To think pensions are just a scam to stop people realising how broken the system is?

[WryAmberRaven]

We’re all told to invest in pensions like it’s gospel. But by the time most people retire, inflation, policy changes and unstable markets eat half of it. AIBU to think pensions are just a con to keep people docile?

Just copied this from some info I found . How many people would save this in saving a/c . A pension makes it more achievable . It is scary how much you need but the sooner you start the more amount you will build up .

Minimum lifestyle
Moderate lifestyle
Comfortable lifestyle
Single
£26,436
£394,436
£638,436
Couple
No shortfall; this is achievable. ( Presumably 2 x state pension )
£398,872
£732,872

Yes, changing the rules, especially in any retrospective way, is extremely unhelpful.

The thing that pisses me off most about it is how much the person companies and advisors take as their cut. Doesn't even matter if they choose shit investments (in fairness they can't see the future) and you lose bit chunks, they still get their cut of your money.

You don't need to pay advisors anything. I've never used one, just spent (quite a lot of) time reading up on pensions, investments etc.& control my own pension. Re pension companies, you can find them that charge 0.1% of the pot p.a. or if you have a lot of money in there, go with one that uses fixed pricing - the one I use is £12.99 a month.

Compound interest.

A wonderful thing.

If you want advice about pensions but not actual investment advice, there’s the free Money and Pensions Service
https://maps.org.uk/en/our-work/pensions

dh and I are pretty financially aware and don’t need sweet FAs but have found the MAPs (formerly Pensions Advisory Service) quite helpful.

@WryAmberRaven i’m not sure how old you are but I can absolutely guarantee that it’s time in the market. If you have a 20/30/40 year investment horizon start investing in your 20s you’ll end up with a decent pension . I think unfortunately women often take a break with childcare and maybe that should be covered by the employer to make sure that they have a decent retirement income pension One the best investments that you can ever make and it’s worth making the sacrifice now to kick forward that an income into the future. It will reward you financially if you do that.

But… it isn’t?

You put small amounts away, starting at a young age. That money goes into the pot tax free, and your employer puts some in too. Immediately it’s worth more than it was in your pocket.

Over time the money builds up and the interest makes it even bigger- still worth more than it ever was in your pocket.

When you are too old to work a pot of money is there to either dip into, buy an annuity, or live on the interest from it. And loads of free advice as to which will work best for you.

You will get more out than you put in. Investments can go down as well as up, but they also recover. They should be in fairly low risk low investments as you get nearer retirement as you don’t have time for them to recover.

It’s delayed gratification in action!

They are not a scam but a necessity for a comfortable old age. I have been investing heavily in pensions since my early 20s. This means I am retired in my 60s with enough to live off. I tell my kids never to ignore contributing to pensions.

I think if you’re only making very small contributions, didn’t start early in your career, and are still relatively young and looking at the short-term fluctuations and the size of your pot which can seem pretty pathetic in terms of providing you with a decent return, it can be disheartening. You have to look at it in terms of a 40+ year investment scheme, and younger people really need to have it drilled into them how important it is - which I acknowledge is hard, when they’re thinking in terms of an extra couple of hundred pounds a month in their pockets now rather than the bigger picture of their retirement and making additional contributions.

Markets, Governments and policies change, yes - but that also includes changes to e.g. state pension age, entitlement to benefits, taxation, the impact of inflation on other savings vehicles. Putting away money for your future in long-term investments is crucial.

The average yearly growth of a globally diversified portfolio over the last century is a little over 8%, adjusted for inflation.
In the last 5 years, I’ve had 25%, 10%, -1% , 20% and 13% in my Sipp investments, so way above inflation growth.

‘Low risk’ investments have done poorly due to the Bonds fiasco but should still see 3-4% long term, in fact if you buy a collapsing Gilt ladder that will give you an income starting in say 10 years, you will get 4.5% on average.
DH had a really old pension that was £30K when he transferred it into a Sipp in 2016, it’s now worth almost £90k with no extra contributions. His other Sipp has done equally well.
Pensions are ALWAYS better than ISAs, due to tax relief and few people are HR tax payers in retirement.
I’m in the fortunate position of being able to get all of my pension out tax free and into an ISA over the next 7 years because I have plenty of spare annual allowance, anyone over 55 with spare PA should think about doing the same.

Pensions is very unevenly resourced by the government. Public sector pensions are very generous. The state pension is very poor. It pays the government to put towards your private pension to encourage you to invest because that’s cheaper than supporting you in old age. It’s a minefield

Well, I have just started claiming my public sector pension, which has been maturing nicely for the last 35 years. I wouldn't be without it, because the state pension is not enough to live on comfortably. You should be investing in a pension from a very young age, and invest as much as you .

