Storing up a problem for the future.

I am 40 in April and i refuse to pay into any pension as i believe that there will not be one to draw when and if i reach whatever age they decide that you can retire. Never have done and never will

So how are you going to live.

Surely you could pay into the stock market independantly if nothing else.

Regards

Mick

Quite right Mick.
It was Mrs. Thatcher's 1986 Social Security Act that made compulsory membership of occupational pension schemes illegal.
Surely she didn't make a mistake?

Bob

If what you say is correct, then yes she made a mistake. I would imagine (only guessing) that her angle was that by allowing people to pull out and go elsewhere, you opened up their choices.

The problem is some people would rather buy beer and fags instead of a pension.

Regards

Mick

Well i have paid into the government coffers so i will draw a state pension [if it still exists ]as for the idea of investing in the stock market NOT A CHANCE. I think we have just seen how that can go with the greedy people involved in it`s workings.
Anyway i have just given up work to take care of my little baby boy as my partner is due to go back to work after maternity leave.

Mick,

This is an interesting topic. Whilst I share your concern for those who will suffer in the future, I think that we are also facing an evil from the past.

The Final Salary Scheme type pension scheme is a millstone around many companies necks. We see this all the time with organisations like BA and the Post Office. The cost of the pension scheme short fall is becoming a major balance sheet item and it is only getting worse. It is therefore understandable that in recent years, companies have moved away from this type of pension arrangement. However, the issue of funding existing pensioners and potential future pensioners lives until the scheme is finally closed. These remain a burden for companies and the rules associated with actuarial valuations has not helped in recent years.

I hope that those who receive final salary scheme pensions, will recognise that they are a luxury from the past that were unsustainable and may yet have to be unravelled as their costs spiral out of control.

David

I plan to win the lottery.

And spend it all on booze and fags...

quote:

now you have to contribute in a scheme where your pension is dependant totally on the value of the stock market on the day you retire.

This isn't quite true, as many company money purchase schemes move your money from the riskier investments (e.g. shares) to safer options (cash funds) as you near retirement age.

So for those of us now getting closer to retirement the funds are being moved to lower risk (and hence lower potential growth) funds.

quote:

Originally posted by David Sutton:
Mick,

This is an interesting topic. Whilst I share your concern for those who will suffer in the future, I think that we are also facing an evil from the past.

The Final Salary Scheme type pension scheme is a millstone around many companies necks. We see this all the time with organisations like BA and the Post Office. The cost of the pension scheme short fall is becoming a major balance sheet item and it is only getting worse. It is therefore understandable that in recent years, companies have moved away from this type of pension arrangement. However, the issue of funding existing pensioners and potential future pensioners lives until the scheme is finally closed. These remain a burden for companies and the rules associated with actuarial valuations has not helped in recent years.

I hope that those who receive final salary scheme pensions, will recognise that they are a luxury from the past that were unsustainable and may yet have to be unravelled as their costs spiral out of control.

David

David

What you say is pefectly correct.

Final salary pensions really took off in the nineteen sixties when Mr Average worked until he was 65 and died at 69 and it was then substainable.

Now most of us go retire around sixty and expire at eighty but we still only pay the same contributions as then.

In the public sector, thousands aim to go at 53.66 yrs under early retiremt because the government added the 6.66 yrs and paid the pension immediately. I think that is soon about to change to 55yrs.

The problem is we still need to work out a system where todays workers can retire at say 65 and live on a decent pension. The demigraphics are all against us, so the only way out surely is for private pensions to be made compulsory or a beefed up state one made mandatory.

Regards

Mick

quote:

Originally posted by seagull:

quote:

now you have to contribute in a scheme where your pension is dependant totally on the value of the stock market on the day you retire.

This isn't quite true, many company money purchase schemes move your money from the riskier investments (e.g. shares) to safer options (cash funds) as you near retirement age.

So for those of us now getting closer to retirement the funds are being moved to lower risk (and hence lower potential growth) funds.

Seagull

You are half right, most companies shift funds into less risky stocks but the value of these is still dependant in part on the stockmarket. It just lessens the risk of major swings.

The £9000 v £2500 figure would scare me if I was currently paying into a defined contribution scheme.

The reality is that you probably need to beef up your contributions and do it fast.

