Why is everyone worried about mortgages but no one worried about pensions?

[Icanstillrecallourlastsummer]

There's numerous threads with people wanting to pay thousands to get out of their mortgages, but noone seems concerned that pension funds are (or were, before urgent intervention from the BoE) on the brink of collapse as result of the mini-budget.

Anyone urgently cashing in on their pensions?

I dont understand that, what if the pension is not sufficient to live on?

'There’s no pension credit on the new state pension ….that’s a thing of the past ( old state pension)'

Is this true? The Gov website still says you can get it:

'Pension Credit gives you extra money to help with your living costs if you’re over State Pension age and on a low income. Pension Credit can also help with housing costs such as ground rent or service charges.'

I worry that I can’t afford a pension yes.

@bellac11 we already live on our overdraft month on month so spare cash isn't really an option. I have recently started a new job (previously self employed on low income) so finally paying into a company pension scheme - bit late and totally cancels the pay increase I was hoping for but better than nothing! We do have the luxury of making money on property / living in an affluent area so fully expecting to free up money downsizing and/or moving area. In today's money, we could sell up buy a really nice 2 bed flat in town and put £300k in the bank - it won't be buying us the life of riley but is our saving grace potential inheritance aside.

Well that would be a huge amount to my mind so I wouldnt worry!

We are just on the brink of buying out our SIPP to crystallise it and I've no idea if that's a good move or not now.

I assume SIPPS are not at risk until they are reinvested.

Only eligible if you were claiming a state pension before may 2019

I think it’s just tough shit from the governments point of view…,the triple lock will probably put new state pension up to £203 a week next April ….if you have no savings then your rent would be paid

So if your rent is more than your actual state pension can you claim housing benefit as a pensioner?

Its worth expanding a bit on this:

1. DB funds hedge interest rate risk and they use Gilts as the reference

1. Because of the massive increase in Gilt rates, they need to re-hedge and set aside even more liquidity for collateral (the variation margin).

Its that margin that caused the problem.

They did not have enough cash on hand to pay up which would have meant selling assets quickly to get cash.

Thats why the BOE intervened.

£15k in three days isn’t a ‘real’ loss at all, not until it’s realised by selling at a loss. It’s noise and should be ignored. Many people lost a fortune by panic selling during the covid dip, holding your nerve or simply being ignorant of what happened meant massive gains afterwards.
As for the ‘what if you were retiring next week’ question - you would have made sure you had enough cash for 3-5 years of income if you had any kind of sense at all, either by taking a tax free lump sum and putting it in an ISA plus an interest bearing savings account or you would have the cash ready within your pension (having sold assets over a few years or switched to cash only investment for a few years prior) to utilise UFPLS for tax efficiency.

Yes You can apply for housing benefit to put towards your rent…..but if you own property or have savings you are not eligible

So either have a great pension and savings …..or have fuck all…..not point being in the middle

People like me will just cash in our small pensions and spend them.

3-5 years income is more than my pension pot. You are talking to well off people.

Stayathome - what do you mean by ‘buying out’ your sipp?
You only need enough cash in to take your tax free lump sum, ( so 25% or a smaller percentage of your choice) or you could sell just enough funds to use UFPLS, which leaves the rest of your pension uncrystallised.
You don’t need to put all your Sipp into cash in order to crystalise, nor do you need to fully crystalise.
I took a 10% lump sum from my sipp , so I sold enough from my best performing fund to cover it, and it’s now split into two parts, crystalised and uncristalised, which is still growing with my ongoing contributions.

I'll get most of my retirement income from the Teachers Pension. I'm not worried about that as there is no actual Teachers Pension fund. The money that I and my employer pay into that just goes towards paying retiree teachers today, so likewise the teachers working in 20 years time will be paying my pension. I have a small private pension too though, which hasn't actually lost much value at all. It's invested in global whole of market trackers, so not particularly exposed to the UK markets, I guess that's why? Are the people who have lost a big chunk of their pension over the last week invested in company defined benefit schemes, with a major UK focus? I'm not really clued into how all this works, I've just read some blogs which recommended whole of market global trackers as a wise investment and went with that. If they are invested predominantly in the UK, I've got to ask why is that? As this crisis exemplifies, wasn't that a pretty risky strategy? Or have I completely misunderstood? As I said, I haven't really got much of a clue about how pensions work!

www.itv.com/news/2022-09-28/why-the-mini-budget-threatened-to-bankrupt-pension-funds

This article describes the situation better - and it’s primarily the final salary schemes that were affected. The BoE stepped in precisely to avert the situation - as it should/would.

For me, my pension isn’t something I think about much as I’m in my 20s. Half consider opting out most months. Therefore mortgage changes are more pertinent. Short term hassle vs long term hassle

If you have a small pension, then it can be positively harmful in later life as the tiny bit of income can put you over the limit for benefits. Sometimes it’s better to not have one at all, my Sister would have been much better off without hers as her rent would have been paid and she’d have got extra benefits.

I was in my 20s like you….I blinked and was in my 50s….. I considered opting out of my NHS pension at one stage when times were hard with 3 little ones….if I had I wouldn’t have been able to take my pension at 55 with lump sum …l.think long and hard before opting out of a pension

Have more or less resigned myself to working until I drop 🤷‍♀️

Thanks for that, it explains it very well. But it's left me even more confused in on respect, if this has mainly affected define benefit funds, of which the benefits are guaranteed anyway, why have the OP (and PP), lost money on their pensions? The funds haven't collapsed, the defined benefits will still be paid, so pensioners haven't lost anything, or am I missing something again?

@Hayliebells you’re absolutely right. People in DB schemes will still get their pensions in line with their terms. The issue is that final salary schemes are essentially untenable these days, hence them being closed to most new entrants. The cost to maintain them is why they have to leverage them - i.e buy gilts, then use those same gilts as security to buy more gilts. Pretty risky strategy, but to make the returns they need to meet their contractual requirements, they have to take more risk than with a DC scheme.

The BoE have artificially supported gilts to protect DB schemes, but if they incur a loss in doing so, the Government (tax payers) will pick up the bill.

Nobody with a DB pension has lost anything. It’s basically a promise to pay an income of X amount at age 65 or whenever - there is no pot of money with that kind of pension.

DC pensions fluctuate daily and the only time it matters is when you have to sell funds for income or to buy an annuity. Only those buying annuity sell all assets.

That’s why, on the run up to retirement, you build up cash reserves, usually inside a pension, that will act as a buffer and give you income during rough times. You can also have income from dividends, if you have income funds.
Say you have £100k in your pension and will take an income of £4000 a year from it, ideally you will have £12- £20k in cash as your buffer if you have no other savings.