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Are pensions a really good deal?
Briesmith
Posted: 27 January 2014 17:17:23(UTC)
#21

Joined: 16/07/2013(UTC)
Posts: 16

Annuities? Why do we put up with them.

My private pension pot of approx. £350,000 will buy me a 6% annuity at age 68. This is less than any reasonably competent fund manager could grow it by each year. (There has never been a 20 year period when the average growth in stock valuations has averaged less than 6% and that includes 1914-18 and 1939-45).

The annuity gang point to interest rates to justify their robbery but that's only a convenient scapegoat; why buy gilts (they don't of course, it's just another industry lie)? Stock market performance year on year is pretty steady and over 10 to 20 years remarkably so. That's the benchmark they should be forced to use.

Why are they allowed to get away with it?

Is it because they are hand in glove with the government and they share the proceeds of their thieving between them?
P L
Posted: 28 January 2014 08:52:02(UTC)
#22

Joined: 10/08/2008(UTC)
Posts: 356

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One thing people always fail to mention when say they would never have a pension is that if your employer is paying pension constributions on your behalf, not having a pension is effectively throwing free money away (or rather it's actually part of your wages).

The rules might not be ideal but most people cannot afford to simply chuck away a proportion of their income. Surely it's better to get as much potential retirement income as you can even if it not ideal in the regulations that go with it.

1 user thanked P L for this post.
JohnW on 28/01/2014(UTC)
Graham Barlow
Posted: 28 January 2014 12:17:40(UTC)
#23

Joined: 09/03/2009(UTC)
Posts: 203

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You ask the question :- Why are they allowed to get away with the annuity levels that are given. In my post I mentioned the level of annuities is taken by the providers from the middle Gilt edged stock (14 years to maturity) This is where the money is invested keeping the Government with a steady supply of long term funds at the lowest rates in the market. That is why they are allowed to get away with it, it is that simple.
1 user thanked Graham Barlow for this post.
Briesmith on 28/01/2014(UTC)
Briesmith
Posted: 28 January 2014 12:31:27(UTC)
#24

Joined: 16/07/2013(UTC)
Posts: 16

You answered this question as well:

"Is it because they are hand in glove with the government and they share the proceeds of their thieving between them?"
Keith Hilton
Posted: 27 February 2014 14:39:58(UTC)
#25

Joined: 20/08/2010(UTC)
Posts: 761

Are pensions any good? The main problem is that there's no way of knowing, when you start out, what level of income you will obtain when you retire. Worse still, is that even when close to retirement or in retirement, you still won't know from one year to another (OK - 3 years) what your level of income will be, unless you purchase an annuity. At present, annuity rates seem pretty poor value, but at least they will give a degree of stability. The downside being, the more stability you require, the greater the cost - i.e. inflation proofing).

The pro's and con's have been largely explained by previous posters, so it's really down to the individual to decide if the upfront tax relief is compensation enough for the future restrictions which will be imposed, and the inherently unpredictable nature of those restrictions.

My personal view is that, as much as I hate pensions, I can save about 42% in tax (income tax, employers & employees NI) on contributions. So sacrificing £0.58 of income buys me £1 of pension. However, 25% of that £1 can be recovered, so every £0.33 of pension contribution will buy me £0.75 of pension. In other words an instant gain of 127%. For me that's a no-brainer, but for others, I know they wouldn't touch pensions with a barge-pole, due to the loss of flexibility.

Another factor for me, is that I'm already drawing down from my SIPP, so that I can salary sacrifice, thereby offsetting some of my pension contributions against pension income. This gives a neutral position on income tax, but means that the savings in NI contributions still go straight into the pension fund.

My final thought is that I don't wish to give my hard earned money to an insurance company, so I am resistant to buying an annuity, especially at current rates. Drawdown should allow me to retire sooner, due to the higher income I can expect (although this might change) and, hopefully, lead to a rising income over time. My aim will be to withdraw as much as possible from my SIPP, within the 20% tax rate, in order to run down the fund over time - assuming I live long enough!
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