I have been getting increasingly skeptical over the last few years about the value of Pensions.

I have a pension and it seems to change very little in value each year despite putting money into it and I am seriously thinking about stopping contributions and developing an alternative plan of some sort (god knows what).

The reason for this is to do with several factors and experiences over the last few years:

My Mothers pension has been reduced to a pittance by recent events, despite putting away a lot of money over the years. Eaten up by fees, instability in the markets and mismanagement she is now looking at a pension of less that £6k per year.
Working for a large pension provider for the second half of last year, it was widely agreed throughout the staff that pensions were the largest ponzy scheme ever devised and by the time we came to get a state pension, there would be nothing.
How long will it be before our government has to do something similar to the Spanish who have now spent over 90% of their pension funds buying up their own bonds in a bid to stave off financial ruin and going cap in hand to the ECB.
We have an aging population and it doesn’t look like a trend that is going to reverse

So, should I keep paying into my pension?
How many who have retired consider their pensions to have be a good investment? (and when did you retire, how much did you pay etc…)
Has anyone formulated an alternative plan to a pension and acted upon it?
Does anyone have a good reason to be optimistic about their pension?

Very interested to find out what the collective thinks on this as you have never failed me thus far.

Its not a yes/no answer. If your company is matching your contributions then given the tax free nature even with charges you are unlikely to get a better deal.
Those on final salary schemes would be mad not to put into them.
Its a bit different once your pension pot becomes larger as using your ISA allowance can give you some flexibility when you retires as that income is not taxed.

Depends on several factors really.

Well I am a freelancer so I am not going to get anything from a company other than what I put in.

Then you may want to think about something that gives you a tax free income later however contributions into ISA’s are taxed unlike pension contributions.

I think the broader question I am getting at is whether people actually expect all of these pension pots to still exist in 20, 30 or 40 years?

Might the world have changed so dramatically, as it appears to have done for the Spanish, that we could end up paying into pensions for our whole lives that we never get to redeem?

Then you may want to think about something that gives you a tax free income later however contributions into ISA’s are taxed unlike pension contributions.

isa’s are not taxed.

isa’s are not taxed.

The cash you put in is subject to Income Tax and National Insurance, unlike pension contributions. The interest earned on the ISA isn’t taxed.

isa’s are not taxed.

The income you’ve earned before you can put it in the ISA has. Pensions contributions come out of gross income, ISA contributions out of net.

As a freelancer you can pay the pension contributions straight from your company, reducing your Corporation Tax liability.

My parents fell into the ‘insufficient’ savings for the future trap so encouraged me to invest in a pension before I was legally allowed to.

Based on stock market fluctuations to date and two lots of bad advice I now expect to get less than £6,000 per Annum (in todays’ money)

My plan B is to continue working until I am no longer able to. At that stage I will either no longer care or I may have to consider something drastic such as Dignitas

I get a matching contribution from work, so my pension will be worth double what I put in – worth having. I also take childcare vouchers and health insurance as these are salary sacriice so I save the tax on those.

I also invest in ISA’s (tax free and a decent rate of interest over an initial period) for next years family holiday and stick a bit in Premium Bonds (you never know, its tax ree and I may win something)

After my regular savings are distributed, anything left / work bonuses goes into additional mortgage payments.

The income you’ve earned before you can put it in the ISA has. Pensions contributions come out of gross income, ISA contributions out of net.

yes correct – but isa’s are not taxed. 🙂

isa’s are not taxed.

I didnt say they where!

I said

contributions into ISA’s are taxed unlike pension contributions

Im 25 and have been putting into one for the last couple of years since I started working.

At the minute I put in 5% and company puts in 5% and I don’t pay tax on my contributions. Wether it’s worth it in 40 years time when I come to retire – I don’t know! I’m just looking at it as being a long term savings plan! If I didn’t put it away before it came in my pay cheque I think I would waste it!

[/quote]I put in 5% and company puts in 5%

Ditto and it may be that the investment is not managed as well as it could be but given out of every £100 invested I am only contributing about £35 then they would have to be absolutely incompetent for it not to benefit me!

Try this if you want some realism (and a scare)

http://finance.yahoo.com/calculator/retirement/ret02/

@ Surfer

That’s what I thought. As it stands I would have been better off putting my share under the mattress.

Despite my negativity, everyone should do something. Just remember you can’t foretell the future.

You could always invest in a SIPP even if you have a company pension. I have reduced the contribution in my company pension to maximise the company matching then I use the rest fro other investments.

invest in becoming as self sufficient as possible, its the only relatively future proof thing i can think of.

I am nearly at pensionable age and am considering my options. I have a personal pension which was transferred from a company scheme many years ago and is currently worth about £100k., This would apparently produce a pension of less than £4k/yr from an annuity which I have to purchase by law.

A quick spreadsheet showing £100k invested earning 2%/yr and £4k removed each year would last about 37 years by which time I would be 102. If I die before that there would be balance available to my estate. This wouldn’t happen with the annuity. So the annuity doesn’t look too good but I am forced by law to purchase one.

Well I will be retiring on 2/3 of my final salary at 60

A lot of benefits are currently means tested, an awful lot of people will never accrue enough of a pension to have more than they would have got anyway, it’s just an extra bonus for the gov.

mikejd
can you not consider a drawdown option?
http://www.pensionsadvisoryservice.org.uk/annuities-and-income-drawdown/income-drawdown-plans

This would apparently produce a pension of less than £4k/yr from an annuity which I have to purchase by law.

