To shrug and say "Er, so?" when I read: "Half of UK not saving enough for retirement, says study"

[fgaaagh]

AIBU to wonder where we're meant to get the money to pay into a pension, alongside all the other pressures on the family finances? (normal household costs, commuting costs, mortgage, council tax, helping out my own parents, topping up my NI contributions from being a SAHM cos we couldn't afford childcare to eat up my wages and more on top, and, finally, possibly saving for kids tuition fees or a small amount for a first house in the unlikely event anything is spare and left over).

Seriously - I've just read this headline online, and I don't get why the government / media try to make out in their articles that people don't care enough to plan for retirement to any meaningful level.

I wonder how many cases, of the current section of society who are middle aged - what reasons will make up proportion of those not saving "enough"?

1. Igorance (didn't know the govt pension wouldn't be enough)
2. Apathy (who cares about retirement, live for today)
3. Arrogance (I'll be fine, I'll find a way)
4. Inability (can't afford to)

Personally, I'm betting that if we could zip forward 50 years and speak to the people currently in their 30s / 40s, the answer would be mostly made up of Number 4s. Amongst my friends and relatives, it's certainly the case.

So AIBU to not give rat's arse about what the government or any advisory body thinks about your Average Jane saving for retirement? Because it's not like we can really do that much about it, is there? There have been warnings for years telling people to save more for retirement, we're certainly more aware than the people who are retiring now were at our age.

Ho hum!

"Can they really stop teh state pension for those of us who have been paying NI for the last 20 years?"

It won't be stopped but it can be eroded in value quite easily. The basic state pension for a single person today is £102.15 assuming you've paid full NI. Pension credits can top it up to £137.35/week. In the case of a couple it goes up to £209.70/week. There are ancilliary benefits available but the bottom line is that it's not a huge income. In 30+ years, even if it is index linked to RPI, it's probably not going to have any more purchasing power than it does today - more likely less. So, if you find that a daunting prospect and you have a few quid left at the end of the month, it's a prompt to save, invest, buy property, take out a pension or whatever else it is you think you need to do to get your retirement income up to a more reasonable level.

There was a really interesting article in the Independant earlier this year about when the state pension began (can't find it to link, sorry). Apparently only about 1 in 5 people lived to retirement age and it was set at a subsistence level which was just enough to keep people out of the workhouse. The article was basically saying that the reason the state pension is now unaffordable is that we expect to be kept comfortably for up to a third of our lives.

If it's any consolation to those of you who are struggling to save, I felt exactly the same when the DCs were younger. It's only now they are older and the mortgage has finished that we have anything to save.

Earwig - from 6 April 2012 you will still be able to claim 40% tax relief but there was a serious threat at the time of the 2010 Finance Bill to reduce the maximum relief to just 20%. That threat has now been removed for the time being by the Coalition but other swingeing restrictions have been imposed.

The maximum annual amount you can contribute will go down dramatically from £255k to £50k. The maximum allowed 'Lifetime Limit' for the total size of your pension pot will fall to £1.5 million. If you go above that limit you will face a super tax rate of 25% on top of your normal income tax rate when you start to draw your pension or 55% if you take a lump sum.

Assuming you pay in £25k per annum for 20 years and with normal investment returns you will massively exceed the 'Lifetime Limit' so anyone who is a high earner in reality has just had the maxium amount of tax relief they can claim over their life slashed by about 75% or more.

People with smaller contributions are unaffected by the limits but in reality anyone who is just a lower rate tax payer is probably having most of the tax relief gobbled up by fees and poor investment returns anyway so all in all the incentive to save for a personal pension is not great for lower earners of higher earners. Those in narrow window in the middle will find it worthwhile to save up to say about £1500 - £2000 per month although fees and poor investment performance will still eat away most of the tax relief and you will still pay income tax on what you take out.

If people rent rather than buy they'll still need to rent when they're 80. So their meagre pension will be even mroe stretched. At least by the time I'm a pensioner the house will be paid off so I'll have a roof over my head even if I can't afford to heat it.

Im now confusing myself, but it did make sense to us to pay excess into his last year, (because of the threat that was to become rule in April but didnt) and years before, dh's company pay 11%. We will prob split the bonus this year with pension and shares.

My dribbly pension is worth about £1 a day at the moment!

All asset classes have advantages and disadvantages, which is why, if possible, you don't put all your savings into one asset class.

I can see why people are attracted to property, especially after the pension scandals/financial crisis. It's tangible, easy to understand, and one of the big advantages is that you can borrow to buy one, so in a rising market, you can increase your equity more easily. However, in a falling market, the opposite is true. Also, if you want to release cash from a non-investment property, you either have to sell it, or remortgage. You can't just sell part of it. Houses are less liquid than shares or bonds for which, on a given day, there is almost certain to be a buyer, and it's very cheap to buy and sell them. A house is also, by virtue of it's location, a bet on the UK (assuming that's where you live), whereas with equities you can invest in higher growth economies very easily and flexibly. The property prices in the SE are a function of the success of the City of London. Will London still be a major financial centre when I retire? Probably, albeit less dominant than it is now. Do I want to bet my entire pension on that given current developments? hell no!

The downsides to shares are, of course, that they could go to zero (which your house is unlikely to do),they don't have an alternative purpose (you cant live in them) and you have to pay CGT on your gains (albeit with an good tax free band). However, the "hero to zero" scenario can be limited by diversifying properly- a lot of people who have been "wiped out" have had most of their savings in one share (often their employer's share scheme).

