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Who wants a retirement without curry? Not me, which is why I've started taking my pension seriously in recent years.
Here's a light-hearted video I made on the good things about a pension. I could think of five!
If, after watching this, you want to learn more about how pensions work and what shapes and sizes they come in, take a look at our beginners' guide.
If you're trying to work out how much you need to put aside, read our guide on how much to save for your pension.
Pensions are really boring, so I'm going to make this short.
You know that pensions are a way of saving for your retirement. You know it makes sense to plan for your future, and you know the politicians in there are cutting back the state pension while feathering their own nests with generous retirement benefits, of course.
A lot of bad stuff has happened with pension over the past few years - I know because I've written about it.
Yet the fact is that if you let that put you off saving into a personal or company pension then your chances of a happy retirement could be much reduced. So, here are five points to help you view pensions more positively.
Some people hate pensions because they remind us that inevitably we're going to get old, wither and die. But that's way too negative! The fact is that if you sort out the money you can look forward to some golden years in retirement.
Other people think that putting money in a pension is like sticking two fingers up at life: why cut back on your spending now and enjoying yourself and worry about the future. Well, that's reckless.
Besides, you should think about the money going into your pension not as spending cancelled but as spending postponed. The curry and beer that you don't buy today could buy more curry and beer when you're retired. And who wants to be a pensioner with no curry?
Did you know that the government gives you free money to contribute into a pension? Yes, that's right, every time you contribut into a pension the government adds on 20% if you're a basic-rate taxpayer or 40% if you're a higher-rate taxpayer. That can make a huge difference to the amount of money you build up for your retirement.
Then there's the option of taking a tax-free lump sum of cash when you retire. By then, hopefully, your money will have grown nicely, free of tax. When it comes to retirement, you can take a quarter of the money as a tax-free lump sum. That could be a really nice windfall at the end of your working life.
The free money and the lump sum are the two hooks the government uses to encourage us to save and not be a burden on the state. However, in return you cannot take your money out of the pension until you retire. Some say that's inflexible, but it's an advantage, because once you start saving you don't want to stop. Some of the best returns go to those people who set up a saving scheme or pension, contribute to it each month, and then forget about it.
At the end of the day, where you save your money is not so important as the fact that you're saving at all. Don't get too hung up on having a pension. If you don't have an employer willing to save on your behalf, you may be better off putting the money into an ISA, or individual savings account. These have fewer tax advantages than a pension but are more flexible.
But, if you do have an employer willing to put money into a pension for you then, for the reasons I've just highlighted, you're mad if you don't take them up on it. I've just scratched the surface about pensions and savings. If any of this has whetted your appetite then please, have a look at The Lolly beginners' guides.
Comments (24)
Ask a few recent retirees.
You take the tax bribe. The providers take all the bribe, and more besides. They invest in rubbish products - often imaginary rubbish at that. And you are left when you retire with a crap annuity, which will shrink with inflation for the rest of your life. Then it perishes with you.
Pensions are for suckers such as anyone who takes this promotion seriously.
My advice is simple. Acquire income producing assets during your working life which are totally under your own control. You won't regret it.
12:30 on 03 February 2012
Why not acquire income producing assets within your pension? My pension is invested in a variety of global trackers, REITs, physically-backed bond ETFs, and a few other holdings. My ISA holdings are much the same.
When I retire, my pension holdings won't change and I'll just switch to drawing my dividends rather than reinvesting.
When I pop my clogs, my wife can continue to drawdown from this pot.
Why don't those who slag off pensions take the time to understand them first? A pension is a tax efficient wrapper around whatever assets you want to hold.
13:21 on 03 February 2012
A tax efficient wrapper, yes, but also an inflexible one. You can't get anything out until you retire, no matter what your circumstances are.
ISAs are just as tax efficient but a lot more flexible. If you get a rainy day you can get at any or all of it. If you don't, you can keep saving tax free.
I only pay in the minimum to my company pension scheme take advantage of my employer's contributions.
13:47 on 03 February 2012
I retired last year, final salery pension,after 29 years, roughly, £8000 per year
not great, but my cash ISAs , also my stocks and shares ISAs,, give me a good income,not great , as i like my stocks &shares, but watching the market over last few years thank god not in a private pension,
14:56 on 03 February 2012
The term Pension should be abolished as it causes the kind of reaction seen already. Everyone needs income in retirement and it does not really matter which method of savings you do as long as you do it for long enough at a realistic level.
Pensions versus ISAs drives me bonkers. Do both and don't put in unrealistically small sums and assume all will be well because it won't be unless you're very young or will inherit the farm. Also don't say you can't afford it because it is all a question of priorities. If you cannot afford to save when you are earning you will never be able retire and have any sort of a life.
Happy days
16:18 on 03 February 2012
Quote "Why don't those who slag off pensions take the time to understand them first? A pension is a tax efficient wrapper around whatever assets you want to hold."
