[Closed] Pensions, don't get you what they use to...

Are you concerned that you are only allowed a £1,000,000 fund in an approved scheme or that it will only buy you an annuity of £27,000?

On the plus side that change in annuity rates may suggest you are likely to live longer 🙂

If you already have your million tucked away look at other investments

If that's an annuity from your pension provider then it is probably bad value. The open market option almost always gets you a better income. Right now gilt yields are really low so annuities are really tough. Fortunately, you don't need to buy an annuity and can get your income by other means (drawdown or UFPLS).

An annuity offers you a guaranteed income even if you live to 200. That guarantee is expensive, particularly at the moment.

It's ok - according to your average Brit and average estate agent we'll all be able to sell our houses in 20 years time to the younger generation for £1m+. No need for any other kind of pension 🙂

I might get a SIPP and put it all into Dignitas shares - as they'll be doing roaring business by the time I get to retirement after the generation before me realise how lousy their pensions are...

I'm not quite sure when UK became so financially illiterate that we decided that not bothering to save, but get up to our necks in debt/speculate on house prices was the best way to manage our finances... I don't think the next 10 years are going to be pretty as these behaviours come home to bite us. They kind of have already but it's not fully out in the open yet...

[i]Are you concerned that you are only allowed a £1,000,000 fund in an approved scheme or that it will only buy you an annuity of £27,000?[/i]

Just pointing out that it ain't a fortune plus somehow a final salary scheme can pay out twice as much before been 'caught'.

[i]If that's an annuity from your pension provider then it is probably bad value.[/i]

No it wasn't, it was the simple statement of what the current industry values are, and how much has been lost in a year - ie extra you'd need to have saved.

[i]but it's not fully out in the open yet... [/i]

Which is why I was posting 🙂

We're probably ok having a combination of final salary and private/cash schemes, plus have earned good money - but for most folk? 😯

I'm going to get some good life insurance and take up hang gliding.

In 2015 the cost of buying an annual pension income of £1000 would cost £32453. Now it would need £37070 - an increase of 14% in one year!

The maths on that is interesting.

Does that £1000 increase with inflation and start at 65?

Thing is, if you took that £37070 and stuffed it under a mattress you'd run out after 37 years at £1000/yr. So planning to live to over 100?

OP annuity rates (ie what you can buy with your fund) are related to long term interest rates (eg government bond yields) and these are very low. Also stock market returns are low/negative further depressing your likely pension.

FWIW this is one reason why property is again proving to be a much better long term investment.

FWIW this is one reason why property is again proving to be a much better long term investment.

It always will be in my mind.

I'm sure the gravy train will keep chugging 😆

FWIW this is one reason why property is again proving to be a much better long term investment.

That was my first thought looking at those figures. £37k will buy you a small BTL returning £2-3k and at the end your inheritors will have a property that at the very least is worth £37k and likely way more. How do you set up a pension company?

It always will be in my mind.

Until it stops being underwritten by deliberate government and central bank policy of course. Or the Millennials tell us all to get stuffed with expecting them to get into life-ruining debt to fund our retirements...

£37k will buy you a small BTL returning £2-3k and at the end your inheritors will have a property that at the very least is worth £37k and likely way more.

So many heroic assumptions in there. I do wonder how many people in or thinking about BTL have actually noticed the last three budgets (lower rate taxpayers may end up worse off because they're in BTL for e.g. as their tax bill goes up next year) or the BoE's request to intervene before it causes a massive crash... 😯

The thing about the 'greater fool' theory is that by definition, the greater fools don't know they're the fools... The last money into the bubble loses the most, especially when they've borrowed massively to play the game

Property as an investment would need to get an awful lot worse to be as bad as the pension figures quoted in the op. Its effectively below 0% underperforming sticking it under a mattress.

There is always plenty of talk of crashes and bubbles but in the mean time propery keeps on out performing every other investment.

It might not an option for everyone but you'd be a fool not to at least look at alternatives to a traditional pension.

So many heroic assumptions in there. I do wonder how many people in or thinking about BTL have actually noticed the last three budgets (lower rate taxpayers may end up worse off because they're in BTL for e.g. as their tax bill goes up next year) or the BoE's request to intervene before it causes a massive crash...

Whilst valid, for the example given (buying an entire property with cash, for under £40k - ie a small 2 bed in middlesboro) there are no changes in the recent budgets that have any impact. Even if you had a more significant investment (ie 200k) the impact in retirement is likely to be minimal (ie just the 3% additional stamp duty, which is quite attractive compared to a 14% drop in annuity performance), as a pensioner is unlikely to be a higher rate tax payer.

Not sure I could be bothered with managing rental properties plus I think as most of my money is in the house I live in makes sense to have invested money in another type of investment - I choose unit trusts. Easy to get capital out of too and in the longer run outperform property returns anyway. Advantage with property is you can borrow to invest in it so be heavily geared - great in a rising market, potentially disastrous in a downturn.

Fair point. Silly to have all the eggs in one basket. I'd question whether unit trusts out perform property long term but both do substantially better than the pension income suggested so a bit of both is a good idea IMO.

Thing is, if you took that £37070 and stuffed it under a mattress you'd run out after 37 years at £1000/yr. So planning to live to over 100?

This.

I cant imagine me having more than 30 years after retirement to worry about so 30 x whatever I need a year is my baseline of value.

I'd question whether unit trusts out perform property long term

Well it depends on time scales and when looking - shares haven't done well over the last year but property have gone up around 5%. Thing is we know that London and the SE (10%?) have done a lot better than Wales and Scotland (0%?) but the places with the best capital rises often have lower rental yields. Another problem with property is most people would only have 1 or 2 properties so if you need to get at some of the capital you can't just sell a small part of it - though you could borrow against it with the associated costs.

I like to keep things simple really.

There is always plenty of talk of crashes and bubbles but in the mean time propery keeps on out performing every other investment.

Really? Do you have any evidence for this claim or is it just something you want to believe?

It's an oft' repeated statement so it must be true!
But is it..?

Really? Do you have any evidence for this claim or is it just something you want to believe?

It's an oft' repeated statement so it must be true!
But is it..?

No [i]proof[/i] per se but there are a mountain of reports and graphs out there. I've done my own reading up and, I think more importantly, worked out some of my own numbers. Certainly not something I just want to believe. The returns are there especially if you are willing to do a little work. You are also perfectly free to ignore it (but that won't stop it happening IMO). I am not an expert, very far from it. One of the reasons I post on and follow these threads is that I have no idea what I am doing, I'm just trying to sort my own finances out as I have no other potential income, no company pension, no family inheritance due, no winning lottery tickets. These threads make a good sounding board and its very interesting to hear other opinions. If you have evidence of potential better performing investments I would love to see it, that is genuine by the way, even if it reads otherwise 😉

Over the past 30 yrs the free has massively out performed the housing market, assuming reinvestment of dividends. In the past 15 house prices have out performed the FTSE. Pay your money and take your chances. One major downside of property is that it's a very illiquid asset.