired on about about 60% of my final salary. I remember thinking when I was paying in around 20%-ish of my salary "Is this really worth it?", especially when friends were going for fancy holidays three times a year and buying a new flash car every 3 years - while I went away once a year and made my cars last 10 years. But I stuck with it and now I feel relatively comfortable (definitely not "well off") and secure. I also stretched to pay off my morgage early.

Friends who did nothing are now in a bind, they have the minimum company pension (around 15-20% of their final salary and are wondering how they are going to survive. I retired early (I had just about enough of the company I worked for) - some of my friends will have to slave on to the bitter end of their 65th birthdays and then even beyond if they want a reasonable lifestyle.

Would I have done anything different? - probably. I should have diversified - some into the company pension scheme and invested some in property - and tried to invest even a bit more than I eventually did (say 25-30% of my income).

Sorry if all this seems a bit of a preach or smugness but I was just lucky. I didn't understand this pensions stuff - I just stuffed some money into it and got on with my IT'ing around the world. But suddenly one day you discover - without warning it seems - you are retired and you have no more salary coming in - shock horror. What must have is a plan, any plan, maybe a pension, property, a croft in the Shetlands -whatever - but it must be a plan! When you are in your 30's or 40's it seems that you will go on working for ever - you are everlasting, you are invicible, but it does end, and end suddenly.

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