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Why are people obsessed with getting a pension

Midlife crisis man

What's the point having one.

About myself: I don't have a pension. I came from a poor background and was never thought about the importance of financial awareness.

I struggled throughout the recession eventually going back to college. I'm in my mid 30s now recently started working in the public sector. I'm only on 25k per year. I'm not entitled to the public sector pension because I'm on a fixed term "trainee" contract in my field.

Also if I happen to stay in the public sector for the rest of my career I won't be long enough to get the cushty 40 year pension anyway.

So, in the next 30 years the retirement age will probably be closer to 70. Why save the bollox off myself just so I have a bit of cash when I'm an auld fella with (best case scenario) 10 years of life left. Who needs that much money at that age. Am I missing something here? You can't take it with you when you die.

I'm sure I'll have a good bit of regular savings by then but what's with the obsession of pumping as much money as you can into a pension (that'll end up getting raided by the government in subsequent recessions anyway)

I'm going to enjoy my money while I have health and vigour and the government can look after me when I'm an auld boy.

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The J Stands for Jay

homes_for_all wrote: »

Well for 1) the above don't contribute to wars, climate change or killing people and wrecking lives.

I think that's a good starting point

Bonds contribute to exactly the same things as stock market investments. I'm sure the environment would be much better off if the gold remained unextracted.

The J Stands for Jay

Amirani wrote: »

You can either buy an annuity or set up an ARF.

Annuity will give you a set amount every year for the rest of your life, and there will be no fund left at the end.

ARF will mean you can draw down as much as you choose each year (though there is a minimum you need to). There's a tax-free portion, but then you'd pay 20% up to a cut-off. When you die, anything left in the fund can be inherited.

The payments from ARFs and annuities are treated the same as a salary for tax.

homes_for_all

McGaggs wrote: »

Bonds contribute to exactly the same things as stock market investments. I'm sure the environment would be much better off of the fold remained unextracted.

Corporate bonds, not others.

GreeBo wrote:

You cant have it both ways, either Joe is managing his own pension and does need to have the most basic of knowledge OR Joe is paying someone else to do it and they will do it for him.

Fair point. We should have financial advice of this kind as part of a public service done by the government.

The J Stands for Jay

homes_for_all wrote: »

Corporate bonds, not others.

You think government bonds aren't funding war and climate change?

homes_for_all

McGaggs wrote: »

You think government bonds aren't funding war and climate change?

Green Bonds don't.

[Deleted User]

Pensions are a scam

Translates as:

a) I don't have one, so I'll label it a scam.
b) I don't have a clue what a pension is.
c) Combination of a and b

homes_for_all

6 wrote: »

Translates as:

a) I don't have one, so I'll label it a scam.
b) I don't have a clue what a pension is.
c) Combination of a and b

I'm securing my old age finances without losing it to snake oil salesmen or financing global misery. How about you?

S.M.B.

I think hidden underneath all that vitriol there are some valid points about the pension industry but I can't take anyone seriously when they just come out with the OTT broad statements such as 'snake oil salesmen' and 'financing global misery'.

GreeBo

S.M.B. wrote: »

I think hidden underneath all that vitriol there are some valid points about the pension industry but I can't take anyone seriously when they just come out with the OTT broad statements such as 'snake oil salesmen' and 'financing global misery'.

Complaining about the industry/providers is one thing, but saying that pensions themselves are bad is just nonsense.

thebourke

so for example ...say you retire at 66 years of age...
you take the 25 percent tax free (100k) when you retire
the remaining 300k you either use an annuity or arf

Annuity-do you pay any tax then on the 300k?how do they work out how much you get every year?Do they estimate for a man you will live to roughly 80 years of age?What about for a woman?

which is better annuity or arf?does it depend on your health?if you are single or are married with children?

Shedite27

thebourke wrote: »

so for example ...say you retire at 66 years of age...
you take the 25 percent tax free (100k) when you retire
the remaining 300k you either use an annuity or arf

Annuity-do you pay any tax then on the 300k?how do they work out how much you get every year?Do they estimate for a man you will live to roughly 80 years of age?What about for a woman?

which is better annuity or arf?does it depend on your health?if you are single or are married with children?

You posted this less than 2 hours ago, and someone replied. Scroll up man

thebourke

cheers just saw it now

Dodge

GreeBo wrote: »

Complaining about the industry/providers is one thing, but saying that pensions themselves are bad is just nonsense.

What he's actually complaining about isn't pensions, but the stock market

He may well think they're a scam but they've been around for hundreds of years and they're not going away

So investors and savers can choose to ignore it, or use whatever tools they like.

nsi423

My favorite bit is:

homes_for_all wrote: »

Take a look at the graph of the S&p 500. It doesn't look right.