I for one do now understand pensions, unfortunately I did not when I paid into my company "Defined contribution" scheme with L&G. You don't actually save tax you merely defer it until the time you are forced to buy a poor value inflexible annuity - Wish I could turn the clock back.
16:44 on 03 February 2012
You are no longer forced to buy an annuity, you can get 25% of your pot tax free at age 55, and you will generally be taxed far less on what you draw from your pension than you would have been if you'd just taken the cash when younger.
I currently have 40% of my non-house wealth in pensions (the rest is in ISAs, index linked cash and unwrapped equities) but this will have risen to 47% when I retire at age 55 even though I will be taking the full 25% cash.
Wish I could turn the clock forwards!
17:11 on 03 February 2012
The problem with pensions is that they are a great source of funds for the likes of Gordon Brown, when the socialists (and in this I include the LibDems) who will eventually achieve power, again, repetitive history being ignored by the voters.
We have Balls, although a bit of a joker (to put it at its best), his wife, Red Ed and others in the ranks.
They looted and pillaged the pension funds and are still in denial of their part in the ruination of many, many pension pots, whilst promoting pensions for all (their not so little piggy bank of the future), all the while keeping their own pensions (not available to the great unwashed) safe.
17:55 on 03 February 2012
@sgjhaghsdg
Yes I am aware of the options, I will certainly take the 25% cash when I decide to take my pension, it's the other 75% that I'm annoyed about. (There are some rumblings about removing the tax relief on the cash element). The drawdown option is limited in that you can only draw down a similar amount to that of the average annuity. I have already retired early as my own investments allowed me to do so. In hindsight I should foregone the "tax advantage" of my pension contributions and invested the money myself.
No doubt those who have made no provision for later life will continue to be subsidised by those who have.
18:54 on 03 February 2012
It depends on your circumstances.If you are a higher rate taxpayer then a pension is a very good idea.If you are on a lower rate it is probably better to take advantage of i.s.a.'s. I did both, but the value of the investments I made myself increased at at faster rate than my pension fund. If the money in my fund had been put in a building society it would have increased more. The trick is to retire at the same time as the markets, which your fund is invested in,are doing well. It is largely a matter of luck.To get a good pension you need to invest 20-25% of you income over 40 years, but not many people do.
19:22 on 03 February 2012
I agree with Tony Pederson
Pensions are for suckers, no about about it.
But having been suckered I am stuck with it and need ot make the best of it by minimising charges and maxing on earnings.
I have advised my kids NOT to go for pensions, they are a total con. Instead to save in isas etc where you can access your cash and squander it at any time.
Gordon Brown was the biggest pension thief and I would never forgive him or his party...
The Governement have been sooooo lax on finances,banks and pensions. They keep tweaking the rules , lately to suit the quite rich, but overall its crap - if enough people backed off 10%% on pensions they would have to rethink, and so would the usery commission earners.
you get tax releif on inward payments.... yes they tax you at 40% when you take it out
you go to an ifa because "his fees are free and paid for by the pension provider"... again a load of tosh, they rip you off for 4 or 5% of your money and have an ongoing percent for years after
you invest with pro brokers to manage your sipp... yes they have mega hidden discounts backhanders, soon to be exposed
you buy in to pro funds run by top managers. Yes you pay 1.5% or more for the privilege of losing 10% 20% even more of your money in a pretty short tieme. you stick with the fund in the hopes it will recover. it doesnt, you just keep paying 1.5%
Save your money, gamble it at ladbrokes. Its the same thing and more honest and straightforward. Soend it fast as your life is short and you dont need dosh when dead. The last few Golden Years will be spent in a home where they rip off the rest of your money, and your house.
While you are saving to pay for all of this, the majority of charvers hwo have nowt and just living on free state handouts which continue to the grave, and also enjoying free accommodation.
The postiion is of course much worse than stated above, but I dont want to scare the new savers too much - they have to pay for my state pension.
05:10 on 04 February 2012
Well I am not complaining, I worked for a large private sector IT company with a DB scheme for 30 years, got 40% tax relief on my contributions (including paying in bonuses to AVCs). Now I get a pension of about £2K /month after tax, RPI linked paid from when I was 55. Next year I will get my state pension too which with SP2 which will be another £750 a month. I have never had so much spare income. (Oh and I have investments too)
The only people who complain about pensions are the ones who weren't wise enough to get in on one when they were commonplace.
09:44 on 04 February 2012
The ideal life style is one where you are comfortable in retirement, spend what you need and on the day you die you get a letter from your bank manager saying "Dear Sir, I need to talk to you about the state of your account"
09:49 on 04 February 2012
It is ridiculous for people to moan about fees charged by pension providers and then recommend that people bet their future retirement livelihood on a horse.
