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Pensions

Do you really understand them?

Male
terry  Male  West Yorkshire 25-Jul-2019 07:12 Message #4746163
Reading an issue of Rail magazine it reinforced just how little I understand finance and financial institutions. Don't know if anyone on here works in the rail industry but like many other industries, it seems you/they have been well and truly shafted by the financial sector. Of course, I could be wrong, as I said, my understanding of finance and financial institutions is almost non existent.
The column I was reading made reference to various things such as 'Protection and Designation Schemes', 'Wages Grades Pension Funds' and 'deficit funding provisions'.
I'm not asking for definitions of these terms...it would go over my head anyway. I'm wondering how many of us really understand our pension schemes whatever one we're in/were in, and also that (and this I did know about and understand) longevity changes - men have a life expectancy between 79 to 83, women 82 to 85 - hence the change in retirement age for women.

Just as icing on the cake, I now can't remember which flippin' room I'm posting this in so it might well be the wrong room...I'll blame Boris and the tory party for that - I blame him and them for everything anyway!
Male
BOYDEL  Male  Surrey 25-Jul-2019 08:40 Message #4746172
Many current pensioners will be benefitting from Final Salary schemes (aka DB/Defined Benefit) where say after 40 yrs work you end up with 40/60ths or 2/3rds of your final salary as a pension - usually with annual increases via at least CPI if not RPI.

Many Public Sector jobs have an accrual of 80ths rather than 60ths - hence 40/80ths gives half salary as pension if you stay that long with an employer.

Most current workers will have been moved over to Money Purchase (aka DC/Defined Contribution) schemes whereby both worker and employer contribute a set percentage of gross wage and both inputs are tax free. Big downside is all the investment risk of those funds is on workers' shoulders - in stark contrast to FS basis where employer has the whole burden of funding.

All occupational pensions have the option for pensioner to take a max 25% of their pension pot as tax free cash (in return for smaller annual pension) - and most people take this option - though many would be better off with a larger pension as they will likely outlive the duration needed to profit from that course of action. Taking the cash does make sense if one still has a mortgage or other debts at retirement.

Annuity rates since early 1990s have fallen by 2/3rds - rising longevity combined with lower investment returns - so today at say age 65 a typical annuity will pay a fixed 5% pa for the rest of one's life - but to replicate the indexed State Pension of c.£170 weekly/£8840 pa would need a cash sum/pension pot of around £265,000.

There have been many new pension freedoms enshrined in recent legislation for all but those in FS schemes - eg Drawdown which any interested party can google.

Worth noting that when welfare state was set up in 1948 only 37% of people reached age 60 (the group born 1888 or earlier - who would have suffered the horrendous 50% child mortality) and those survivors on average only lived a handful of yrs thereafter reaching age 60 - so while it took Govts a long time to react to the known longevity issue some SP changes are inevitable - though I sympathise with the WASPI women.
Male
brisinger  Male  Lancashire 25-Jul-2019 09:01 Message #4746176
Usually they are based on risk return. I low risk pension will place a more guaranteed return on your investment. However, the return is not likely to be as high as a high risk return. Conversely if something is high risk you may end up with less because there's no guarantee that high risk funds will perform as well as planned.

Usually a good pension provider will invest a certain percentage in a low risk one to basically guarantee you have a minimum amount but place some in a high risk to try and boost the return on your investment. They are bound by how well the investment performs on the stock markets rather than based on inter-bank interest rates.

Investments such as bonds are considered 'safe' investments because they usually guarantee no less than you invested but inherently are unlikely to perform as well as shares in the long run since the price of shares go up and down. Some pensions providers such as Royal London will also add a return on your investment if the company has performed particularly well that year.

Yep it's a minefield.
Male
brisinger  Male  Lancashire 25-Jul-2019 09:06 Message #4746177
I have a friend who works for Co-op insurance and he says that Final Salary schemes are virtually non-existent nowadays because the companies couldn't keep up with the guarantee which has caused a pensions black hole. As a result many younger people are not investing in pension plans and even less money is being invested to prop up an already creaking market.
Male
brisinger  Male  Lancashire 25-Jul-2019 09:20 Message #4746178
Currently most pension schemes are split into 3 basic sectors:

- Low risk. Low return. This is because most of your investment will be placed in bonds and the like.

