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sean
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Joined: 28 Oct 2004
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Location: North Devon

Posted: Sat Oct 29, 05 9:24 pm Post subject: Pension contributions...

Today's Independent has a 'Wealth Check' on a 31 year old. He's looking to earn about 25k/year and would like a pension of about 15k on retirement. There's no mention of him retiring early.
The advice suggests that he needs to be contributing 1k/month. Is that right? If so it suggests that the pensions business is even more stuffed than I thought it was. How is someone on 25 grand supposed to set aside 12 grand per year towards a pension? Assuming that they want to buy a house which the bloke in question does.

Treacodactyl
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Posted: Sun Oct 30, 05 7:58 am Post subject:

The amounts look a bit steep to me, �408k not even including growth.

The way they work out the average growth rate is less than it was and annuity rates have also fallen a fair bit but I still think their sums are wrong, I can check on Monday. I thought the standard recomendation was 10% of your salary for your whole working life, so if you leave it till 31 you will have to pay in far more than 10%.

There was a very bizzare news story on in the week, basically thinking about encouraging everyone to have more children to pay for the old. No memnetion of all the extra education, housing etc costs.

Mad Dad

Joined: 12 May 2005
Posts: 407
Location: Nowhere near where I want to be

Posted: Sun Oct 30, 05 8:00 am Post subject:
Sounds like there is a typo in there somewhere or some very dodgy info...

sean
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Posted: Sun Oct 30, 05 8:02 am Post subject:
I thought it seemed incredibly high.

Treacodactyl
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Posted: Sun Oct 30, 05 8:09 am Post subject:

Also without seeing the article and asking for their working out sheets it's hard to know what they are thinking.

Looking here: https://www.pensioncalculator.org.uk/pages/calculator1a.php

A 31 year old earning 25k and employer paying in 1k a month gives a yearly pension of over 51k in *todays* prices, just under 60k including the state pension; so in 34 years time that may only be worth 15k, so perhaps the article is right.

jema
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Joined: 28 Oct 2004
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Location: escaped from Swindon

Posted: Sun Oct 30, 05 8:32 am Post subject:

Insane isn't it

I was actually that man for several years. I did pay in 1K a month and thought I was being very sensible and mature. Then Equitable went crash, and now I practically can't bear to look at the statements I get through

They say something like.

YOU WILL BE ABLE TO BUY ONE HAPPY MEAL A WEEK, AND OH YOU WILL HAVE TO SHARE IT

Who these days with a normal income and a mortgage to pay and a life to live now, is going to accept the concept of reducing themselves to abject poverty for the next 35 years, so that maybe just maybe they won't be poor in retirement?

marigold

Joined: 02 Sep 2005
Posts: 12458
Location: West Sussex

Posted: Sun Oct 30, 05 8:41 am Post subject:

Another thing to remember with pensions is that no matter how good the tax breaks, you are effectively giving your money to someone else to gamble with. Before investing in a pension do a lot of research, make sure you understand the terminology, what you are actually buying and the risks involved. The legislation is incredibly complicated and the rules change all the time, so keep an eye on your investment too - it's a long term thing.

The "illustration" of what your pension "might be worth" at your chosen retirement age is NOT a guarantee (though there may be some protected elements). For example my most recent pension statement "assumes" yearly growth of 7% and annual inflation of 2.5%. I'd be amazed if it is growing at 7% at present....

My endowment policy statements used to come with "illustrations" of what the final payouts would be if growth was (I think) 4%, 6% and 8%. When I enquired I found that actual growth for several years had been less than 2.5% and the year I cashed it in was only 1.8%.

Treacodactyl
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Posted: Sun Oct 30, 05 8:44 am Post subject:

What we need to remember is that if the person in question doesn't save then they will have to live on a much lower income and the country would need to pay about �100k for them to keep them with just the basics.

In savings past performance is no guarantee of future performance so rather than others looking at bad performance and saying I don't need to save they should be looking at them and saying I should avoid certain methods but not avoid saving.

The concept of the workforce for paying for the retired is also deeply flawed when you consider that the country has a net migration of the population many of which are high earning graduates.

Treacodactyl
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Posted: Sun Oct 30, 05 8:49 am Post subject:

marigold wrote:

I'd be amazed if it is growing at 7% at present....

Many equities have risen by 15-30% this year, but yes you do need to find someone who knows what they are doing or know yourself. Also remember you are in it for the long term and don't chase the latest bandwagon.

marigold

Joined: 02 Sep 2005
Posts: 12458
Location: West Sussex

Posted: Sun Oct 30, 05 8:53 am Post subject:
It would be a start if people didn't on average spend 110% of their income and expect an endless high standard of living....

Treacodactyl
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Posted: Sun Oct 30, 05 8:57 am Post subject:

marigold wrote:

It would be a start if people didn't on average spend 110% of their income and expect an endless high standard of living....

Definitely. I admit I'm in a well paid job but I've regularly paid a large amount into my pensions and I don't expect a large income when I retire, just enough to get me by. I do this *before* considering if I can afford a holiday or something special.

jema
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Location: escaped from Swindon

Posted: Sun Oct 30, 05 8:59 am Post subject:

The talking of the money and of paying, reminds me of the basic truth about almost all famines. There is rarely an issue with genuine lack of food in a famine, there is always a lack of money to pay for the food

We live in an enormously rich Country. Poverty only exists because it is politically acceptable for it to exist.

With modern production processes, both in farming and manufacturing, it should be more and more easy for a smaller % of the population to support a growing elderly demographic.

Why is it that everyone seems to accept that it is somehow inevitable that in a Country that already works the longest hours in Europe, we have even more work to look forward to? In any sanely run society the reverse would be true.

jema
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Location: escaped from Swindon

Posted: Sun Oct 30, 05 9:02 am Post subject:

marigold wrote:

It would be a start if people didn't on average spend 110% of their income and expect an endless high standard of living....

We undoubtably live in a "jam today" society

But looking at the pressures in society to constantly "have" (You can pay off your loans, and get one easy payment, and have enough left over for a new car, holiday...) I don't find it to surprising.

Treacodactyl
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Posted: Sun Oct 30, 05 9:12 am Post subject:

jema wrote:

With modern production processes, both in farming and manufacturing, it should be more and more easy for a smaller % of the population to support a growing elderly demographic.

Part of the answer doesn't relate to people here but many people expect the same lifestyle when they retire than when they are working.

I'm not sure of the exact numbers but unless you force everyone to stay in this country you cannot rely on the workforce to support the retired. I dare say it could be done but tax would have to go up considerably. If places like Ireland, France, Canada etc take different steps and ensure people save for retirements then their taxes will stay about the same. Result would be mass migration of all the wealth and no one left to fund the ageing population.

I'm sure there are many other problems as I can see no one in the political arena saying we don't need to do far more to save for our retirement.

marigold

Joined: 02 Sep 2005
Posts: 12458
Location: West Sussex

Posted: Sun Oct 30, 05 9:17 am Post subject:

jema wrote:

Agreed!

There was an interesting article in the Guardian a while ago about the possible benefits to society of an aging society and eventually a reduced population. It also busted a few of the myths about all elderly people turning into helpless drooling burdens on society. I wish I'd kept the article now, but I seem to recall, for example, that a large proportion of old peops simply drop dead with minimal call on NHS resources.

Personally I think the problem is not so much demographics or money it's living in a culture of waste and obsession with change for change's sake. Surely we have the knowledge and technology to create vehicles, washing machines, clothes, toasters that (with care and maintenance) last a life-time?

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