Falling Pension Annuities

[Andy]

Two pieces of advice:

 

1. You don't have to take the annuity offered by your pension company. You can choose from any insurance company. The best option is to use an Independent Financial Advisor who specialises in this field. You don't have to pay as they will receive a commission from the insurance company, but they can get you a much better deal.

 

2. You don't have to take an annuity at all and more people are choosing not to. A good IFA can discuss other options with you which may work out better.

[Anna B]

Two pieces of advice:

 

1. You don't have to take the annuity offered by your pension company. You can choose from any insurance company. The best option is to use an Independent Financial Advisor who specialises in this field. You don't have to pay as they will receive a commission from the insurance company, but they can get you a much better deal.

 

2. You don't have to take an annuity at all and more people are choosing not to. A good IFA can discuss other options with you which may work out better.

 

Fact remains that even if you shop around, annuities have fallen off a cliff.

 

True you don't have to take an annuity, but interest rates are next to nothing, and all investments are risky, especially in these troubled times.

[Andy]

Fact remains that even if you shop around, annuities have fallen off a cliff.

 

True you don't have to take an annuity, but interest rates are next to nothing, and all investments are risky, especially in these troubled times.

 

Yes I agree - things certainly are not as good as they were a few years ago. My suggestions were ways to make the best of what you have rather than a way of finding a retirement paved with gold.

 

I still think it's worth having a pension though, and I worry that comments like some of those here will put people off. For someone of my age (mid-30s) there is no guarantee that there will even be a state pension when I make it to retirement, and personally I don't want to work til I'm 67 (and the age may have increased again by the time I get there). The only way I can have a chance of retiring early is to put money aside each month.

 

I am lucky in that my employer offers quite a good pension scheme where they match my contributions and pay in an extra 1%. Given that my contributions are taken out of my gross pay it means that if I contribute £1 to my pension, I save 40p tax and get an extra £1 from my employer. In effect £2 of pension costs me 60p. Even with poor annuity rates that it a deal I will struggle to match elsewhere.

[alankearn]

Here is a rough example

To receive £100.00 per week

 

from the age of 30 paying in £230 per month

 

 

The key assumptions we have used are listed below

Tax relief: Your contributions allow for tax relief of 20%. So, if you save £80, the tax man will also put £20 into your pension.

Monthly savings: Increasing by 2.5% a year

Retirement age: 67 for men and women

Retirement income: Monthly, before tax

Level or escalating: Escalating, by 2.5% a year

Joint or single: Joint, with 50% of pension income passing to spouse or civil partner on your death

Cash lump sum: No lump sum – whole pension taken as income

Investment growth: 5% a year

Pension charges: 1.5% a year for the first 10 years and 1% a year thereafter

 

 

Source for other predictions

 

https://www.moneyadviceservice.org.uk/en/tools/estimate-what-you-need-to-save-for-retirement

[Uptowngirl]

I wonder how many people realise how low pension annuites have fallen in the last few years?

 

Supposing after a lifetime of working you've managed to save £100,000 into your pension pot with which to buy a pension.

 

In 1990 a 65 year old with £100,000 would have received an annuity worth £15,610 a year. Now, that same retiree would receive only £6,216 a year. With the rising cost of living, inflation etc, that will not go very far.

 

So kids, if you're lucky enough to have a job and have anything left after paying your living costs, university fees and mortgage, you'd better get saving...

 

 

There's no such thing as a free lunch. Someone ends up paying and frequently it is pensioners when they retire.

 

Gordon Brown slapped a tax on pension fund dividends which takes 6 or 7 BILLION Quid out of pension funds each year. So since 1997 that will have robbed our pension pots of around £100 BILLION.

 

Then there is Ed Miliband with his attempts to woo voters with a freeze on energy prices. Many of the shares of these companies are held by our pension funds, so wiping £4-5 BILLION off the share price again comes out of our pensions.

 

I would't put a penny into a pension fund because it is too easy a target for a grasping Chancellor.

[Supertramp]

There's no such thing as a free lunch. Someone ends up paying and frequently it is pensioners when they retire.

 

Gordon Brown slapped a tax on pension fund dividends which takes 6 or 7 BILLION Quid out of pension funds each year. So since 1997 that will have robbed our pension pots of around £100 BILLION.

 

Then there is Ed Miliband with his attempts to woo voters with a freeze on energy prices. Many of the shares of these companies are held by our pension funds, so wiping £4-5 BILLION off the share price again comes out of our pensions.

 

I would't put a penny into a pension fund because it is too easy a target for a grasping Chancellor.