- Balanced risk: A guaranteed minimum amount but could be higher. This is because some is invested in bonds and some in Stocks & Shares.

- High risk: A potential for a high return but equally you could end up with a rubbish pension if it goes tits up. This is because most of your investment is invested in Stock & Shares.
Male
BOYDEL  Male  Surrey 25-Jul-2019 10:02 Message #4746187
An overarching issue for younger adults is whether they are willing (or even able) to make adequate contributions.

The old rule of thumb is (based on starting age) you need to contribute at least half your age as a percentage of gross earnings ie 20% at age 40/25% at age 50 etc. Whilst 40/50 is rather late to start a pension - many women will have been out of work arena for child rearing - and with almost half of first marriages ending in divorce many women are left to make their own provisions. Those on PAYE will also benefit from employer's contribution - but with UK now being a low wage nation that old rule of thumb may need to be doubled - eg pay in 30% from age 30 etc

Obvs the best way of ensuring a decent retirement is to ensure low outgoings - eg become a mortgage free homeowner - and thus need a far lower pension.

That said - ONS say that when London wages are stripped out of UK total - rest of UK has average individual income of just £17550 pa...

Many who are now close to retirement will have a mix of DB/DC pensions - esp those who changed jobs in past 20 odd yrs as latter will likely have been offered only DC pensions subj to vagaries of stock market and of course falling annuity rates.
Male
MrQuiet  Male  Northamptonshire 25-Jul-2019 13:31 Message #4746218
Terry. I bet you’re feeling much better informed now lol.
Male
terry  Male  West Yorkshire 25-Jul-2019 19:45 Message #4746289
Well, it does show two people on the site have an understanding of pension schemes.

Yep, feeling well informed and all warm and fuzzy now.
Male
HotOrWot  Male  Lancashire 26-Jul-2019 06:25 Message #4746351
Yep, feeling well informed and all warm and fuzzy now.

Or just befuzzled.
Male
fosy  Male  Leicestershire 26-Jul-2019 22:17 Message #4746477
dont forget the "gold" schemes for doctors, pilots etc...

a very nice 45ths pension.
Male
terry  Male  West Yorkshire 26-Jul-2019 22:20 Message #4746480
I owe you an apology fosy, I spelled your name wrong, thought it was on this thread but it must have been one of the others...sorry.
Male
fosy  Male  Leicestershire 26-Jul-2019 23:21 Message #4746492
yes, i know the one, and you was replying to the wrong person, but it doesnt matter !
Male
tsunamiwarrior  Male  Hertfordshire 28-Jul-2019 08:47 Message #4746609
Pensions, phone contracts, utility bills, etc etc. At times we need a degree in accountancy to spot the latest scheme to pull the wool over our eyes.
Male
HotOrWot  Male  Lancashire 31-Jul-2019 06:53 Message #4747020
Pensions, phone contracts, utility bills, etc etc. At times we need a degree in accountancy to spot the latest scheme to pull the wool over our eyes.

Keep the customer confused and they will think they have a good deal.

Male
RumBassiousPenguin  Male  Essex 31-Jul-2019 09:54 Message #4747023
Er...mine is £1500 a month. Confused? Nope!
Male
vanman  Male  Cambridgeshire 31-Jul-2019 10:39 Message #4747029
RBP
"...mine is £1500 a month..."

That aint bad,
works out £3,750 a week!

think I could manage on that! lol.
Male
tumbleweed  Male  Gloucestershire 31-Jul-2019 10:46 Message #4747030
How many weeks in your month vanners?...you're mind is on the chocolate coming up soon in your advent one..
Male
tumbleweed  Male  Gloucestershire 31-Jul-2019 10:47 Message #4747031
'your' even....my mind must be on it as well..
Male
vanman  Male  Cambridgeshire 31-Jul-2019 10:55 Message #4747032
Oh yeah, I see, I got it wrong! lol, saw to many 0's

never was any good at sums! lol
Male
Neros1954  Male  Devon 2-Aug-2019 14:30 Message #4747296
So it's all easy as long as you remember the zeros.


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