To not understand pensions?

[FinanceThickie]

Does everyone else understand pensions? Am I the only person who doesn't get them?

I'm rubbish at maths and numbers. I don't care about investments. I don't understand all the gobbledegook wording on pensions websites.

I get mortgages. I can understand what I'm applying for, and the charges are well laid out. But on pensions the info is all confusing and difficult to compare.

YABU - pensions info is super easy to understand, your brain must be broken
YANBU - pensions info is confusing

I don't have an employer so need to organise my own and don't know where to start. I just want someone else to choose for me.

I tried a financial adviser but she wanted millions of forms filling in and who can be arsed with all that? I just want to choose one online.

YANBU to be confused BUT YABU about getting advice - especially if she was independent.
The forms are because they have to be totally sure they understand you and can make appropriate recommendations - after numerous misselling scandals.
Unfortunately although Pensions are hard to get to grips with, investing a little time now will really help you for the future.

Try one of the online tools like
www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics?source=mas
www.pensionbee.com/pensions-explained

and of course, Money Saving Expert www.moneysavingexpert.com/savings/discount-pensions/

You are probably better going with a financial adviser as they can assess your level of risk and advise you accordingly.

Basically pensions fall into the following:
Employee contribution scheme - when you pay into a pension provided by your company (the company would also pay).
A basic savings fund which you would put money into like a savings account.
Then various schemes to invest your money so stocks and shares type schemes. Broadly speaking, you may get more return on the higher risk schemes but they are higher risk as the value of your investment could decrease based on share price etc.

When I went to see my financial advisor we discussed the level of risk I was happy with and he found me a scheme to suit. He also asked when I wanted to retire, how much money I wanted to have as a pension etc and used that to forecast the best investment return for me. So it may be lots of forms but they do it to identify the best product for you.

I take an active interest in my pensions, not sure quite where my interest came from. Most people are not that interested or find them confusing. When you get into certain aspects of tax relief and investment options then I think it's fair to say they need a bit of brainpower to contemplate. It's worth getting to grips with as potentially it's a lot of money which is worth managing properly. If you're prepared to put in a bit of legwork then I don't think you really need a financial advisor. But, depending on your level of interest and time / energy it could be a way to go.
I think this is one reason people default to Buy To Let as an investment option as on the surface it's more understandable.

Making sure you have a pension is one of the most important things you will ever do. It is worth spending time and effort on it. I can't imagine the forms were so numerous and challenging that a few hours of paperwork wouldn't have been sufficient.
State pension is about 9k a year, if it even continues to exist in another 15 or 20 years. Goodness knows what benefits will be available. This is why the government has been banging on about pensions so much.

Exactly - my adviser explains it all and gives me an annual review - she also tells me what I can expect to get at retirement and she's very good at explaining. Most of my pension is in quite high risk investments so Covid crashed a lot of its value but it is recovering now - you need to take a long term view and not panic.

Choosing online will likely result in worse value as it won't be easy to see competing products. Some Pensions can be very poor value as they have high charges and poor returns.

Not living in poverty is well worth filling in forms.

Your financial advisor should be able to explain things to you - if you feel like this one is not clear or simple enough, look for another.

Pensions are not complicated. You put money in them, like a savings account, just that you can't touch it until you are a certain age. The money grows. If you are an employee, then your employer contributes some to the account. The mildly complex thing is that you get some tax relief as well - eg the money that goes into it is not taxed as part of your income so therefore it feels like the government is making a contribution although really what they are doing is not taking some away.
If you are a mega high earner, there are some specific rules and contribution levels to consider but if you are not then don't worry about it.

When you reach retirment age, you live on the money. Exactly how live on the money differs ( roughly speaking you take a cash lump sum or you buy an annuity that guarantees you a certain income for life or a combo of the two. But you don't need to decide that now

General rule of thumb is that you should contribute as a % of your salary half the age you are when you start you pension. Eg if you are 30, then contribute 15% but this 15% might be made up of your contribution and your employer's if you have one.

It's why starting a pension as early as possible is a good thing....