Pension saving is worthwhile for tax payers who expect to see their income fall in retirement. The inflexibilty of pension saving v's ISAs is to my mind an advantage since there is no temptation to squander the nest egg prematurely
09:52 on 04 February 2012
As a large number of people in this country do not have any worthwhile pension provision, any sort of pension provision is far preferable to being forced to hear yet more whinges from people who are unable to pay their way through retirement directly as a result of spending everything they earn and having no sort of pension other than the basic state pension.
10:17 on 04 February 2012
Apart from Keith Snell, there are a lot of misguided comments about pensions.
Many people think they are never going to to need them, so do not save for them,. They are tax efficient at all levels of marginal tax, and if your IFA recommends and gives you free advice and puts you into funds with high annual charges, why accept the scheme?
In reality, the State pension, in whatever form it takes now or in the future, is a the basic minimum to survive on. As a rough guide, living in retirement is just as expensive as when working, and to continue to have a decent life style, you probably need a total income of around the average wage. People who say my house is my pension (unless they own more than one property) are in for a big shock when they retire. Do you want to sell your house at such a time in your life?
When every school kid is taught about the rudiments of the financial world they are about to enter, we will be getting somewhere.
13:13 on 04 February 2012
I have a modest SIPP,being semi-retired, it provides a small supplementary income. I am just the sort of individual that Govt wants to encourage to save for retirement, to boost the state pension and avoid state help. So thats what I did. What happens? At one stroke with no notice, they reduce the amount I can receive from my pot by one sixth!!! Yet the public sector has the cheek to moan about their pension alterations, which are timid and benign in comparison. As my wife cannot work, I would like to pass it or an annuity onto her. However they made a new rule, that if I wait until after 75 to take an annuity, or then die and it passes to my wife, (which is what I intended), the pension will be taxed at an incredible 55%!!! I have only ever been a standard rate taxpayer and am naturally disgusted. It seems quite possible that in the future my wife may need state help to get by. What I find so annoying is that after years of planning and saving, then reaching my late 50's, the Govt can change the rules so dramatically, even though I'm already in drawdown and late in my working life. I think the whole system has favoured the more advantaged and of course the public sector. Consequently, I would not recommend pensions to the dog!!
13:15 on 05 February 2012
@ s taylor - yes, the drop from 120% gad to 100% gad, at the same time as gad dropped, and the same time as markets dropped, was a bit of a blow. Regards your spouse, my understanding is that she can continue to use drawdown from the pot, so it's effectively the equivalent of a 100% spouse benefit annuity.
I am (of course) building non-pension funds, but without my pension, I'd be a *lot* poorer in retirement.
13:52 on 05 February 2012
It's clear to me that it's necessary for your employer to make a sizeable contribution to your pension to make it worthwhile . My private sector employer was putting about 20% and me 6% into my DB pension for 30 years. To get the pension that I am getting now I would have needed to accumulate a DC fund of about £700K and there is no way I that I could have achieved anything like that on my own.
14:10 on 05 February 2012
My advice to anyone needing to save for retirement would be, load your savings into a share dealing ISA. and start learning about the stockmarket. There's tons of really good information out there to help you. Start a fantasy share dealing account and run it for as long as you feel you need to learn the ropes, then when you feel confident, start buying shares for real. Obviously there are pitfalls but, be sensible, research your shares thoroughly and you will make a tax free pot that will outstrip most fund managers. I have done it, so I know it that it is possible, and I am not a genius.
17:18 on 05 February 2012
clarkkent
Your advice is sound. Except that I would say that anyone well into basic rates of income tax hardly needs even to consider an ISA. Until, that is, you need to take more capital gains in a year more than the current allowance.
If my experience is anything to go by you you do best by taking stakes (buying shares) in the companies (utilities, telecoms, food) that you will have to pay even when you are retired.
It is not hard to beat the fund providers. You don't charge yourself fees. All the people that send me bills send me more than ten times as much in dividend payments.
17:53 on 05 February 2012
@tony peterson - My wife's unwrapped investments cause us wonderful fun and games regards record keeping, which is justification enough for ISA wrapping them IMO.
BTW, I've also "hedged" my utilities - they can put up their prices all they want as long as they pay more out to their shareholders, which is the missus and me (and others, shame about that bit.)
18:07 on 05 February 2012
@sgjhaghsdg
All our utilities pay us more than ten times the amount that they bill us for. I'm delighted when they bump the bills up.
Between last Wednesday and tomorrow, UU, VOD, and BT are paying us more than we need to pay all our bills for the upcoming year.
Taking tax bribes to pay fund managers is demented behaviour.
19:55 on 05 February 2012
Get referred to a pension specialist that charges fees for a more unbiased opinion. Understand them properly before you find excuses not to use the most popular form of retirement planning in the country.
We have a retirement time bomb in this country. Already 2 million are living in retirement poverty. Our apathetic attitudes to planning for our futures must change.
11:32 on 30 March 2012
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