Pension - what to do?

With annuity rates (including return of capital) paying only pennies more than you can get for long term cash investment (leaving the capital intact) I won't be putting a penny more of my money in a pension plan.

And I couldn't advise anybody else to do otherwise

tim

You don't think that 40, 50 or even 60% tax relief on the contributions would affect that decision?

At the moment I'm paying in as much as I'm allowed to. Should the chancellor take away higher rate tax relief then I'll only pay in enough to maximize my employer's contributions.

Tim.

That's a good point. Higher rate tax payers with a good company scheme would be daft not to, even with the increasing risks to the whole pension system (IMO). The tax office and your employer is essentially hedging your bet by a considerable margin.

But for lower rate tax payers with weak company schemes (mine matches 3% of my basic pay, which is 5k under median) it's much harder to make a case for pension contributions. Even if you top it up significantly yourself, you're simply taking on more of the risk yourself.

My plan is simple... don't retire. :-) Not completely anyway. To generate the equivalent pension income from one day in a lousy job would require a silly amount of pension savings. The maths just doesn't seem to work out.

And I must admit that these days my trust in just about any financial institution is tending towards zero. My cash ISA may be being eaten by inflation, but I know exactly what I've got and can plan accordingly. With pensions it's all guesswork until the moment you put pen to paper on the annuity.

Andrew McP

PS There's definitely a case to be made for early semi-retirement and enjoying life while you're still young enough to do pretty much whatever you want. Of course if you have expensive tastes that won't work, but I've always been cheap to run, so I'm lucky.

I think a lot of people have wildly unrealistic expectations of retirement though, based on a period when many people have -- unsustainably -- done very well out of a system now struggling to keep its head above water.

There are the alternative Income Drawdown plans now, they should give you a similar amount to current annuity rates but in addition preserve [some of] the capital.

Will the employer add a contribution too...? If so, that plus the tax and NI relief on your "sacrifice" should be very attractive compared with going it alone.

I think my employer adds whatever NI savings they are making by paying me less.

Another element in the equation I thought about is this: my wife and I have no dependents and own our property outright and so using that as collateral in our old age is an option with no adverse consequences when we're gone.

Equity release schemes, is that what they're called?

Given this situation, would you agree that my dependence upon an income from a pension is not as great as someone planning on leaving their property to offspring?

£200 a month is not a lot to provide for a hopefully long retirement. No doubt your scheme has hefty management charges. How big a pension do you think you will need? Have you considered putting the money in a low cost self select stocks and shares ISA? Derek

well, such tax relief roughly matches what the pension fund managers will extract from the fund in commissions over its lifetime. Also, as we have already seen, the government can change the tax rules applied to pensions and apply the new rules to the whole pot, not just the bit accumulated since the change. That leaves the fund rather a hostage to fortune.

Robert

This may be true for some pension funds - and with a work scheme you might not get a choice - but my current employer scheme has, since 2005 when I joined - achieved about the same return as I would have got had I put the money, inc tax relief and employer contribution, into a savings account at 2.5%

The remainder of my contributions go into a SIPP and the charges are minimal, less than 0.2% of the fund value. (Although my SIPP is, perhaps, bigger than average and I've "reached the cap" on charges other than dealing charges.

This is a real concern, and I'm far enough away from 55 (which was 50 when I started contributing to my first pension plan) that I wouldn't be overly surprised if the goal posts move again. I'm trying to hedge that risk a little by keeping enough money outside of my pension (mainly in index linked savings certificates as and when they are issued) to ensure that I will merely curse if they move the minimum age to 60 and accept a higher annuity/drawdown then and will not have to rethink my retirement plans.

But, on the flip side, I made minimal pension contributions until my mortgage was paid off. Although when I had a mortgage interest rates fell into the 5-10% bracket. Nowadays the sums aren't as compelling. I would probably still choose to pay off a mortgage first before contributing to a pension but it would be a difficult call whether to grab the tax relief while it is available.

Tim.