You can delay (may not be helpful advice!) but you are not obliged to purchase an annuity from your pension provider AFAIK so you should be able to increase the annual amount to around £5,700 pa by shopping around.

Annuities explained

currently putting away 5% – and my employer matches it.
I’ve only been doing it 5 years, I’m 40 now.
Last projection I got from the pension people suggested i’d end up with around 7k pa if I carried on with the same job/grade until I retire.
I’ve got plans for promotion and on the next level up the company puts in 8%.
my contributions are ‘salary sacrifice’ so don’t pay NI contributions on them
We are currently pretty hard-up as have 2 little kids, with one in full time childcare, and a pretty huge mortgage.
As time goes on, and the mortgage shrinks as part of our income we’ll start overpaying it, and hopefully knock some years off.
I’d like to purchase a second property to help provide a second income in later life, but not sure i’ll be able to pull the deposit together.

So in short – I reckon mine is worth it, as what ever the final value, i’ll have put in a lot less than 50% of it.

As time goes on, and the mortgage shrinks as part of our income we’ll start overpaying it

The way wage inflation is going, that process is in reverse for a lot of people.

This would apparently produce a pension of less than £4k/yr from an annuity which I have to purchase by law.

What he said above, you can effectively leave it in an account and pay income tax as you withdraw it. A good idea if you intend to go out in a blaze of glory the day after your retirement as it leaves the ballance for your kids or the donkey sanctuary. Not so good if you live longer than you budget for.

I thought most of the means tested benifits were allong the lines of for every £x you earn they took £y off the benefit (usualy arround £1 in £9), so you’d need to earn arround 10x more then the value of the benefit to get nothing?

I thought most of the means tested benifits were allong the lines of for every £x you earn they took £y off the benefit (usualy arround £1 in £9), so you’d need to earn arround 10x more then the value of the benefit to get nothing?

Not really looked at the specifics but there are certainly benefits that kick in if income is below a certain level, a pound the wrong side of it and you’re out.
Who knows how things may be in the future but people that are paid small pensions now are no better off than those without a pension [other things being equal]

frazered – thanks for the link to draw-down. I had heard of this and wanted to investigate further. I am presently waiting for an IFA to provide me with a review of my options.

Having received a letter from one pension provider saying that a pot of £25k would give me a £264 annual pension, even my gross salary until the day I retire won’t be enough to provide a decent pension.

Tricky one this, I’m sceptical too and really want to be proved that it is worth while doing, I re-invested an old defunct company and private pension into a personal pension a few years back and although it costs me a fair amount in contributions every month it is making money (slowly), and you get tax relief on your contributions at 20%…. It’s a gamble but no investments are super safe and savings accounts aren’t doing anything that good either… crystal ball anyone?

Higher rate tax payers should definitely be putting money into a pension, others too unless expect to be a higher rate earner later; I have a SIPP with Hargreaves Lansdown who are great. Company schemes with high costs are not very appealing though some are fine these days – my company scheme is with Aviva which isn’t quite as good as my HL SIPP but not far off.

Having received a letter from one pension provider saying that a pot of £25k would give me a £264

25000/264 = 94.7

How does that work? Are they expecting you to survive for another 95 years after retirement?

saying that a pot of £25k would give me a £264 annual pension

That’s a tiny pot but £264 isn’t right – maybe a month?

I’m a freelancer, too, so no final salary or company contribution options. I’m not a big earner so I just put any spare cash into an ISA. The way I see it, the money is there if really need it for something else, or if I get enough of a pot I can invest in something tangible like property. Contributions come from my taxed income so I’m losing a chunk there but the interest is tax free, there’s no fees and I can do what I like with it. Just have to keep moving every year to get some interest. No idea if it is a good plan.

There’s some stuff here that may help some

http://www.lovemoney.com/news/savings-investments-pensions/retirement/16879/pension-saving-benefits-flawed

Nickjb – It might be worth looking at putting the money in Share ISA’s. The banks are cutting ISA interest rates going forward, so putting money in cash ISA’s is slowly wasting away. If you invest with a tiny bit of sense, you should easily outperform the banks interest rates. Banks are taking the piss at the moment.

The other aspect to consider if you are married is the ability of both partners to benefit. For reasons I don’t entirely understand my father had a pretty generous pension but my mother has a tiny one. Sadly he died at 66 so didn’t get to benefit hugely and she now only gets half as a widow’s pension. She is now having to sell the house as she can’t afford the bills on the new income. The life lesson I learnt was that although investing in my pension is more favourable than my wife’s I don’t want her to be knackered if I go first and early so will be investing either more in her pension or in something like property in the future if that makes more sense when we do the sums.

I’m 24, I pay 5.5% of salary and my employer contributes 6% and I bloody hope it’ll be worthwhile! To be honest, if I wasn’t paying that money each month it would only be spent on beer. At least it reduces my taxable income.

saying that a pot of £25k would give me a £264 annual pension

That’s a tiny pot but £264 isn’t right – maybe a month?

No – that’s what the letter said – the small print revealed they’d assumed a negative interest rate. I’m still waiting for a response to my query to them on their assumptions.

Negative interest rate? Interesting! No point contributing if that was the case.

You can find online calculators to do the check yourself, looking at my personal one it suggests you’d have about £1k annual income with a fund of £25k at retirement – but in reality you’ll have a lot more than that assuming in your pot by then. If you want to put down some figures we can see – how much you got now, how old are you, how much do you contribute?