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?

I don't agree. Pensions were benefitting from tax breaks when money goes in, tax breaks when money goes out as well as not paying tax on dividends. The majority of people were not in these schemes - why should the schemes benefit so much from tax breaks at the expense of tax payers.

The real drivers of closure were as pp said, increased longevity and low inflation. I'd add increased regulation which took something that wasn't a promise and made it a certainty. For example, prior to 2003 legislation it was easy for an employer to close an underfunded scheme and members would lose sometimes all their pension. Legislation changed this by increasing funding and requiring better assumptions. That all had a cost and it was mainly on employers.

Use the Government's free pension tracing service:

This thread is fascinating and as someone who's really trying to get to grips with finances, very useful!

My question is ... I understand the tax benefit of paying into a pension but I find it crazy that I'll pay tax on most of it eventually? Even with interest, is that really a good deal compared to other investments?

It may be .I just find it boggling

I actually hear what you are saying OP. I strongly suspect most of those telling you that you're wrong are going to be drawing their personal pensions in the next 10 years or so. Everything is so much more certain for them.

For people in their twenties and early thirties I think you're right, the goal posts with private pensions will massively change not least due to everyone living longer and affordability.

That doesn't mean you shouldn't have one though. Just that you need to do more research, get more advice and make an informed decision

Agree, I have 2 or 3 from agencies, a new one from work, and I’m being made redundant. a previous work one is being eaten up by charges made on it from a company which took it over. What’s the point, all I do is lose money in them.

I don’t understand your issue here.
The only people who are impacted by the difficulty in tracing pensions, are the people who were too foolish to keep a track of them. I’ve got 6 and managed not to lose any 🤣
You don’t strike me as someone who would be that foolhardy with their money!
Yes, easy tracing would be good - but you can’t distrust providers because individuals don’t bother to keep a record of their own affairs!

I'm curious about this too. A pension of of £30,000 per year would need a pot of approx £1 million?

I don't really get pensions either...my mum payed into a teachers pension all her life I think she made extra contributions the last 5 years of her career. Then she had a stroke a year after she retired and ended up.in a nursing home which took all her pension when she was there. She died after 5 years in the nursing home and then her pension was just gone with her? So the 100's of thousands of pounds that she saved didn't go anywhere....she couldn't leave it to her children. If you die earlish.....pensions just dissappear....my mum would have been better off not paying into the teacher pension and having more money in her pay each month when we were growing up?!

@cluefu “My question is ... I understand the tax benefit of paying into a pension but I find it crazy that I'll pay tax on most of it eventually?”

That’s what you need to consider - will you really pay tax on most of it?

For a start, you’ve got 25% of it tax free. That’s as a lump sum, or you can just have 25% tax free every time you access it.
Then you’ve still got your personal allowance. If that’s £12500 and state pension is £10000 (rough numbers) then that’s £2500 tax free each year on top of your 25%. But if you withdraw from your private pension before your state pension - to retire early - you could be taking £12500 without any tax, if that’s your only income.

Say I put £80K in my pension, that’s £100K with the 25% tax relief added back.

I decide to retire at 63 and use that £100K to bridge the gap for 4 years til I’m 67. No other income. I get £25K tax free. Then I take £25K a year for the next 3 years. I only pay pay on £12.5K, let’s say 20% that’s £2.5K. So £7.5K over 3 years, when I gained £20K tax relief in the first place.

Very rough and I’m not saying it’s the best way to manage it - but just an example.

@Georgig “So the 100's of thousands of pounds that she saved didn't go anywhere”

I doubt that even with a lifetime of TPS contributions, your mother did not pay in 100s of thousands of pounds! Until 2013 contribution rate was consistently around 6%. 6% of £50K (so I’m really over estimating for most teachers) for 45 years would be £135K.

Your mum could have chosen to take a 25% tax free lump sum on commencement of the pension, with would have secured money to pass on.

@BBinturongsSmellOfPopcorn
Possibly? (It's a large council-run bus company). What are the main differences please? (have to decide whether to keep my share in same pension Co or move it out ?)

@ChildOfBabylon

Interesting.

Re Sipps we don't know what life will throw at us and even if we put 10 grand in a sipp or able to get it to 10 grand by the time they are 20 that's still going to grow !

I woud very much like to be looking forward to 10 grand plus when I hit access age 57

Defined benefit is almost always better from a purely monetary point of view, but often less flexible.

With a DB pension you know exactly how much you will get (once you have made the initial decision about taking a lump sum.or not), and you get that for life (usually increased in line with inflation) with no risk of it running out.

A defined contribution pension will usually have more flexibility about how (and sometimes when) you take it, and is more likely to be able to passed on to someone else after your death. But it's usually smaller, and depending on your withdrawal strategy there is a chance it can run out.

But all pensions are different. You need to check T&C for the specific scheme.

@BinturongsSmellOfPopcorn what do you mean it can run out

A defined contribution pension is a pot of money. Like any pot of money, if you spend it all it's gone.

When you come to take a defined contribution pension there are different ways to take the money. If you use the pension to buy an annuity then it's more like a DB pension - set amount for life, won't run out. But if you choose to leave it invested and withdraw X amount per month then if you set 'X' too high, or the investments lose value and you don't adjust the withdrawal rate, then it is possible to spend the lot.

Yes, sure, I love a spreadsheet! 😂 but providers change name/merge/sell their assets/whatever, and it’s the disorganised, badly informed or vulnerable that end up paying the price for something that is not even their initial choice - isn’t there a law that says employers should auto-enrol any employee not enrolled into a pension every 2 or 3 years? Ie, it’s an opt out system?

Oh dear, why oh why do those on the right seek to blame Labour for policy changes they themselves fully support?

Tories have had 13 years to reverse Browns removal of Tax credits on investment returns.

@Kazzyhoward Which services would you cut or which taxes would you increase to make good the 100s of billions it would cost to reverse Browns Pensions Reforms?

That’s a really clear explanation, thanks.

Thanks so much @Testina 😊