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TheCountOfNowhere

Pensions

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We're all getting older... Retirement doesn't seem that far off... We'll be wanting to live off our pensions soon. 

Then you drop dead at 68 and the pension companies keep the lot. 

So the question is... Are pensions all that.

 

Is saving/investing yourself a better way of managing your retirement fund?

Or should you, like most do, entrust it all the the government and some London spivs? 

Will many pension funds pay out in 20 years time.?

Is the government incentive to put your money in a pension just a hand out to the London spivs? 

Are low interest rates destroying people's hopes of retiring? 

Pensions... I reckon will become the biggest issue people in the UK face in the coming years. 

 

 

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58 minutes ago, TheCountOfNowhere said:

We're all getting older... Retirement doesn't seem that far off... We'll be wanting to live off our pensions soon. 

Then you drop dead at 68 and the pension companies keep the lot. 

So the question is... Are pensions all that.

 

Is saving/investing yourself a better way of managing your retirement fund?

Or should you, like most do, entrust it all the the government and some London spivs? 

Will many pension funds pay out in 20 years time.?

Is the government incentive to put your money in a pension just a hand out to the London spivs? 

Are low interest rates destroying people's hopes of retiring? 

Pensions... I reckon will become the biggest issue people in the UK face in the coming years. 

 

 

Dont kid yourself about dropping dead just as you are about to retire.

Rarely happens.

Even with the recent dip in uk ilife expectancy, today's 50yo Brit bloke is down to live about another 40 years.

As far as pension co gets the lot. Well, shop around and adjust your investments.

Low bond rates *are* a massive problem.

See the USS pension (HE/Unis) lurching to a paid disaster as he 'clever' HE types quibble about a slight acturail mistake without grasping how under the funded the scheme is.

 

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6 hours ago, TheCountOfNowhere said:

Then you drop dead at 68 and the pension companies keep the lot. 

So the question is... Are pensions all that.

Is saving/investing yourself a better way of managing your retirement fund?

Or should you, like most do, entrust it all the the government and some London spivs? 

Will many pension funds pay out in 20 years time.?

Is the government incentive to put your money in a pension just a hand out to the London spivs? 

Are low interest rates destroying people's hopes of retiring? 

Pensions... I reckon will become the biggest issue people in the UK face in the coming years. 

 

1. Pick the right pension and you still own the capital and just draw income.  Drop dead and it gets passed on tax-free if you are <75, otherwise it can go into a dependents pension, or be withdrawn at the beneficiaries marginal rate.

2. I manage my SIPP on a low-cost platform. Mine costs <£200 a year and I usually get £50 cashback.  Before SIPPs, the spivs would take up to half the pension (e.g. 5% initial and 1.5% every year for 30+ years). Now they get next to nothing if you know how.

3. Defined benefits pensions may not pay out, some will end up in the PPF and lower effective values. Inflation may eat away at values. Any pension is liable for confiscation. (Common occurrence)

4. The tax incentives reduce future government payouts. They get much of it back in tax later.

5. Real interest rates matter more than nominal and they are absolutely dire for savers in recent years and for more to come

6. Pensions is a huge but predictable issue that 90% of people seem ignore until its too late. The other 10% will have retired early and wonder how they got away with it.

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23 minutes ago, VeryMeanReversion said:

1. Pick the right pension and you still own the capital and just draw income.  Drop dead and it gets passed on tax-free if you are <75, otherwise it can go into a dependents pension, or be withdrawn at the beneficiaries marginal rate.

2. I manage my SIPP on a low-cost platform. Mine costs <£200 a year and I usually get £50 cashback.  Before SIPPs, the spivs would take up to half the pension (e.g. 5% initial and 1.5% every year for 30+ years). Now they get next to nothing if you know how.

3. Defined benefits pensions may not pay out, some will end up in the PPF and lower effective values. Inflation may eat away at values. Any pension is liable for confiscation. (Common occurrence)

4. The tax incentives reduce future government payouts. They get much of it back in tax later.

5. Real interest rates matter more than nominal and they are absolutely dire for savers in recent years and for more to come

6. Pensions is a huge but predictable issue that 90% of people seem ignore until its too late. The other 10% will have retired early and wonder how they got away with it.

Exactly.SIPPs are wonderful things for all kinds of reasons.Being un-married mine is crucial for inheritance tax planning.The only problem is governments moving the age back from 55 (it was 50 when i started out).People just need enough in ISAs etc to cover the gap from packing in until getting the SIPP.Drawdown is the way to go.