Regards

Mick

quote:

Originally posted by deadlifter:
I am 40 in April and i refuse to pay into any pension as i believe that there will not be one to draw when and if i reach whatever age they decide that you can retire. Never have done and never will

Then you will have to live on the State. Good luck with that. The fact is that pensions today are very good value; running costs of less than 1% a year; you pay in £80 today, its worth £100 tomorrow and no tax on the growth. Then when you hit 55, take 25% of the fund and spank it on anything you want. And if you're an higher-rate tax payer, that £100 only costs you £60. And you decide when you want to retire ( as long as you're aged >55. )

quote:

And spend it all on booze and fags...

And incredibly rare PF pressings!

Mick

Most money purchase plans worth their salt will switch to lower-risk asset classes as retirement looms. They will switch out of equities and towards eg. Gilts, Corporate Bonds, etc. Sure it limits growth, but it also limits downside.

If anyone loses out by being in the Stock Market when they retire, they should not have refused to see an IFA. Serves them right.

Bob is right, it was about the worst mistake made by Thatcher when she allowed people to opt-out of their Company schemes.

quote:

Originally posted by Chris Kelly:

quote:

And spend it all on booze and fags...

And incredibly rare PF pressings!

Mmmmmmm

Declaration of interest - I am an IFA.

Interstellar Floyd Addict?

A history lesson may help explain a few things here. As I understand it, many company pension schemes were set up with the aim of allowing companies to benefit from tax breaks. Companies could mitigate potential tax bills by making a contribution into a pension scheme. Employee benefits were not the driving factor behind the establishment of many Final Salary Pension Schemes

The Inland Revenue established certain maximums for the pension schemes – accrual rates / death in service benefits / contribution levels, and Companies would pick the mix of features that suited them commensurate with the amount of money they wanted to pay in. The limits were defined in legislation such as the Income and Corporation Taxes Act 1988. This explains why there have been many company pension scheme variations over the years – and why not all schemes provided the maximums within the range of benefits available.

The key thing was that companies could chose the level of contribution they wished to make, and this was related to the tax they wanted to save. It just happened that an incidental side effect of setting up a company pension scheme was the provision of benefits for the employees.

Things were going swimmingly until the unexpected, indeed until then, unthinkable happened and Maxwell plundered the Daily Mirror Pension Fund. The reaction to this was the arrival of the minimum funding rules under the Pensions Act 1995.

Up to this point companies with final salary (also known as defined benefit) schemes, knew that they were required to pay whatever was needed to fund pension benefits. What they had not counted on was the new requirement to ensure that a pension fund contained enough funds to pay for the pension rights of not just those actually in retirement but of all members of the pension scheme. This made the cost of funding such pensions sky rocket.

Rather than being in control of the costs, this tax break began to cost the companies dear. This is why many companies closed off their final salary schemes to new members and the norm became Money Purchase Schemes.

The benefit of Money Purchase Schemes to companies is that their contribution levels are fixed, which is great for cash flow. The downside for the employees is the removal of any guaranteed income levels in retirement. Instead retirement income is determined by the size of the fund that is built up, and whatever annuity rates are available at retirement.

What we are now seeing, and that which Mick is talking about, is the next stage whereby there are few Final Salary Pension Schemes in existence, and far too many people are failing to contribute enough to their Money Purchase Pension Schemes to have any real hope of generating a decent income in retirement.

So don’t ever think that company pension schemes were an act of altruism on the part of companies; they were examples of corporate tax planning in action – the provision of benefits for employees was only a side show. Whist the tax breaks still exist for company pension contributions, the tax breaks are now the only upside of the pension millstone that Companies have to carry, (+and many have set down).

Sadly a lot of people are going to pay dearly for what has happened in the past.

B

"The key thing was that companies could chose the level of contribution they wished to make, and this was related to the tax they wanted to save. It just happened that an incidental side effect of setting up a company pension scheme was the provision of benefits for the employees."

Well, sort of, but scheme contributions get ( AIUI ) exactly the same Corporation Tax reliefs as say, payment of salary and wages. Pensions are also treated under article 117 of the Treaty of Rome as deferred pay. I've never heard your pov before, to be honest.

