To not understand the point of pensions unless you're on a high salary?

[koolkidsss]

My salary is below average, and the 3% contributions are nothing. I know employers have to match it, but I just don't see the point as the sun at the end will probably last less than five years. I know some companies offer excellent pensions but the bog standard ones seem so pointless.

I also dread to think what the retirement age will be for me. I have grandparents who died in their 60s so the gloomy part of me wonders if I'll even live to retirement.

Unless you're going to stay in one job for years, which offers an excellent pension I don't see the point. AIBU?

Crunchy - I'm glad you said re pensions being a risk because they are sold as "stupid if you don't", but they are a risk.

I've always paid into pension schemes but because I worked pt when the children were younger, my pot is still tiny.

The one I paid into when I worked before the kids were born, full time on quite a decent salary, is so far in arrears now that I doubt I'll get more than a few pence out of it.

Yes they are a risk. Just like anything. For some people they pay off, for some they don't. They haven't paid off for me, and yes I do feel bitter about that. Especially as I am not well off and will not inherit anything.

the problem is that pension schemes can and are often stripped by the companies despite it being "Your" money that you have contributed too and if the company goes bust you are the last to receive any money.

The kind of pension where this is a problem is the kind almost know-one in the private sector can get these days, so no need to worry about this.

A private sector pension nowadays will almost certainly be defined contribution, which means the money is held in a trust and the employer has no ability to access it. A "shortfall" is impossible because there's no promise you will get any particular amount in the first place. You just get whatever your contributions and investment growth amount to.

If you are in a defined-benefit scheme, you are likely to be in the public sector. The government can just raise taxes/print money in order to keep it's promises.

"know-one" ?!?

This has been happening to me for the last 15 years, my fingers type a word that sounds like that one my brain told them to type. I usually manage to catch it before posting...

As blueshoes says, the stripping of pension schemes can only really be done with defined benefits (DB) schemes like final salary schemes. Just about all the pensions started since the new rules came in will be defined contributions (DC) i.e. what you put in, gets invested and the resulting sum or "pot" defines what pension you will get.

Most of the new DC pensions will be run by specialist pension companies like Nest, People's Pension, Legal & General, Aviva etc. Once the money is paid in each month, it is yours and your employer can't touch it. I don't know of any companies who are enrolling new employees into a DB scheme, even the big banks etc are putting new employees into DC schemes.

You can also always transfer your pension to another provider (unless it's funded by the government e.g. Civil Service, armed forces or NHS DB). However you would need to see a qualified financial adviser who would have to check all sorts of things to see if it would genuinely be to your benefit to transfer a DB scheme to a DC one.

Lots of us who are older and are working are in defined benefits schemes. Private companies closed them to new entrants often. But people are still in them. So what you are basically saying, is to hell with people in their fifties.

If you live in UK go to HMRC website put in your National Insurance number it will advise you what age you will be able to claim your state pension, how much and how many qualifying years you need. The state pension is not much, but plenty of people live on this. So if you want some extra when you are old it's a good idea to have a private pension. I'm so glad that I started a pension when I was young. My employer s have also added free money into my pension. It is your choice whether to pay into a private pension, but no saving rates at the moment are paying such good rates.

As others have said, it's effectively free money. And with no idea what the state pension will be like in decades to come, it's wise to accumulate as much as possible now.

I'm in Australia, so slightly different. Employers are obliged to contribute 9.5%. In addition, you can salary sacrifice straight into your superannuation account. I do this. For low-income earners, there are government co-contributions (capped), which means that money which low-income earners contribute is matched by the government. Wouldn't be a bad thing for the UK to aspire to this model, but 3% is better than a kick in the jaw.

The point is that the small pension if you are lower paid that you will get, will often take you just over the amount that would give you extra financial state help, and actually leave you worse off. I will retire at 67 when I get my state pension.

Do you have any flexibility about how you take your pension?

If it were a private sector defined contribution pension, or personal pension, I would guess (perhaps wrongly) that the complete flexibility to spend it at any time after 55 would mean you could eliminate or minimise any impact on benefits.

If it's defined-benefit and you have no flexibility about how you take it, I can see how that could be a problem.

My pension is defined benefit. And I will get a lower state pension as a result of having it.
I guess my point is that when I started my pension at 22 it made sense financially. BUT rules change. It made sense still until I was in my fifties when the state pension rules changed. So nearly 30 years of paying into my pension.
It might make sense to pay into a private pension at the moment. But you have no idea what the rules will be in the future. If you are only going to have a small private pension, its purpose is basically to top up a state pension. But changes in rules in the future to state pension could mean that you are worse off than if you had never paid into a private pension.
Or you might be better off than if you had not paid into a private pension. Nobody knows. It is a risk. You need to recognise that.

