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There are significant downsides to saving for a pension as well, as I will try to illustrate: The advantage of putting money into a pension (rather than regula

by ronaldx 13y ago

There are significant downsides to saving for a pension as well, as I will try to illustrate: The advantage of putting money into a pension (rather than regular savings) is presumably that you get to save the money in a relatively tax-efficient way. In the UK, you can presently take a percentage as a tax-free lump sum, and an annuity allows you take advantage of an assumed lower tax liability at retirement. That's all very nice. However, if you have 40 (or even 50?) years until retirement, you'll be relying on several governments not to pull those rules and pinch from your pension pot, and you're relying on the financial industry to kindly look after your money for that long. More urgently, putting money into a pension means that you don't have it for what you need now: if you need to pay off (or simply avoid) expensive debt, or if you need to save for housing rather than paying extortionate rent/mortgage costs, those should likely be higher priority. There are not many young people who can put those concerns to one side and start saving earnestly for retirement.

RyanZAG 13y ago
I believe the OP is actually speaking about saving in general, not specifically in a tax beneficial investment. He appears to be arguing more for the idea of saving in general over spending all your income. Obviously a preferable strategy. The notion - not to save anything - actually comes as a bit of a surprise to me, so I thought I'd point it out.
citricsquid 13y ago
There are downsides and pensions are not right for everyone, that much is true, however to describe them as "significant downsides" is misleading and is the sort of claim that has led to a lot of people now approaching retirement having nothing[1]. Pension rules could be changed by any government (as they have been a couple of years ago) however there is little incentive for this to happen in any impactful way: private pensions are what reduce the dependence individuals have on the state at retirement and the more individuals with pensions then the less the state (through taxes) has to pay out, this is good for the government, this is why the government provides tax incentives to contribute to a pension[2]. There's no difference between the government stealing from pensions and stealing from bank accounts or taking back property, if you were concerned about the government stealing from your pension wouldn't you have other concerns too? Pensions are certainly not a magic bullet that is perfect for everyone, they are however something that should be seriously considered by most people. You don't have to make the decision between saving for a house or having a pension, if you can afford to save for a house then it's very likely you can afford to contribute towards a pension too! [1] During the 80s and 90s a lot of people looked upon pensions with suspicion and opted out, now personal finance forums are full of people regretting this and blaming the media for the hysteria that has left them penniless. Most people didn't opt out of contributing to a pension to instead invest in stocks or property, they opted out to spend an extra £100 a month on luxuries. [2] For every £60 I put into my pension the government matches it with £40 (roughly).
- ronaldx 13y ago
  I don't think you have clearly understood most people. Most young people genuinely can't afford to save for a pension beyond the state-provided pension - if you have any significant pension at retirement, you're in a position of luxury. People with private pensions are, objectively, significantly wealthy retirees who don't really need or deserve such tax protection as they presently have. This has already begun to change: the age-related allowance for pensioners has been scrapped, this year. You might be right that the political incentive won't be there (certainly, the media has spun the 'granny tax' impressively), and surely you won't suffer from being able to afford both housing and retirement savings, but the generation gap between wealthy old people and struggling young people is definitely causing increasing political tensions.
- polymatter 13y ago
  Totally agree that personal financial management is far more important in schools than dates of the War or the Roses or analysis of Shakespearean poetry. re your [1] : Compared to spending £100 a month on luxuries, almost any sort of saving is better. £100 a month on lottery tickets is probably better (from an investment point of view). If you haven't got the financial discipline to save £100 a month then set up a direct debit to take it soon after payday or whatever. Any high street bank will be happy to do this. re your [2] : Can you please provide info on this? I can't easily find info on it. I found the following: "You pay Income Tax on your earnings before any pension contribution, but the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot" [1] First in any investment strategy it is far better to pay off any debt first. Borrowing money while saving is absurd because the interest you incur on your debt is always higher than the interest you receive on savings. And borrowing while playing the stock market is even worse. Given the recent new of most people's debt, I suspect reducing debt should be _most_ _peoples_ concern. This includes things like checking if your mortgage agreement allows you to pay off more than the minimum to finish the mortgage early. After that, you can invest up to £11,520 a year in a tax free ISA (albeit only £5,760 in cash for unknown reasons). Unlike pension income, withdrawals from ISAs are not taxed, there is no age limit, you can withdraw as much as you like, and its always your legal property. That last point is a big plus. My dad paid into a company pension for 30 years. Then they went bust, and it turned out the directors had raided the pension pot. Some diretors got suspended jail sentences but that doesn't mean they had money to give Dad though. So he only qualifies for the State pension all the time wishing he never went in with all the 'your money is protected' assurances. [1] (http://www.hmrc.gov.uk/incometax/relief-pension.htm http://www.hmrc.gov.uk/incometax/relief-pension.htm)