BUT, that's not to say that ESS should be avoided- a lot of them are on very good terms- DH's firm has a "Buy 2 get one free" scheme, so that effectively gives you 50% downside protection- just dont put ALL your money in it. Otherwise if your employer goes bust, you have no job and no savings.

So what I'm saying is that there is no "magic asset class". The important thing is to educate yourself as much as you can so you understand what the options are and what might best suit you.

morebeta- I disagree with you on the stock market vs housebuying risk/return

eg, take your hypothetical £10,000

a) buy a £100,000 flat on a 90% mortgage, if its value increases by 5%, that's 5% of £100,000, so £5,000, a 50% return on your original investment (not including capital repayments and the fact that you have to pay for housing anyway)

b) invest the £10,000 in the stock market, if its value increases by 5%, then that's only 5% of £10,000, so £500, a tenth of the return you would have on the property

Also unless something extraordinary happens, like a natural disaster and you have no insurance, any property is still going to have some value. The same can't be said for shares, which are totally worthless if the company goes bust. (although I do realise you can spread the risk)

You can guess where my pension's coming from, can't you?

darlene - I can guess which is fair enough.

However, for another reason, I was looking at the Land Registry last night and their index of house prices. In my area, the price of detached houses fell 12% between September 2007 and April 2011.

Now applying your calculation that means I would have lost all of my £10k deposit and would now be in small amount of negative equity. If I had been in the stockmarket over the same period I would have certainly lost 45% of my investment at the bottom in March 2009 but now recovered almost all of it and only 6% (ie £600) under water right now. In the mean time, I would have been collecting a 3% dividend yield and a tax credit. A diversified portfolio of shares wil never fall to zero in the same way land/house prices will not.

The housing market looks great when it is going up and everyone is using borrowing (leverage) to amplify their gains (as per your example) but less so when people are slipping into negative equity. Try Ireland or USA or Spain where house prices have fallen 50% or more from the peak in some places. Ouch!

TheBride - I agree with your post about the special case of London property which is really totally separate form the rest of the UK and exists in a global financial economy that is intimatley linkd to the fortunes of financial markets. Agree too with the need to diversify asset class holdings.

The problem I have with 'investing' in houses is that they are an asset which does not intrinsically increase in worth - a house is a place for x people to live in. The price has to ultimately be related to what people can afford to pay - there are distortions but fundamentally there has to be link to salaries. When this gets too far out of whack the market crashes.

Stocks and shares are in businesses which should be able to intrinsically increase in worth. A pharmaceutical company or computer hardware/software co or car company actually makes products with added value. (I'm not totally sure that this logic fully applies to banks which don't make anything, or retailers - we're too reliant on these sectors)

We bought a 2 bed flat at auction for £12k, spent about £4k getting it rentable. We have rented it out for £450 a month for the last 7 years. Its now worth about £45k, which is actualy irrelevant as it isnt for sale, it was bought as a wreck as a long term investment for our future. (at the same time we picked up a 1 bedder for £8k, but sold that last year)

Just on the question of investing in a pension for your children. I guess there is a risk that one day the savings you have put into their pension fund may mean that they are not entitled to a means-tested benefit that they desperately need (and who knows what will be means tested in the future or what will be taken into account in the tests). Unless you're superwealthy and your children are trustafarians, or the UK pension system changes substantially (eg. here, in NZ, there is provision to take out pension savings for first home deposits etc so it is worth it for children) then personally I'd go with the other options for children like ISAs, CTFs etc.

Funds in a pension aren't usually counted for benefit purposes because the money is tied up and not liquid cash. Funds in a Child Trust Fund are in the parents' name until the child reaches 18, but are not normally taken into account if the parent applies for benefits. Funds in a bank account or cash ISA are taken into consideration. However, I don't think the idea that 'one day they/I may apply for benefits' should stand in the way of anyone saving.

littlemiss - a 'fixerupper' in the hands of someone who knows what they're doing isn't quite what I was thinking of - in that case you have genuinely increased its value (from uninhabitable to rentable). I'm more worried about anyone who sees a normal house as an 'investment' rather than something they live in which may or may not retain its value.

A house, if bought at fair value is most analogous to an Index Linked Gilt as the income (ie rent) and the capital value tend to go up in line with inflation. Pension funds buy commercial property (and index linked gilts) for this reason as it provides a steady long term inflation proof income and a guarantee that the real value of the capital is protected.

There is still risk in property investment though. I have a friend who works in commercial property making big loans on office buildings, shopping centres, warehouses and factories. Prime commercial office space in London has recovered in value after the financial crisis but anything less than prime (eg shopping centres in provincial towns) is selling at 40 - 60% off peak value. Banks are desperate to offload commercial property they have repossessed but just can't afford to take the hit to profits.

Just imagine residential went the same way. Not saying it will but there is a risk. Property is often viewed as a sure fire low risk investment but it ain't necessarily so. Property has its place in any portfolio - but I just wouldnt put all my money into it. I wouldn't put all my money into anything - diversification is essential.

many people already have ££££££££££ invested in residential property (the house they live in)

In the "eggs in one basket" diversification rule, it would be most unwise to invest even more of your nest egg money in the same sector.

Prices only go one way, right?

Wrong.