What I think is a ''scam'' with pensions is the fact that you have to pay tax on them.

The government makes a big song and dance about being able to make tax free contributions into private pensions while you are working but if you try to take out a small pension pot for example you are taxed for it to the hilt at that point.

Pension rules also keep changing as well so you never know what is around the corner.

I would not put it past Reeves to go after private pensions next in some way.

And of course the constant threat of the state age pension being increased.

Raising to the age of 70 when many people don't even get to reach that age literally means you work your entire life and then you drop dead without any chance to enjoy a few years of peaceful retirement...

I also think that public service pensions need to be looked at. At the moment the average tax payer is propping up these pensions while struggling to save for the own retirement and that is not fair or sustainable.

State pension is approx 12k per year currently & the age is steadily increasing 66, 67, 68+

I am glad that I have been paying into these for decades

Work pension
Private pension
ISAs

They are definitely not scams

Suggest that you investigate
Compound interest
Tax free money wrappers
Employer free contributions

I have a work pension (public sector) and a small private pension plus I’ll get full state pension. I’m expecting to get £12k+ state, about £15k work and £7k private giving me £34k gross to live off. I’m wondering what else I could do to generate this income without depending on investments and that would bypass inflation (apart from work full time until the end which is impractical for most people).

The OP is just one of those posters who have the kind of names that encouraged as preferable passwords.

This is useful but the definitions of the lifestyles need fleshing out.

Here are the ones for Australian superannuation savings. I am not suggesting they are the same, but those adjectives you use need more detail.

https://www.superannuation.asn.au/consumers/retirement-standard/

My pension is doing great - I should have a pot of (conservatively) at least £600k when I retire in about 10 years time. I couldn't have achieved that by sticking money in a savings account.

@Greenwitchart "What I think is a ''scam'' with pensions is the fact that you have to pay tax on them.
The government makes a big song and dance about being able to make tax free contributions into private pensions while you are working but if you try to take out a small pension pot for example you are taxed for it to the hilt at that point."

A private pension is made up of three elements - the money you put in, plus the money your employer pays in, plus the tax allowance. The latter 20%-40% is free money from the government that is allowed to grow in your pension account for your ultimate benefit. The "cost" of this deal is that the government expects you to pay tax when you take your pension - something that you can also manage by taking your pension in ways that minimise the tax bill.

If you "try to take out a small pension pot for example you are taxed for it to the hilt at that point" then assuming that you are talking about taking this money before you reach the permitted age for doing this, you're breaking the contract and have to pay tax accordingly.

I think there is something of a scam element to them, preying on peoples fear that they will not have enough money for their old age.

The number of high profile pension scandals is probably small compared with the number of people that have been "done" by paying too much commission or ended up with unsuitable products due to mis selling. Unfortunately these are not big enough scandals to make the news.

I know a few people who have been done in mass scandals.

There are a lot of people who make their money on the backs of the pension industry though, so I don't expect this to be a popular opinion. It's in their interest that everyone continues to shovel money into their pensions as much as possible.

What is your intention for old age instead then?

Would you rather work until the day you drop?
Are you suggesting another form of saving?

@Havanananana

''If you "try to take out a small pension pot for example you are taxed for it to the hilt at that point" then assuming that you are talking about taking this money before you reach the permitted age for doing this, you're breaking the contract and have to pay tax accordingly.''

No.

The law allows you to take a small pension pot (under 10K) when you reach the age of 55. So you are not ''permitted'' to access it before that anyway. But even at 55 you are taxed on that small pot.

Nothing to do with ''breaking the contract''...

Also if you take that lump sum, 25% is tax-free. The other 75% is taxed as earnings. The pension provider will also use an emergency tax basis so you might end up paying too much tax and having to claim it back.

I know that become I want to cash a small pension pot like this that is just 10K from an old employer when I reach 55 in December.

How else would you plan to fund your pension .
like everything else do your due diligence before deciding who to invest with .

@Greenwitchart OK - so you're not being "taxed to the hilt" are you? You're paying tax on the accumulated benefit of the pension investment - a large chunk of which will have come from your employer and from the State (in the form of the tax-free incentive). And on the 25% lump sum you're not being taxed at all.

The emergency tax is neither here nor there - if you pay too much you can claim it back. Your pension provider should be able to tell you how to take a small initial payment in order to start the process with HMRC which should mean that you don't pay more than necessary in emergency tax.