to give up paying into my pension

[laurageordie]

It seems like the rates on return have really gone down. Just had a statement through and it says if I carry on paying into it till I'm 65 and it does averagely well then I will get 3000 a year. Ffs it is impossible to live off that today let alone in 30 odd years time. I earn about the average and put away 5% a month

Piglet Not sure what you think happened, but Stephen Beer (affiliated to the Labour Party) agrees that the changes removed funds from pensions schemes - here. He argues it was the right thing to do, but does not deny it happened.
Also companies took payment holidays because of tax charges on excesses in pension schemes, so again the Labour party used tax to reduce company pension schemes.

yes, it does take some money.

However, is it "massive?"

e.g. in 1997 I had a pension fund worth (lets say) £100,000/

During that year, it had capital growth of 5.7% (it was a bad year) and in 1998 it had growth of 32.3% (a good year)

There might have been charges of about £1500 in each of those years.

Let's suppose that the dividend yield on the equities in the funds might have been £2,000 per year.

On this, there would have been a notional tax of 10%. So that's £200. When the pension company stopped being able to reclaim ACT, my pension lost that £200 per year.

Compare that to the £1500 charges.

Compare it to the £5,700 or the £32,300 growth.

The £200 is so small as to be virtually undetectable.

"Massive" my arse.

this graph shows over the last 25 years, re-investing dividends turned a £10,000 investment to £95,000, whilst taking out dividends re-turned less than £40,000.

Also average dividend yield is c5%, and tax rate was 20%, so out fo your £100,000, the change took £1,000.

Given average real returns are about 4%, this is effectively taking 25% of the return from the pension - seems quite large to me

caroldecker
which bit of the report I linked have you not read?

performance of the market and the funds does not equal performance of the net fund
its not complicated, its business
but those who support managed pension funds wilfully ignore the added costs

Pension funds are not often invested 100% in UK equities. Dividend Tax Credit does not apply to Money Funds, or Bonds, or Property, or International holdings.

I can't find the current yield on FTSE100, now or in 1997, but I don't believe it's 5%.

Tax credit was changed to 10% quite a while ago.

Comparing "Dividends Reinvested" to "Dividends not reinvested" is irrelevant here. We are only talking about the effect of ceasing reclaim of the tax credit.

Talkin I read the report - see my post above. The report said average nominal returns are 2.5%. I based my numbers on equites as around 50% of UK pensions are in equities and I was not going to do a detailed assessment.
2.5% is based on a 2000 number, a 2002 number gives a much larger return, as does a 1990 number (see above).
All investments have charges and suffer tax and inflation adjustments, if you are not into pensions, then you have to show a better returning asset class over a 40 year period.
Pensions may have higher charges than other investments and that should be challenged, but the tax relief on investment and an additional 5% pay make it better than other investments.

piglet some equities have over 5% return, some less. I believe 5% is reasonable as a UK average unless you can show different.
Tax credit was 20% when it was removed from pension funds. It may have lowered subsequently, but that was the impact at the time.
The point about dividends reinvested is that in your post you said the dividend return was miniscule compared to the capital return and charges. I was just pointing out the cumulative effect of dividends, and consequently the effect of those dividends reducing by 20%.

No, I said the amount of the tax reclaim was insignificant. Which it is.

I see you are now working on an estimate of 50% of the fund in UK equities, not 100% as in your earlier calculation. I was estimating an average dividend yield of 4% on the UK equity content of the fund, which I still think is a generous estimate.

I've tried to withdraw from the pension, they are now making me wait until next month when the pension advisor is here.

It really doesn't seem worthwhile having a pension unless you are 40% tax payer.

I am retiring at 60. I am ONLY able to do this because I invested in my future ALL my working life. If I had not invested in a pension, I would be continuing to work until I am 67 before getting £140 a week from the government, if there is any left by then, as it is, my income will therefore increase a bit when/if I get to 67. I have never paid higher rate tax.

It is worth it.

How old are you now shop?

Most people save up so little that their pension pot is tiny and it makes very little difference to their retirement income. However I am particularly anti pensions and have the discipline to save without having a pension. Some people will never save a penny unless it's automatically taken from their wage into a pension each month. Also I own my business and can work as long as I choose which is different from other people. So do take advice and get lots of different views on it.

Justashop
See I do not plan to retire.
I already do not work in August. As I get older I plan to stop working in much of September and probably February. I might start skipping December as well.
In the other months I work hard - but I love my job.
Like greengrow I'm my own boss which makes it easier

Any employee who has a scheme that their employer is willing to pay into should grab it with both hands.

If you have your own business and can make contributions from the company account, instead of including that amount in salary or wages, it is a terrific bargain, because as well as being tax-free, that amount is not liable for employer or employee National Insurance deductions.

You will get an income tax rebate on anything you pay into your pension (unless you are abnormally rich) even if you are unemployed or so low-paid that you don't pay income tax (up to a £2880 limit)

I'm 50 now and have saved 15percent of earnings over 34years, on my gran's advice. (I have not been without work since leaving school at 16 years old.)

Tbh shop it is very very different for me someone 20 years younger. Interest rates could stay near zero for decades and you will most probably get a state pension.

I'm still dead set on this buy to let. Worked out I can save for the deposit in about 4 years.

pension growth is not dependent on interest rates.

The flat rate pension is intended to prevent you starving to death and littering the streets, but whatever extra you can put by will enable you to live in increased comfort.

If young people ever wake up and start voting in their own interests, like old people do, then pensions might become more ungenerous.

Decisionmakers and those with power and wealth, such as MPs, have very little personal interest in state pensions and benefits.

msdolittle
NO

The reason the (nominally) flat-rate is coming in is to save the inconvenience and cost of giving the poorer pensioners additional benefits. It also is intended to reduce the resentment of people with private pensions feeling that they receive less from the state than people in greater need.

I don't think that's likely msdolittle.

Given how costly it is to means test and the issues it has created with being a disincentive to save I can totally see why the govt is proposing a flat rate approach.

This thread makes me realise how little I understand the issues and how much I need to do some research on this. :(

I know its not just interest rates, I was trying to simplify it. But generaly pension rates have been going down since the recession right? And we are only just getting started with the recession.

If young people ever wake up and start voting in their own interests, like old people do, then pensions might become more ungenerous.

I hate this attitude, its like blaming young people themselves for the reason they are screwed over. Let's face it governments should enable online voting and pr, for someone young doing two jobs just to stay afloat the last thing they have time for is voting. Pensioners sat around all day in their relative wealth find it easy to vote. I'm not saying that all pensioners are wealthy, but they sure as hell are compared to the generations after them.

It is unlikely the state pension will go. However it is likely to become paying at closer and closer to age 70 and then only after that age as time goes by. My retirement age is nearly 70 for the state pension as it is. Also it is not a separate "pot". The state pays for it (it is the biggest cost of all benefits payment I believe, much more than the unemployed) out of current income. Nothing is set aside by the state to pay it in future so it is not likely be getting any bigger. Mine is going to be on current rates £123 a week |(less than some) as I was contracted out of SERPS over 20 years ago when I was employed even though I will have 35 years plus of NI contributions after that.

Pensions are in a massive state of flux at the present with the rules changing all over the shop and the state trying to get everyone into auto enrolment. I would not rush to start paying into one.

Also my father put every last penny into his pensions and then he worked full time to age 77 and died at 79 - classic example of someone who took all his accountants' advice and perhaps it did not really pay off. However he remembered the 1930s, children barefoot and how important it always was for people to be able to try to put some money aside for their old age. I am certainly not against people saving up money.