Pension is just a type of tax wrapper, in the same way that ISA is a type of tax wrapper.

Think about it as being a locked savings box with a slot on top and timer as a padlock. You can put money in, your employer can put money in, Government can put money in. You cannot access the money until the timer allows.

So this makes it different from an ISA, which you can pay in to and take out of whenever you like.

Tax wrappers have rules around taxation. Pension withdrawal is part of your taxable income at that point. ISA is tax free.

YANBU that there could be more information about how pensions work. However there are many different pension schemes, they have their own scheme rules, so I feel it is up to each provider to be making sure that scheme members understand how that particular pension scheme works. Websites, books, podcasts, YouTube videos can help explain the basics but the nitty gritty of a particular scheme I feel is the responsibility of the scheme provider.

You're not alone and the frustrating thing is it's so heavily regulated (understandably, not saying it shouldn't be) it can be really hard to get advice or answers to simple questions without seeking out and paying for IFA. I move jobs frequently and I just haven't a clue about what I should do with pensions in terms of consolidating, leaving them be, and I just didn't have the money to seek help. I'm now civil service so know I have a very good pension, I mostly understand it, I've left my other pensions be and will worry about them when im older and can afford proper advice!

The other thing is over my (now very long) working life, various governments have changed the rules - a lot. So don't imagine anything you are told (especially by politicians is worth anything).
When I started work the company could compel you to join the pension scheme - that got abolished. Then the government offered a discount on NI contributions if you got your own pension or joined a works scheme - that got abolished. You had to buy an annuity at the end if you had a personal pension - that got abolished. Most places had a final salary scheme - they got abolished (almost).

YANBU to be confused but YABU to object to filling in forms so your advisor can, you know, actually advise you

If you know what you want some companies can do it all online. If you don’t know where to start you either need to co-operate with someone who knows what they’re doing or you’ll need to spend the time learning about pensions yourself

I’ll be brief as if you cba filling in forms, I doubt you’ll read the responses. You’re missing out on free money for your retirement. The state pension, if you qualify, will not be enough. You need to dedicate some time to a subject which will affect you for years and years.

The effort of filling in a few forms will be worth it. You don’t want to be reliant on the state pension when you retire. Get a pension sorted ASAP.

you say you don't have an employer - are you self employed then? If you are, then it's good to have a pension as you’ll get tax relief on your contributions... meaning more is paid in to your pension. At the very least, look on moneysavingexpert and think about taking out some kind of personal pension.

I tried a financial adviser but she wanted millions of forms filling in and who can be arsed with all that?

Yet you expect people to give up their time reply to you?

Purposeful maladroitness drives me nuts.

Are you working OP and if yes, are you paying into that?

I’ve only just increased my contribution to my workplace from 6% of my salary each month to 10% and it’s had a dramatic impact on my projected pension. Wish I’d done it years ago.

I will increase it again if we can afford it.

@VodselForDinner

I tried a financial adviser but she wanted millions of forms filling in and who can be arsed with all that?

Yet you expect people to give up their time reply to you?

Purposeful maladroitness drives me nuts.

To be fair the thought if form filling is daunting.

Workplace pensions are so easy, you just out in a number in a box.

The easiest option is to open a SIPP, stick as much as you can afford/are allowed into it and use a Vanguard life strategy investment fund if you don’t understand investments.
The only choice you need to make is the risk factor, if you are young you can go with 100% equities.
I’m 55 and part of my SIPP is in Vanguard 80%, I may bring it down to 60% at age 65.

Even non tax payers should open a SIPP as you get £750 of free money per year if you pay in £240 monthly and you can continue until age 75, no investment needed, you can leave it in cash and draw it whenever you want after age 55.

I get that initially faced with something significant that you don't understand is overwhelming. I definitely felt scared and overwhelmed about money in the beginning.

However, I think dismissing it, even just filling in a few forms to outsource it, is madness. This is your future financial security, like a pp said this is you avoiding poverty, potentially for decades. Understanding this helps you understand your choices now and in the future. Money buys you choices, even if it isn't a very important end in itself.