What should it look like? ;D
Maybe the Ministry of Truth is up to its usual tricks?

Jim2007

GreeBo wrote: »

You cant have it both ways, either Joe is managing his own pension and does need to have the most basic of knowledge OR Joe is paying someone else to do it and they will do it for him.

You don't have to have it ether way, there are other options....

You could have government:
- Mandate second tier/pillar pensions as mandatory from 25 to 65
- Mandate minimum contributions from employer and employee
- Mandate asset allocations
- Mandate acceptable instruments
- Mandate no fees beyond a simple management fee
- Mandate a minimum required return, with asset managers on the hook for the short fall

Then the average Joe does not need to care much about it.

Jim2007

homes_for_all wrote: »

I'm securing my old age finances without losing it to snake oil salesmen or financing global misery. How about you?

Only someone that truly does not know, could come a statement like that. By your own admissions you are very exposed, in fact you are probably more exposed than most commenters here how have a pension.

You would be very well served to education yourself as to the consequences of misallocation on asset classes and the measurement and management of risk. Because you are unaware of your exposure....

donkey balls

advertsfox wrote: »

One of the most appealing benefits in my new job was the pension scheme as they double your input. The monthly cost for me is c. €160 after the tax is deducted; yet I get c. €800 per month into my plan. If I kept it at that rate (and never adjust it or get an increase) my 35 year 67K contributions return 330K... before inflation. It's free money.

Is that double on AVC or a certain percentage?

advertsfox

donkey balls wrote: »

Is that double on AVC or a certain percentage?

It's double my contribution. So say I did a 5/10% option and my 5% amount was €100, they pay 10% @ €200 (€300 total to pension fund) but only costs me €60 after tax.

donkey balls

advertsfox wrote: »

It's double my contribution. So say I did a 5/10% option and my 5% amount was €100, they pay 10% @ €200 (€300 total to pension fund) but only costs me €60 after tax.

Ah I'm maxed out on AVC if my company were to match my AVC it cost them €1000 a month, At present they pay 10% in and I pay 5% minimum contribution.

Klonker

thebourke wrote: »

so for example ...say you retire at 66 years of age...
you take the 25 percent tax free (100k) when you retire
the remaining 300k you either use an annuity or arf

Annuity-do you pay any tax then on the 300k?how do they work out how much you get every year?Do they estimate for a man you will live to roughly 80 years of age?What about for a woman?

which is better annuity or arf?does it depend on your health?if you are single or are married with children?

With both an Annuity or ARF you'll pay tax, same tax rates as you do now on your salary (except no PRSI). So how much tax you pay depends on your combined income between your state and private pension.

So for an Annuity, you'd take the 300k and buy an annuity, this is a guaranteed amount each year until you die. It's taken as a percentage of the fund so say they give you 2% a year that would be 6k per year. If you died a year after you retire nothing is left to your estate. If you live until you are 120 no need to worry, you will still be getting the 6k a year. Inflation would probably be taken into account plus you can also get a joint annuity with a partner. Annuity rates are very low at the moment so are extremely unpopular but some like the certainty of them.

ARF is when the money stays in your pension fund and you have control of how much you drawdown each year depending how much you want but there is a minimum you need to withdraw each year, I think 3% per year. Obviously the more you draw down the more tax you pay. Your funds can still increase and decrease in value at this stage but they should be in very low risk profiles at that point. If you die, you own the money left in the fund and it goes to your estate. By far the more popular now.

Bass Reeves

Klonker wrote: »

With both an Annuity or ARF you'll pay tax, same tax rates as you do now on your salary (except no PRSI). So how much tax you pay depends on your combined income between your state and private pension.

So for an Annuity, you'd take the 300k and buy an annuity, this is a guaranteed amount each year until you die. It's taken as a percentage of the fund so say they give you 2% a year that would be 6k per year. If you died a year after you retire nothing is left to your estate. If you live until you are 120 no need to worry, you will still be getting the 6k a year. Inflation would probably be taken into account plus you can also get a joint annuity with a partner. Annuity rates are very low at the moment so are extremely unpopular but some like the certainty of them.

ARF is when the money stays in your pension fund and you have control of how much you drawdown each year depending how much you want but there is a minimum you need to withdraw each year, I think 3% per year. Obviously the more you draw down the more tax you pay. Your funds can still increase and decrease in value at this stage but they should be in very low risk profiles at that point. If you die, you own the money left in the fund and it goes to your estate. By far the more popular now.

Annuity rates are not quite that bad. Irish life are quoting sample annunity rates of 3.85% for a joint life with 50% to spouse and 3% escalation for someone at 65. So on 300k would give an annual pension of 11550 euro/ year. On 3% escalation in 10 years the pension will be 15k and after 20 years it will be 20k. However in general people's demand for money after retiring is higher in the early part of the retirement rather than later in there eighties

As well most annuities pay a minimum number of years from 5-10years.

https://www.irishlifecorporatebusiness.ie/annuities

S.M.B.