Plent of employers are / where patrician enough to want to provide for their employees once they'd left work.

quote:

Originally posted by Mike Lacey:
Mick

Most money purchase plans worth their salt will switch to lower-risk asset classes as retirement looms. They will switch out of equities and towards eg. Gilts, Corporate Bonds, etc. Sure it limits growth, but it also limits downside.

If anyone loses out by being in the Stock Market when they retire, they should not have refused to see an IFA. Serves them right.

Bob is right, it was about the worst mistake made by Thatcher when she allowed people to opt-out of their Company schemes.

Not only could people opt out, it was the days of aggressive cold calling by salesman on the make. I was even called a fool by one at work at the time because I refused to leave the teachers' pension fund and buy into his product. I think I was proved right!

People like that should be birched, Bob.

HOWEVER,,, adjusts hobby horse, opens up a bag of popcorn...

Two points that are almost never explained..

1. The Compensation that was paid assumed that the person who transferred out would have stayed with that employer right through to retirement. This almost never happens. What would have been fair would be to look at the *actual* service and compensate for that.

2. Most Scheme Trustees (= employers) saved a fortune by refusing to readmit those who opted out of the scheme. No reason why they could not readmit leavers. To do so would have been logical, equitable and good for their staff.

Mike
No amount of compensation would have bought me the pension terms I am now enjoying!

Well there you go Mike, this forum is all about hearing different points of view, and that is no bad thing. I have long held this POV and it is a POV held by a number of people well versed in pension legislation that I met/worked with during my days as a trainer in Financial Services for a number of blue chip companies during the period 1987 - 2001.

If employers are / were partrician by nature, would not more have weathered the MFR storm and continued with FS Schemes for example? The fact is that this requirement upset the apple cart and in no small way led to the current plight many are in with pensions.

Similarly, if employers were so focused on providing employee benefits, why were there so many FS schemes out there that provided minimal benefits? We are going back a while, but I do recall a FS scheme for example that provided no more that Death in Service of 2 times salary - and no pension. OK, this was an extreme case, but the point remains that the extent of pension benefits provided to employees was a function of how much the company was willing to pay.

I stick to my view that FS Schemes in particular were more about corporate tax planning than employee benefits. I am too much of a cynic to believe in global employer altruism, although I do accept that there may have been exceptions over the years.

B

Chaps

I think we all agree that it makes sense for the individual as well as society in general for everyone to retire on a decent pension.

So the question is ... how do we do it.

We have people moving around in jobs a lot more now, so is the answer a beefed up state scheme or compulsory private schemes.

Regards

Mick

Your pension fund company should (must do I believe) be providing you with an annual statement showing among many things;
Your estimated pension if you retired on the date the statement was issued
Your current personal pension fund.
The total fund for your fund company - assets, funds, P&L, fee's etc..
With that in hand I strongly advise you get advise from a professional specialist or your banks financial advisor.
Now is the time to fix it, leave it & its too late

£9000 to £2500 in 10 years is scary & looks to me to be poor management or other fund abuse, or misleading information
I just looked up my anual statements going back to 2000, it showed good fund growth 2000 thru 2007, then a slight fall between 2008 & 2009.
My contibution vs pension ratio was similar to your 100/9000.

Also a true final salary pension scheme is based on exactly what its says, depending on years served your get a prorated (years served/60) pension based on the best 3 years averaged p.a. salary over the last 5 or similar years.

Get advise from a professional

quote:

Originally posted by Mike-B:
Your pension fund company should (must do I believe) be providing you with an annual statement showing among many things;
Your estimated pension if you retired on the date the statement was issued
Your current personal pension fund.
The total fund for your fund company - assets, funds, P&L, fee's etc..
With that in hand I strongly advise you get advise from a professional specialist or your banks financial advisor.
Now is the time to fix it, leave it & its too late

£9000 to £2500 in 10 years is scary & looks to me to be poor management or other fund abuse, or misleading information
I just looked up my anual statements going back to 2000, it showed good fund growth 2000 thru 2007, then a slight fall between 2008 & 2009.
My contibution vs pension ratio was similar to your 100/9000.

Also a true final salary pension scheme is based on exactly what its says, depending on years served your get a prorated (years served/60) pension based on the best 3 years averaged p.a. salary over the last 5 or similar years.

Get advise from a professional

and hopefully a professional who knows that the teachers' scheme is based on eightieths and not sixtieths, so the max pension achievable is 40/80ths.