Should I get a pension?

It used to be good advice to start a pension as early as you can. Frankly, and this is only my person opinion, the reliability of pensions is now so up in the area, so confusing and so dubious, that I have lost all faith in them. I wish, when I was your age, someone had come to me and told me to:

a: Pay off all debts before investing - you might wish to check out some info on

b: Invest in property (Not because of the current housing boom which, personally, I think is a bubble and will soon end in tears but because, long-term, you can make money out of property.)

I think the British Public have woken up to the con of all shares be they pensions, ISAs, shares, whatever as beinga con - a whole load of people make money out of you BEFORE your money even gets invested and then they cream off a percentage each year EVEN if the shares they have invested your money in LOSE money.

That's my two cents,

J.

In a word, yes. The sooner you start paying into a pension scheme the better.

Also, while you would love to buy a car, you'd get there far quicker if you used some of your savings to pay off your debts which are probably attracting a _far_ higher interest rate than you are getting on your savings. Keep an emergency fund though. It's all about long term planning. Aim to pay of a certain amount of your debt each month, and try not to run up new debts at extortionate interest rates. If you need to borrow, apply for a personal loan and pay say 7% as opposed to 16% for an overdraft or on a credit card. (Rates vary wildly of course).

HTH

Brian

Thanks for the replies so far. At the moment my debts are interest free but after reading the 10 steps to financial freedom on the Fool site I think I'll probably try to pay those off first before I invest.

No. Don't get a pension. Clear off your debts first, and use your savings to do so. Then start building up savings in a bank/building society account to cover short term requirements, new cars and so on. If you do decide to buy a car before you have enough money in the bank, then get a loan for that. It will be a lot cheaper than credit card debt.

Once you have about 3-4 months income in the bank and no debt, then start thinking about a pension.

In message , BrianW writes

This is the worst thing you could do.

Pensions, as they stand at the moment with a compulsory purchase annuity at the end of it, together with poor pensions company fund performance makes them almost as important to avoid as salmonella.

Instead of thinking 'pension' try thinking of 'post retirement planning'. All this really means is building as much capital as you can to live off when you decide to stop working.

How you build that capital depends on your personal views on investment but monthly savings into Unit Trust, probable in an ISA wrapper, makes far more sense than putting the same amount of dosh into a formal 'pension' plan.

"Jonathan Bryce" wrote

Unless of course he can get into a company scheme whereby you put in x% of your salary and so do they. I don't know where else you can get 100% return at the moment, do you?

In message , The Blue Max writes

I cant deduce that such an option is available to him from his post, but I take your point that an occupational scheme is usually good value.

Where do you get this "100% return" thing from?

Putting in equal amounts does not equate to a "100% return".

Yes it does, in a perverse sort of way. Even if the pension fund shows no growth, then for each pound *he* puts in, his fund will be worth two. That sure looks like 100% "return".

Good advice (with the possible exception of some low interest loans such as student loans and mortgage debt).

Bad idea IMO. Most people will buy a home and investment of spare income in property means gearing your investment in a single area of the market. If you do consider it, look at commercial property and investments in housing in other countries to help diversify.

This is confused because you confuse type of investment (e.g., shares, gilts, property) with the wrapper (ISA, pension).

Don't rely on other people to invest money wisely for you (do some research). If you don't like shares there are gilts, corporate bonds, property and other types of investment to consider.

Finally, if your employer contributes to a pension scheme you should seriouly consider joining. Take into account pension benefits when moving jobs (not just raw salary).

Thom

But after that, the fund could go down in value, and he may not get it all back when he buys his annuity with the money.

Maybe I misphrased that.

If you put in 5% of salary and so does your employer, then the return you are getting is on 200% of what you pay in, rather than 100%, and is thus twice what you'd get if you put the money into the same vehicle yourself.

Even if the eventual return is 0% per annum indefinitely, you'll get a 100% return (your contributions plus theirs).

Correct, but it is probably reasonable to assume that if one puts dosh into a company pension scheme for the next 20 years, you would need to be extraordinarily unlucky to get both 0% per annum throught and *then* a crash.

So the worst case would appear to be that you'll get back at least twice what you put in.

The worst case scenario is probably that you die immediately after you buy your annuity.

OK, so you're on a £20k salary. You put in 5% and the employer puts in 5%. 5% of 20k is 1k. So it costs your employer £21k (plus ERNI) to hire you.

Wouldn't it have been better for you if the employer just paid you £21k and let *you* decide whether to invest £2k in a no-hope fund?

In message , Ronald Raygun writes

The word 'return' implies that you get something back, not 'increase in paper value' which is what you appear to mean.

In message , The Blue Max writes

Eh, I can see no logic in that at all.

Did you work for the prudential selling with profits bonds at all?

Back to your point. You seem to be forgetting that in the type of scheme we are talking about the pensioner has to buy an annuity. The rate of return is determined by annuity rates, so you could quite easily, after tax and an early death, end up with far far below even a 50% return (which after spending 20 years saving it would be worth er, er, er,...

In message , The Blue Max writes

No.

You forget that you have to buy an annuity with the dosh. The annuity rate is out of your control. After tax you are unlikely to get back more that you put in, never mind double.

Return = (what you get out)/ (what you put in).

So what, 200% of nowt is nowt. It's what you get out that matters.

If it's a bad investment with high charges it's a bad investment with high charges. Even if someone matches your contributions pound for pound. What were the alternative tax free envionments?

In your example, what about inflation at (god only knows) say 3% average over 40 years, on top of charges at say 2% per year over 40 years, with several periods of negative growth.

No because they are not your returns. With one of our pension schemes when someone left after 2 years (in a period when growth was high, 12 % or so) our "return" was just plain Zero, it had all gone in charges. IE commission to the shonky worm of a salesman who sold us the scheme.

DG

I think you mean ((what you get out)-(what you put in))/(what you put in)