by ronaldx 13y ago

RyanZAG 13y ago

I believe the OP is actually speaking about saving in general, not specifically in a tax beneficial investment. He appears to be arguing more for the idea of saving in general over spending all your income. Obviously a preferable strategy. The notion - not to save anything - actually comes as a bit of a surprise to me, so I thought I'd point it out.

citricsquid 13y ago

There are downsides and pensions are not right for everyone, that much is true, however to describe them as "significant downsides" is misleading and is the sort of claim that has led to a lot of people now approaching retirement having nothing[1]. Pension rules could be changed by any government (as they have been a couple of years ago) however there is little incentive for this to happen in any impactful way: private pensions are what reduce the dependence individuals have on the state at retirement and the more individuals with pensions then the less the state (through taxes) has to pay out, this is good for the government, this is why the government provides tax incentives to contribute to a pension[2]. There's no difference between the government stealing from pensions and stealing from bank accounts or taking back property, if you were concerned about the government stealing from your pension wouldn't you have other concerns too? Pensions are certainly not a magic bullet that is perfect for everyone, they are however something that should be seriously considered by most people. You don't have to make the decision between saving for a house or having a pension, if you can afford to save for a house then it's very likely you can afford to contribute towards a pension too! [1] During the 80s and 90s a lot of people looked upon pensions with suspicion and opted out, now personal finance forums are full of people regretting this and blaming the media for the hysteria that has left them penniless. Most people didn't opt out of contributing to a pension to instead invest in stocks or property, they opted out to spend an extra £100 a month on luxuries. [2] For every £60 I put into my pension the government matches it with £40 (roughly).

ronaldx 13y ago
I don't think you have clearly understood most people. Most young people genuinely can't afford to save for a pension beyond the state-provided pension - if you have any significant pension at retirement, you're in a position of luxury. People with private pensions are, objectively, significantly wealthy retirees who don't really need or deserve such tax protection as they presently have. This has already begun to change: the age-related allowance for pensioners has been scrapped, this year. You might be right that the political incentive won't be there (certainly, the media has spun the 'granny tax' impressively), and surely you won't suffer from being able to afford both housing and retirement savings, but the generation gap between wealthy old people and struggling young people is definitely causing increasing political tensions.
polymatter 13y ago
Totally agree that personal financial management is far more important in schools than dates of the War or the Roses or analysis of Shakespearean poetry. re your [1] : Compared to spending £100 a month on luxuries, almost any sort of saving is better. £100 a month on lottery tickets is probably better (from an investment point of view). If you haven't got the financial discipline to save £100 a month then set up a direct debit to take it soon after payday or whatever. Any high street bank will be happy to do this. re your [2] : Can you please provide info on this? I can't easily find info on it. I found the following: "You pay Income Tax on your earnings before any pension contribution, but the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot" [1] First in any investment strategy it is far better to pay off any debt first. Borrowing money while saving is absurd because the interest you incur on your debt is always higher than the interest you receive on savings. And borrowing while playing the stock market is even worse. Given the recent new of most people's debt, I suspect reducing debt should be _most_ _peoples_ concern. This includes things like checking if your mortgage agreement allows you to pay off more than the minimum to finish the mortgage early. After that, you can invest up to £11,520 a year in a tax free ISA (albeit only £5,760 in cash for unknown reasons). Unlike pension income, withdrawals from ISAs are not taxed, there is no age limit, you can withdraw as much as you like, and its always your legal property. That last point is a big plus. My dad paid into a company pension for 30 years. Then they went bust, and it turned out the directors had raided the pension pot. Some diretors got suspended jail sentences but that doesn't mean they had money to give Dad though. So he only qualifies for the State pension all the time wishing he never went in with all the 'your money is protected' assurances. [1] (http://www.hmrc.gov.uk/incometax/relief-pension.htm http://www.hmrc.gov.uk/incometax/relief-pension.htm)