Is that 3% escalation covering inflation or is it on top of an inflation adjusted payout.

Jim2007

Klonker wrote: »

ARF is when the money stays in your pension fund and you have control of how much you drawdown each year depending how much you want but there is a minimum you need to withdraw each year, I think 3% per year. Obviously the more you draw down the more tax you pay. Your funds can still increase and decrease in value at this stage but they should be in very low risk profiles at that point. If you die, you own the money left in the fund and it goes to your estate. By far the more popular now.

Unfortunately the theory upon which was based has not delivered and the assumed replacement rates are looking more and more like fairy tales as interest rates continue to remain low. I expect many people will die in poverty if it continues along current lines.

[Deleted User]

"fairy tales as interest rates" about sums it up. I currently look at a pension as saving for your retirement with the benefit of not paying Tax (at this point in time) on the money. With changes to the tax system over the years (PRSI and USC) much of that advantage has gone. Looking back 20 years, buying property(s) would have been a much better investment.

Jim2007

Tow wrote: »

"fairy tales as interest rates" about sums it up. I currently look at a pension as saving for your retirement with the benefit of not paying Tax (at this point in time) on the money. With changes to the tax system over the years (PRSI and USC) much of that advantage has gone. Looking back 20 years, buying property(s) would have been a much better investment.

Unless you are in the last 10 years of your working life interest rates should have very little to do with your pension returns.

The J Stands for Jay

Tow wrote: »

"fairy tales as interest rates" about sums it up. I currently look at a pension as saving for your retirement with the benefit of not paying Tax (at this point in time) on the money. With changes to the tax system over the years (PRSI and USC) much of that advantage has gone. Looking back 20 years, buying property(s) would have been a much better investment.

You'd rather pay 51% tax than 11% because it used to be zero instead of 11%? (Assumed max rates for each tax).

[Deleted User]

homes_for_all wrote: »

Plenty of companies schemes wound up too.

There were no cases of company schemes wound up that involved pensioners losing their investments, to the best of my knowledge. Are you aware of any such cases?

Tow wrote: »

Looking back 20 years, buying property(s) would have been a much better investment.

Your pension manager isn't going to phone you at 10pm on Saturday night about a blocked toilet. It's not a fair comparison. Renting out property is like running a small business, and all the ups and downs that go with that.

Jim2007

Tow wrote: »

Looking back 20 years, buying property(s) would have been a much better investment.

Rather than looking back, look at the research - property is a very high risk asset class with a low return, which means you should actually hold no more that about 6% or so in it and that should be well diversified by means of a REIT. And that REIT should not be one of the Irish Micky Mouse ones either.

S.M.B.

Jim2007 wrote: »

Unfortunately the theory upon which was based has not delivered and the assumed replacement rates are looking more and more like fairy tales as interest rates continue to remain low. I expect many people will die in poverty if it continues along current lines.

May be going wildly off topic (although not quite sure what the exact topic of this thread is anymore) but can you expand on this a bit more?

Do you mean that it's not possible to get inflation + 4% returns in 'very low risk profiles' once you reach retirement age?

One thing that I've yet to wrap my head around is trying to identify the optimal risk to take on once you reach a retirement age. Surely setting up low return/low risk portfolio for your entire fund wouldn't be ideal as you only want to reduce the risk of the funds you are likely to draw upon in the very short term (eg next 5 years)?

Henry Ford III

Bass Reeves wrote: »

Annuity rates are not quite that bad. Irish life are quoting sample annunity rates of 3.85% for a joint life with 50% to spouse and 3% escalation for someone at 65. So on 300k would give an annual pension of 11550 euro/ year. On 3% escalation in 10 years the pension will be 15k and after 20 years it will be 20k. However in general people's demand for money after retiring is higher in the early part of the retirement rather than later in there eighties

As well most annuities pay a minimum number of years from 5-10years.

https://www.irishlifecorporatebusiness.ie/annuities

You pick the guaranteed period at the time of purchase. Much will depend on the circumstances, dependents, and health of the annuitant at the time.

In addition impaired life annuities are available - they are like reverse life assurance where the least healthy will seem to benefit with higher rates (although chances are they'll be paid for a shorter than standard period).

Annuities give absolute certainty, whereas ARF's carry risk but may be better value if things go well - and the assets can be passed on to others after death.

Most important is the area of deemed distribution. An ARF holder will be taxed on up to 6% p.a. regardless of whether or not their fund has earned it. That and peoples desire to "leave the kitty untouched" tends to push them towards higher risk investments that aren't suitable for someone who is retired.

It's a tricky balancing act.