Politics Thread!

[pogo]

But the question is whether the tax benefits outweigh the risk of the value of pension annuities plunging catastrophically when you come to cash-in. Personally I'm putting less into a pension than I might (and more elsewhere) for this reason. Pensions are massively inflexible ways to save.

The risk associated with your pension is the same whether you stuff it into an investment yourself or use a pension. Most people don't think of their savings as risky but you can park your pension in cash or as close to cash as you want (e.g. AAA government bonds).

The 'risk' associated with an annuity is very different. The return on annuities has fallen but not due to volatility. It's just annuities adjusting in line with the two main things that affect their return: longevity and the interest rate. Returns used to be much higher when we had high interest rates and inflation. But high inflation would also erode the value of annuities, unless you had a much more expensive index linked annuity. Low interest rates and inflation make it easier and safer to invest long term.

And longevity we know about: the best countermeasure to deal with that is working longer. The later you buy an annuity the more you'll get. Retire later and put more into your pension pot you'll get a further boost. Even just working a few years part time so you don't have to cash in your pension can make a big difference.

[starshipcommand]

Plus, you don't have to buy an annuity these days, you can do income drawdown instead. Although the gov't has been recently doing its usual thing of dicking about with the rules giving you virtually no notice there too (reducing the amount of money you can draw down from 120% of the equivalent annuity to 100%, and making you get reviews every three years rather than every five).

Whether private pensions are a good deal or not depends on your situation. If you've got an employer matching your payments, or you're on tax credits, they're a fantastic deal. If you're a higher (or top) rate tax payer, then they're a great deal. If you've got access to a salary sacrifice scheme they're a good deal, especially if you get the saved employer NI paid in as well. If none of these things apply, then you'll have to run the sums to see if the marginal tax benefits are worth locking your money away, and whether a stocks & shares ISA would work better for you instead...

(I'm talking about defined contribution pensions here... final salary / defined benefit ones are a whole different kettle of fish and are like gold dust these days...)

[Dio]

Thing is a lot of us calibrate our estimations by our parents, who (particularly if they were in "middle class" jobs, which might well be likely for people of our educational profile) probably retired at around 60, already owning their own home.

The availability of mass early retirement is likely to be unusual, simply not going to happen in our generation; unless one is very well remunerated one will work to (a higher) retirement age (and probably beyond, almost certainly if one has failed to get on the housing ladder, as is increasingly likely).

The only likely exception will be remaining final salary pensionholders, mostly in the public sector. It's an interesting question as to whether public sector salaries can be adequately rebalanced to countenance the removal of that (undeniably valuable) benefit.

[adam]

was reading one investment website that suggested most pension fund managers don't do a great job of investing and that people would be better off investing the money themselves, so not keeping cash under the mattress but investing in various things.

[pogo]

Whether private pensions are a good deal or not depends on your situation. If you've got an employer matching your payments, or you're on tax credits, they're a fantastic deal. If you're a higher (or top) rate tax payer, then they're a great deal. If you've got access to a salary sacrifice scheme they're a good deal, especially if you get the saved employer NI paid in as well. If none of these things apply, then you'll have to run the sums to see if the marginal tax benefits are worth locking your money away, and whether a stocks & shares ISA would work better for you instead...

The "marginal tax benefits" are you pay no tax: in theory you pay tax on the pension after retirement but with lower earnings and a higher personal allowance (and with people saving so little that pensions aren't worth much) it's likely that most or all of a private pension will be tax free.

The other benefit, over in particular an ISA, is you can't gain access to it. The problem with an ISA or any other traditional saving scheme is it's there whenever you need it to buy a new car, a new extension, the deposit on a new house, etc. Normally you never get to spend a pension, except on an annuity. For most people this is an advantage, at least if you want to be sure the money is there when you retire.

[Dio]

was reading one investment website that suggested most pension fund managers don't do a great job of investing and that people would be better off investing the money themselves, so not keeping cash under the mattress but investing in various things.

Would the investment website have had an interest in people managing the money themselves, perchance?

[adam]

the advice the guy was giving wasn't hugely beneficial to any one company, he was suggesting precious metals and a few other things as being reasonably safe bets, might well have been a stockbroker but was probably a financial journalist

[gravy]

was reading one investment website that suggested most pension fund managers don't do a great job of investing and that people would be better off investing the money themselves, so not keeping cash under the mattress but investing in various things.

Would the investment website have had an interest in people managing the money themselves, perchance?

It's completely true that most managed funds under perform compared to market trackers. Not sure what this particular solution would be but shitty managed funds are a real problem.

[Dio]

He didn't say compared to market trackers, though, he said invest yourself, which is exactly what nobody should be doing unless they're prepared to consider it very much a full-time job. Remember that the people making lots of money on the stock market are taking it away from someone, and a lot of those someones are some poor sap doing their own investments.

Investing == gambling. OK, the odds are (historically) in your favour, so it's hardly Vegas, but to a first approximation anyone who claims that it's easy to make money investing is probably doing so because they've an interesting in taking some of your money somewhere.

[gravy]

You'd invest in a tracker innit. I've a few friends doing something like that already.

[zip accident]

You'd invest in a tracker innit. I've a few friends doing something like that already.

Whatever. Inflation will kill any interest less than inflation. Keeping up with inflation is difficult, beating it is hard (doable with the right investments, but ISAs probably don't, or if they do there's something off with the way inflation's being calculated).

[pogo]

You'd invest in a tracker innit. I've a few friends doing something like that already.

Whatever. Inflation will kill any interest less than inflation. Keeping up with inflation is difficult, beating it is hard (doable with the right investments, but ISAs probably don't, or if they do there's something off with the way inflation's being calculated).

Long term interest rates should track nominal GDP (NGDP) growth. What this means is when the economy is growing normally the interest rates should match GDP growth + inflation. The idea is that that's the level a firm should grow at, if it has average growth (GDP) and raises prices at the same rate as everyone else (inflation). If interest rates are higher it's profitable to put your money in a bank and sit on it. But if rates are too low no-one saves as it returns too little compared to normal growth, money gets poured into anything which beats inflation – property, stamps, gold – causing a bubble. Rates should be low enough to encourage people to invest in sound investments but not so low that people take risks.

We had this pre-crisis: rates of 5% or so, with growth and inflation both around 2.5%. Eventually we should get back to that, once this crisis is over, but that could take a long time as things have yet to be resolved in Europe.

[merman]

Pensions: anything that encourages people to save for the future should be encouraged. Whether that is private, public, stakeholder or under the mattress.

Independence: Scotland thinks things will be better when they are independent. All it will do is put more politicians in place to talk and talk, to change things for change's sake, and to create inequalities across the border. English and regional parliaments would just be talking shops with little or no accountability.

[Orava]

Is it just me but isn't Mr. Miliband sailing preciously close to one of the most famous National Socialist slogans by saying: One man, one nation vs. the same from an another nationalistic and socialist movement: Ein Volk, ein reich, ein Fuhrer (one folk, one nation, one leader) ?

[Dio]

It's not really "one nation" as in "one ring to rule them all".

There are a few hints of nationalist overtones to Disraeli's One Nation policy (in later years Disraeli - admittedly, along with half of Gladstone's own party - was against Gladstone's leanings towards Irish Home Rule, which if enacted in the 1870s would probably have headed off the later violence in Ireland). But in its original conception it wasn't a nationalist policy.