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8 hours ago, TheCountOfNowhere said:

We're all getting older... Retirement doesn't seem that far off... We'll be wanting to live off our pensions soon. 

Then you drop dead at 68 and the pension companies keep the lot. 

So the question is... Are pensions all that.

 

Is saving/investing yourself a better way of managing your retirement fund?

Or should you, like most do, entrust it all the the government and some London spivs? 

Will many pension funds pay out in 20 years time.?

Is the government incentive to put your money in a pension just a hand out to the London spivs? 

Are low interest rates destroying people's hopes of retiring? 

Pensions... I reckon will become the biggest issue people in the UK face in the coming years. 

 

 

Very valid points you make there count. Who knows what the future holds. All one can do is plan as best you can under the existing circumstances

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21 hours ago, spygirl said:

Dont kid yourself about dropping dead just as you are about to retire.

Rarely happens.

Even with the recent dip in uk ilife expectancy, today's 50yo Brit bloke is down to live about another 40 years.

As far as pension co gets the lot. Well, shop around and adjust your investments.

Low bond rates *are* a massive problem.

See the USS pension (HE/Unis) lurching to a paid disaster as he 'clever' HE types quibble about a slight acturail mistake without grasping how under the funded the scheme is.

 

Thing is, there's a bit of history with the USS shortfall...

a) they appear to be using the lowest return metric to show a worse case shortfall (and so increase members contributions/benefits structure); ask yourself if you had a mixed portfolio of investments would it be sensible to only use the bond rate to calculate you average return?

b) when things were good they `voted` themselves a reduction in contribution rate for a 10 year period, rather than `saving for a rainy day` and creating a robust buffer.

It makes me laugh when such financial organizations say to their members (and the Pensions Regulator) `Trust us and our calculations` when these are the same such people who fuxxed up in the first place...would we be so trusting of a surgeon to operate on us with a similar track record?

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Buyout market is doing pretty well at the moment (transfers of pension schemes to insurance companies). If funding was as bad as everyone seems to believe, this would not be happening: insurers promise to pay whatever defined benefit obligations were plus load a bit for a profit

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On 31/08/2019 at 23:42, Bear Hug said:

Buyout market is doing pretty well at the moment (transfers of pension schemes to insurance companies). If funding was as bad as everyone seems to believe, this would not be happening: insurers promise to pay whatever defined benefit obligations were plus load a bit for a profit

Its less the cost of the pension but rather having to keep an unknwn DB liability of a companies book and administer it.

Private DB pensions really only rolled for the masses in the mid 70s.

(Public sector are variations of PAYG/pretend funding/wishing for a virus to kill all public sector workers before 70)

The buyout market is basically a company looking at the nightmare of admin n funding, saying -fuckit, and handing over 40 years of premiums.

I know one bloke who fell -literally, he drunk - into a life co at the age ~25. Worked (in a very lose way) for almost 35 years, finishing on a salary of just under 40k, pension of ~30k.

He's single.

His buyout was ....drum roll........ ~1.2m

Just on taking the  a 5% return off the fund gives him 60k a year.

 

 

 

 

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Just sat here and had a thought about the benefits of taking a DB pension early (i.e. at 55 with penalties) rather than waiting until 65. OK, there is the obvious benefit of getting something early especially if the fund collapsed between 55-65 BUT...

...a lot of DB pensions now have a condition on matching with the rate of inflation UPTO 5%, then half upto 10% (so you would get 7.5%), and then no increase after that. Now, if we are looking at a high inflation economy in the future, then every % point above 5% is actually reducing the penalty for early access and so pushing the break even point to an older age for those who decide to wait the extra 10 years...

...what are peoples thoughts/predictions for post-5% inflation in say the next 10-20 years?

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8 hours ago, MrXxxx said:

Just sat here and had a thought about the benefits of taking a DB pension early (i.e. at 55 with penalties) rather than waiting until 65. OK, there is the obvious benefit of getting something early especially if the fund collapsed between 55-65 BUT...

...a lot of DB pensions now have a condition on matching with the rate of inflation UPTO 5%, then half upto 10% (so you would get 7.5%), and then no increase after that. Now, if we are looking at a high inflation economy in the future, then every % point above 5% is actually reducing the penalty for early access and so pushing the break even point to an older age for those who decide to wait the extra 10 years...

...what are peoples thoughts/predictions for post-5% inflation in say the next 10-20 years?

Two choices - cahsing out and parking the DB pension for a few years i.e. just get another job for 10 years.

Or drawing down the DB fom 55.

First is the most attractive - the longer you can put off a pension the better.