 

But but but Ed is saving pensioners from freezing to death. the guy is an idiot, he wouldn't know a good policy if it hit him in the face

[boyfriday]

I still think it's worth having a pension though, and I worry that comments like some of those here will put people off. For someone of my age (mid-30s) there is no guarantee that there will even be a state pension when I make it to retirement, and personally I don't want to work til I'm 67 (and the age may have increased again by the time I get there). The only way I can have a chance of retiring early is to put money aside each month.

 

I am lucky in that my employer offers quite a good pension scheme where they match my contributions and pay in an extra 1%. Given that my contributions are taken out of my gross pay it means that if I contribute £1 to my pension, I save 40p tax and get an extra £1 from my employer. In effect £2 of pension costs me 60p. Even with poor annuity rates that it a deal I will struggle to match elsewhere.

 

This is good advice Andy, despite what some might be saying about the futility of pension planning, it still represents a good investment given the inherent tax benefits and to put it bluntly the people of your generation will struggle in old age if they don't make their own provision.

 

I've bored people to death on this forum about the effects of the ageing population and it's the workers of your age and younger who are really going to take the kicking because of it..no national insurance saving for your future, your tax revenues being used to support those in retirement, fewer people of working age to help you with that burden.

 

Thank god I'll be dead and buried before it becomes an issue that creates social and economic meltdown.

[Andy]

I've bored people to death on this forum about the effects of the ageing population and it's the workers of your age and younger who are really going to take the kicking because of it..no national insurance saving for your future, your tax revenues being used to support those in retirement, fewer people of working age to help you with that burden.

 

It's also worth saying that a lot of the people I see complaining that "Pensions" are rubbish are basing that comment on either themselves or someone they know having bought a rubbish product, or made poor decisions.

 

I know one chap who has paid in £25 per month for 20 years and is surprised that he's not going to receive much of an income. But how did he expect the grand sum of £6,000 to provide an income for the rest of his life? Yet he insists his pension is "rubbish" when in fact he only has himself to blame.

 

I know of another chap who took out the Virgin pension, which is one of the most expensive pension on the market, who now complains that all pensions are a rip off and have high charges. But in fact he picked the one with the highest charges because he didn't want to pay a professional for advice (despite the cost of advice being much less than the difference in charges).

 

I don't want to spend my old age in poverty. I don't want to work til I'm 67. I don't want to be reliant on charity or goodwill of family if I need care when I'm old. So I take responsibility for saving. My plans aren't perfect but I've done the best I can and if things go to plan I'll be able to afford a reasonable standard of living. I don't know if there will even be a state pension when I reach old age but even if there is, it won't be enough and it won't be paid early enough.

 

Unfortunately those of my age who get to retirement and are having to decide between paying the electric bill and buying food, will have nobody to blame but themselves.

 

Those who say pensions are a waste of money... what alternative plans have you put in place to provide for your old age??

[Uptowngirl]

 

Those who say pensions are a waste of money... what alternative plans have you put in place to provide for your old age??

 

 

This is good advice Andy, despite what some might be saying about the futility of pension planning, it still represents a good investment given the inherent tax benefits and to put it bluntly the people of your generation will struggle in old age if they don't make their own provision.

 

 

Or folk could invest on the stock market. Global markets have more than doubled since Feb 2009. So sticking £100,000 on a balanced portfolio in 2009 would have your nest egg with dividends pushing £250,000 by now.

 

Sticking that money in a pension fund would have you struggling to be in profit after taxes, inflation and fees are taken into account. But the biggest thing I have against pension investment is a cynical chancellor along the lines of Ed Balls could easily decide that a private pension would disbar you from the state pension scheme you've been contributing to all your working life.

 

I think a private pension is one of the worst investments currently on offer.

[Andy]

Or folk could invest on the stock market. Global markets have more than doubled since Feb 2009. So sticking £100,000 on a balanced portfolio in 2009 would have your nest egg with dividends pushing £250,000 by now.

 

Sticking that money in a pension fund would have you struggling to be in profit after taxes, inflation and fees are taken into account. But the biggest thing I have against pension investment is a cynical chancellor along the lines of Ed Balls could easily decide that a private pension would disbar you from the state pension scheme you've been contributing to all your working life.

 

I think a private pension is one of the worst investments currently on offer.

 

I'm confused now.

 

If I'd taken my £100,000 in 2009 and invested in in a Self Invested Personal Pension, the taxman would have given me another £20,000 (assuming I was a basic rate tax payer). So my starting point would be £120,000.

 

You'd have £250,000 but I'd have £300,000.

 

Mr Taxman would take some of your return in Capital Gains tax. So you'd be much worse off than me.

 

You would pay fees for buying your stock, as would I. I'd also pay a pension management fee which would be nowhere near £50,000.

 

Can you explain please the tax advantage of investing outside of a pension?