Lots of us who are older and are working are in defined benefits schemes.

I could be wrong, but I think in theory you could get a transfer value so that you give up your defined benefit pension and have a defined contribution one instead, which may solve the problem.

Though even if this is theoretically possible, I've heard of people trying to move very large pots who haven't been able to, because the rules require a financial advisor to sign off that it's in the best interest to do this, and advisors won't, because they are afraid they will be liable later on if the person changes their mind about it being a good idea.

(The relevance of mentioning very large pots is that there's lots of money available to pay financial advisers with, yet still they won't co-operate.)

There is no guarantee that the accessibility will stay at 55 for private pensions. When I started paying in I could have accessed it aged 50 and the rules were changed. The LISA access age is 60 and this seems a good indication of the route of travel. There is also no guarantee that the rules on tax on access will not change.

I can't move mine.
I think the accessibility rules will change. Financial advisors warned heavily against the Government introducing these accessibility rules, because lots of people are accessing their pension pots, and spending them. Leaving nothing for retirement. The Government wants people to have private pensions. The reasons the accessibility rules were introduced, were to provide a false boost to the economy. When the economy is booming again, I think they will tighten up these rules.

So what you are basically saying, is to hell with people in their fifties.

The bulk of these people (fifties in DB schemes) are likely to end up as the richest generation the country ever saw. It's unlikely to be hell compared with those that came before and those that came after. Be grateful with what you have

9.5%?!

okay for that I'd put in my 3%.

but that's a very different kettle of fish than what is offered to most people in the UK,

the other thing is if you save it, it's there, it's yours and you can do what you need when you need to. I think this far less risky than putting it in a pension.

wobytide There are plenty of people in their fifties like me who are not well off.

OP you're young, right?
Are you familiar with the whole FIRE thing - Financial Independence and Retiring Early?

It might be worth a look. I was one of the tight wads who had a very low set budget for nights out in my 20s and I'm hoping to be retired quite soon - c50.

The amount of money you can spend on stuff is amazing. This doesn't apply if you're really struggling but as you're here asking about pensions, I suspect you're not, hope you're not.

Things like being rate tart, taking every bank switch etc - it all adds up. I also used to stooze in the days it was worth it. And just be really careful and have a mentality of make do and mend. It's amazing how much people spend in general.

on Twitter the other day I saw someone saying the national curriculum should teach self sufficiency - that won't catch on because the machine is dependent on people spending an awful lot on goods and services but if you have a review of it, you might be surprised what you can save. Just a thought.

ifailed it would be way more than that, because the employer matches what you put in, and because of compound interest.

And don't forget that for every £8 you put in, the Government tops it up to £10, as pension contributions come before tax. So if you put in £8, the pension pot is actually increased by £18 after employer contributions (if they match yours) and tax relief. That's an awful lot of incentive!

Financial advisors warned heavily against the Government introducing these accessibility rules, because lots of people are accessing their pension pots, and spending them. Leaving nothing for retirement.

I’m not sure the rules will change as the government is benefiting from both the additional spending and also benefiting from the tax paid on the withdrawals. It’s a win win for them. I am aware of people accessing their pension to fund larger purchases like cars, new kitchens and to pay for DCs weddings and foreign holidays. While it is good that people have greater flexibility than they had with an annuity they are also reliant on good fund performance to provide an income and sustain this type of additional spending.

YABU. Even 3% with employer matching it will add up to a good percentage of your income by the time you come to retire if you start at a young age. It won't be 3% because of the tax relief anyway unless you don't earn enough to pay tax. It is everyone's responsibility to save for their retirement and you may get the option to retire early if you save enough.

Ignore the 'bloke down the pub' or the 'woman in the canteen'

Pensions are by far and away the most efficient way of saving for retirement. OP is correct in that there is a greater incentive for HRT payers, however there is still a 20% incentive for BRT payers. Salary sacrifice enhances the efficiency by reducing NI payable. On the way out 25% is tax free and the remaining 75% is taxed at your marginal rate. Fund growth is virtually tax free.

Yes there is a risk, however there are likely to be several options for underlying funds. Its not a binary decision.

Contribute as much as you can afford as the employer will often match the contribution, but leave plenty to cover your expenses.

Personal DC pensions are an utter con.
Putting aside 10% of your salary a year will give you a pension income of around ......
10% of your final salary
which will never be enough to live on.

Only if you can afford to save substantial amounts are they ever worth it.

Anybody getting lump sums on sickness etc is in a DB scheme
as there are no such things in DC schemes

@muffin so it's thought around 4o would yield £1,600! To supplement life?