If you are a numerate person, you will be able to understand it. You might even find (as I did) that putting in some time over a few years to really understand this stuff is one of the most empowering and freeing things you have ever done, allowing you to do much more with less because you understand your choices. If you can't be bothered with the application to do this, despite the fact that this could impact you for more than 4 decades of life (in the case of your pension), then at least complete the forms for someone else to do it. It IS absolutely worth the effort.

Thanks so much for these responses.

I was being a bit flip re my 'who can be arsed with that' comment about the forms.

I can see it's hugely important. It just makes me feel stupid and overwhelmed as I don't understand it, and with the financial adviser I started to engage with (via Aviva) I felt unclear and overwhelmed even at the forms stage. I'd hoped to pay her to give me advice, whereas it felt like I had to know a lot already to even fill out all the forms.

I have my own limited company so no employer's pension. I'm also way too old and have left it way too late, but am fortunate that my company is doing well so I can at least put in quite a lot at this stage, and it will be better than nothing.

If anyone can recommend a financial adviser who speaks slowly and simply for the financially challenged, please pass on their details.

@DynamoKev

The other thing is over my (now very long) working life, various governments have changed the rules - a lot. So don't imagine anything you are told (especially by politicians is worth anything). When I started work the company could compel you to join the pension scheme - that got abolished. Then the government offered a discount on NI contributions if you got your own pension or joined a works scheme - that got abolished. You had to buy an annuity at the end if you had a personal pension - that got abolished. Most places had a final salary scheme - they got abolished (almost).

*@DynamoKev* I used to work for the Civil Service and one of the best things I did was transfer all my other pensions into it. Obviously not 'advice' but if you've been in the CS less than 2 years, you should look into it. The current CS pensions aren't as good as they were, but they are still better than 'outside' pensions.

Apologies, that should have been to @user9086336

Not living in poverty is well worth filling in forms.

THIS

Making sure you have a pension is one of the most important things you will ever do. It is worth spending time and effort on it.

AND THIS

You’re missing out on free money for your retirement. The state pension, if you qualify, will not be enough

AND THIS

The effort of filling in a few forms will be worth it. You don’t want to be reliant on the state pension when you retire. Get a pension sorted ASAP.

AND THIS

We hate the forms as much as you do believe me - in fact that's what made me not want to return to my old career as a pension specialist.

Too much paperwork and not enough time actually advising clients.

Go back to the adviser - pensions are too important to let yourself be fazed by the paperwork.

You’re not unreasonable- there’s a lot of different types.

In employment there are defined benefit (final salary or career average) pensions which pay you a guaranteed amount when you retire based on how many years you worked there. These are usual in teaching, NHS, civil service, police, councils etc, though “final salary” is mostly gone now as it’s so unaffordable as we’re all living so long.

More common in employment (private sector) is money purchase or defined contribution schemes. Here the money you pay in at work each month is added to by your employer, gets tax relief from government and gets (usually) invested by an insurance company in the stock market so gets some investment growth. You roughly get out what you put in, so really need a combined % of your salary (made up by you, employer and tax relief) of at least 15% per month for 30+ years.

Self-employed people need to set up their own, usually a SIPP or Stakeholder pension with an insurance company. This is ALWAYS worth doing because of tax relief which you claim back through your tax return if you’re a higher rate payer, or the insurer adds for you if you’re a lower tax rate payer. Always get a pension and max out as much as you can afford to put in. Read about it on the Money and Pensions Service website or ring them, or read Money Saving Expert guides. Look in to Pension Bee or see if NEST or NOW Pensions will let you join them. Go back to an IFA for more advice.

Then there’s also the state pension. Paying NICs and/or claiming child benefit or other benefits should get you a full state pension, but you usually need to pay in for 35 years to get a full one. DWP phone line and website can tell you what you’ll get.

Everyone needs as much pension as they can afford. Even if you’re older it’s always worth doing. Please don’t put it off any longer. Look in to it tomorrow.