 

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8 minutes ago, spygirl said:

Two choices - cahsing out and parking the DB pension for a few years i.e. just get another job for 10 years.

Or drawing down the DB fom 55.

First is the most attractive - the longer you can put off a pension the better.

 

No, this is the point I am making...lets look at all the choices:

1. Surrender the DB and invest in stocks...ok for savvy and young but will you have the mental faculties/desire to do this in your 80s/90s? OR for those who want the security of a regular, hassle-free sum...

2. Wait until SRA and get full sum tied to inflation proviso as mentioned before OR

3. Take 10 years earlier but at a reduced rate due to penalty (usually 4-5% of final sum).

So, say a) full DB=£10k and b) early will be £5k (10yrs x 5% penalty). If inflation hits 9% this means pension sum will increase (decrease) by 7%....as a) has twice a larger sum his buying impact (-ve so loss) will be impacted at a greater level, in addition b) has had £50k over the previous 10 years to invest (and so compound) to alleviate the initial penalty he faced....even if he kept with the rate of inflation it would still take a) 10 years to reach the break even point assuming inflation rate was at or below the 5% (1 to 1 ratio) ceiling.

Not sure I am explaining this very well but hopefully you can see the point I am making?

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Just now, MrXxxx said:

No, this is the point I am making...lets look at all the choices:

1. Surrender the DB and invest in stocks...ok for savvy and young but will you have the mental faculties/desire to do this in your 80s/90s? OR for those who want the security of a regular, hassle-free sum...

2. Wait until SRA and get full sum tied to inflation proviso as mentioned before OR

3. Take 10 years earlier but at a reduced rate due to penalty (usually 4-5% of final sum).

So, say a) full DB=£10k and b) early will be £5k (10yrs x 5% penalty). If inflation hits 9% this means pension sum will increase (decrease) by 7%....as a) has twice a larger sum his buying impact (-ve so loss) will be impacted at a greater level, in addition b) has had £50k over the previous 10 years to invest (and so compound) to alleviate the initial penalty he faced....even if he kept with the rate of inflation it would still take a) 10 years to reach the break even point assuming inflation rate was at or below the 5% (1 to 1 ratio) ceiling.

Not sure I am explaining this very well but hopefully you can see the point I am making?

Cash out DB into a SIPP.

You can then hold it in a low volative nonstock investment.

Even if it compunds at inflations you should be OK.

Dont draw pensions early than SRA - they really knock off the payout.

The thing with pension is that you onyl need the money for doign stuff up to 80.

After 80 most people just potter around cheaply.

 

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13 minutes ago, spygirl said:

Cash out DB into a SIPP.

You can then hold it in a low volative nonstock investment.

Even if it compunds at inflations you should be OK.

Dont draw pensions early than SRA - they really knock off the payout.

The thing with pension is that you onyl need the money for doign stuff up to 80.

After 80 most people just potter around cheaply.

 

Ok, so going with your `cashing out` route with a non-volatile/low workload investment, I assume this means Gilts?..these will only return 1%? above base rate BUT your SIPP running costs will erode this...and then what do you do when you hit 80 and no longer have the intellectual capacity to manage your money?...also, as you point out, the most precious years are upto 80, so why not extend this period by 10 years by taking the DB earlier?

Ok, you have the penalty (that is basically taking account of the extra 10 years pension you are `potentially` getting through your living retirement period) but this is partially offset by the 10 years extra money AND if the economy is highly inflationary (5%+) partly/proportionarily by the impact that it has on the purchasing power of your final monthly sum.

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1 hour ago, MrXxxx said:

Ok, so going with your `cashing out` route with a non-volatile/low workload investment, I assume this means Gilts?..these will only return 1%? above base rate BUT your SIPP running costs will erode this...and then what do you do when you hit 80 and no longer have the intellectual capacity to manage your money?...also, as you point out, the most precious years are upto 80, so why not extend this period by 10 years by taking the DB earlier?

Ok, you have the penalty (that is basically taking account of the extra 10 years pension you are `potentially` getting through your living retirement period) but this is partially offset by the 10 years extra money AND if the economy is highly inflationary (5%+) partly/proportionarily by the impact that it has on the purchasing power of your final monthly sum.

SIPPS can be had for 0.25%

When you worry about managing your money at 80 you can move to gilts and cash.

 

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Sajid Javid announces plans to consult on reform to RPI. Pensions (and DB transfer values) may become cheaper if RPI is aligned with CPIH. No rush, as no changes until at least 2025 planned for now.

Edited by Bear Hug

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