I don’t trust pensions

[Orangepolentacake]

I’m in my mid-30s and, for the first time, in a decent position to properly save for the future, pay into a pension, invest.

I also have some medical conditions, which means it’s possible I won’t live to see mid-70s, if that.

I know pensions come with tax and employer matching benefits but, hear me out:

I don’t trust pensions partly because the goal posts keep changing. Minimum access age for pensions is currently 55. This will soon increase to 57. It could keep increasing and increasing until it matches state pension age. What’s to say it won’t? What is certain is the average person won’t have much of a say in this.
And state pension age could be almost 80 by the time I reach the current retirement age of 67.

then there’s the matter of inheritance. I can nominate a beneficiary but, depending on how I choose to access my pension, the beneficiary won’t have access in case of my death. Who knows what perceived priorities I’ll have at an unknown age in the future and/or minor mistakes with drastic consequences I’ll make. The goalposts can just change along with access age and all my savings are then lost into some ether and my family isn’t able to access them. I don’t think the latter is that unlikely, given ageing population and need to fund longer lives with long term conditions etc

AIBU? What is the best and safest way to save for the future?

It’s hard as employer contributions are ‘free money’ plus tax benefits, but yes it seems like it’s tied up, there’s a limit to how it performs depending on control if it’s a group pension etc.

I have a pension and am of the view that is one of several investment assets for my retirement. House, cash (ISAs) pension and stocks. I’m not saying you have to be super wealthy, it’s about ratios in each. I take the view I’m a spread-better and can have instant access vs longer term pension. Higher and lower risk etc.

I wish property wasn’t viewed as an investment as it has contributed to our inflated housing market. Great for some, utterly crap for many.

Precisely the reason pensions are being made to look attractive and buy to let being taxed to the hilt is to stop that kind of thinking, it's not good for society

Oh dear, I think I should be investing in aluminum foil with all these hats needed for some in this thread.

No investment is perfect…all of them have risks, none of them are appropriate for everyone. So the only thing you can do is to educate yourself, perform your own risk analysis, outline your goals, choose the best option(s) for your circumstances, and continue to re-evaluate your choices.

I have a LISA (alongside several pension pots). I pay in the maximum of 4K per year and government tops up by 1k. You need to open before you're 40. Can take out when you're 60. The gov.uk website has info on them. It's not just to buy a house.

Do you mean you still pay £100 per month or did you contribute a value of £5,000 total and have stopped?

We pay £20 per month into our DC pensions.

I think you're getting a hard time unfairly, OP. It's not a stupid concern at all. The tax incentives for pension saving are currently good but you are correct that there is huge risk not just in terms of investment risk as with any investment, but regulatory risk, particularly in terms of changing tax treatment for withdrawals or access age limits, as you note.

This is why various Governments raiding private pensions and changing rules has caused such damage to public trust in the system. We really need cross-party agreement that there will be a stable platform without further changes to encourage more people to save more, but sadly there's no sign of this.

As some PPs have suggested it is probably best to reduce risk by investing some money into a pension and some into ISAs etc, where the money has been taxed already and you have more control over it.

£100 a month, will continue until they are 25. And £5000 to even things up in one kids pension due to starting later on. and a few gaps. They are all at the same stage now.

I do trust pensions and pay heavily into mine but if you’re really worried you could get a LISA instead to save for old age? (I have both)

Pros

• you get a 25% bonus from the government.
• the money will be entirely tax free on withdrawal.
• can be withdrawn at age 60.
• this one is speculative but I believe the take up of them has been fairly small so there will likely be less incentive for the government to change the rules about when you can access them… if they even can change them, as they are tied to age 60 rather than ‘10 years before retirement age’ as with pensions.

Cons (compared to a pension)

• no employer contribution (missing out on free money!)
• you will have paid tax on the money before you pay it into a LISA.
• if you’re a higher rate tax payer, you miss out on higher rate tax relief.
• you have to open one before you’re 40 and can only pay in til you’re 50.

Have I missed any obvious ones?

I don’t trust the state pension, I think that will have been done away with for most by time I retire. My suspicion is that state pension will only be available for those with little or no private pension and those of us with private pensions will be no better off than those who have not bothered saving.

The government will never do away with the state pension. It would be a massive political own goal.
It's the biggest benefit cost at the moment.
Why would the UK be out of step with the rest of the developed nations?
Unless of course, all the developed nations are going to get rid of their state pensions too.
One way to reduce cost is to manage when the state pension becomes payable. Raise the age. Which the government are doing.
Have you seen the riots in France recently where they have raised the age from 62 to 64?

Have a look at a SIPP. you are in full control of when you take the money. You just have to pay income tax, but can only really withdraw after 57.

I have one and will use it whil I'm waiting for my occupational and state pension to kick in.

Interesting. A 5k investment now becomes 30k a year (so a lot worth 600k?). In real terms?

feels very optimistic unless I’m missing something

I agree OP. The age will increase from 57 to at least 60. My DP has an illness which means he never gets to claim his pension.

Sorry 100 a month for 25 years, so approx 30k

so that 30 becomes 600?

For those asking about children's pensions, you can open up a junior SIPP from birth and you get similar tax advantages. If you put your money onto a low-cost S&P 500 index fund, which historically returns 8%. If you contribute 100/month until they are 18 and then contribute nothing at all, due to the beauty of compound interest x time in the markets, that pension pot will be around £1m. We do this for my DS.

OP, if I were you I wouldn't miss out on employer contributions, you're walking away from free money and the associated tax advantages. You could just contribute up to your employer match and put the rest in an S&S ISA for easier access. If you don't know what to invest in, educate yourself, and low-cost index funds are usually a good place to start. If you don't know much about investing, you likely won't be in high-risk assets, so at your age and unless you're a day trader, I wouldn't be worried about turbulent markets. If you're worried about "loss" the closer you are to retirement age, there is nothing stopping you from selling the assets in your pension and holding only cash or other relatively risk-free assets.

You are missing something. The monthly contribution.

She has (and will continue to) put £100 a month into each child's pension from birth to age 25.

The £5k was an additional top up.

£100 a month for 25 years is £30k total contribution but there is compound interest on that which will mean it is worth MUCH more by the time the child is 57.

Yes and thats a conservative estimate

£618,000 they should have by 55. If they never contribute a penny, which they obviously will. But the power of compounded interest shouldn't be under estimated. Compare this with the child investment thing they all got at birth that yielded about £150 over 18 years

But in real terms. So beats inflation to grow 20x over and above inflationary growth?

I make that roughly 8% over inflation over 40 years. I’m intrigued where beats inflation by that much?

But surely the return on the child trust investment would depend on where you invested it. There would be no particular reason to think you would have a different rate of return (though of course you get the government top up in a SIPP).

Do you mind me asking what real rate of return (presumably post fees) you are working on for the children's SIPP?

I'm literally just crunching the numbers on the pension providers home page, low, medium and high returns . That's the low prediction

Oh 30 years. So you need to beat inflation by 11%

I do understand compound interest, just that level of real growth feels very high

Are you sure that’s in real terms? 30 to 600 feels ok but that 600 will be worth much less due to inflation.

It's not 30 years though, it's 57 years. I'm only contributing for 25 of them.