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Are pensions such a good idea?

migemo

We give pensions companies a slice of our wages to invest on our behalf. They invest in property which puts prices up. They invest in oil which puts prices up. Other commodities which puts prices up. Cost of living rises. My question. Are we paying big time now for a small long term reward? Would we be better off without these investors raising everyday prices? I could be waaaaay off so please be gentle. Oh by the way I do pay into a pension.

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hwfs.ie

I am sure they invest in goverment bonds also which allows the goverments around the world to borrow money and keep them afloat.

Unless you want to work for the rest of your life, you need to save something so you can afford to retire.

Liam D Ferguson

A market doesn't move upwards incessantly just because people invest in it. Demand is a factor that influences prices, but it's far from the only one. If it was the only one, then all of the markets you mention would keep rising at all times just because people were continuing to invest. All of these markets go up and down in value.

ssbob

I think if you are a good saver then you are better off buying some 10 year National Solidarity Bonds(47% return after DIRT)

Look at www.statesavings.ie

At least you are guaranteed a return.

Liam D Ferguson

ssbob wrote: »

I think if you are a good saver then you are better off buying some 10 year National Solidarity Bonds(47% return after DIRT)

Look at www.statesavings.ie

At least you are guaranteed a return.

I'd have to disagree. If you put money into State Savings products, you've already been taxed on the income before you can save it. So €100 into a State Savings product will cost you €100. But €100 into a pension costs you €59 if you're a 41% taxpayer. Or to put it another way, you can put €169 into a pension for the same net cost of €100. So you're 69% ahead before you start.

Granted, some of your pension may be taxable when you retire, but you may well be on the low-rate tax in retirement or even tax-exempt.

There's also plenty of guaranteed, fixed-rate pension funds available at the moment that guarantee you a fixed rate of return for up to 5 years+.

ssbob

Liam D Ferguson wrote: »

I'd have to disagree. If you put money into State Savings products, you've already been taxed on the income before you can save it. So €100 into a State Savings product will cost you €100. But €100 into a pension costs you €59 if you're a 41% taxpayer. Or to put it another way, you can put €169 into a pension for the same net cost of €100. So you're 69% ahead before you start.

Granted, some of your pension may be taxable when you retire, but you may well be on the low-rate tax in retirement or even tax-exempt.

There's also plenty of guaranteed, fixed-rate pension funds available at the moment that guarantee you a fixed rate of return for up to 5 years+.

Work in Finance myself but not in investments & pensions but have seen so many of peoples pension statements over the past 6/7 years been decimated. I agree with you on the tax idea but at the same time I have seen pension funds depleted to approx 25-40% of their initial value. One such case, a guy I was working with was planning to retire in 2008 at 63 yo, he still cannot retire 4 years on because his pension had more or less been wiped.

I just think myself that guaranteed returns are better than less than you put in.

Liam D Ferguson

I'm a broker myself and it makes me mad when I see the very valid arguments you make. They remind me that many people working in the pensions business just aren't doing their jobs well, which makes it harder for all of us.

With so many choices of pension funds available, there's a pension fund type to suit every risk appetite. So only those who are comfortable with the risk that their fund can lose 60 - 75% of its value should be in such funds. You should only be allowed to go into funds like that if you're an experienced investor looking for a high-risk strategy that can go up or down by such dramatic percentages.
There are plenty of fund choices out there with lower growth potential and correspondingly lower potential to fall.
There are fund choices out there that guarantee growth of >4% per year after all charges.

Brokers should take the time to find out what the customer actually wants and then put them into a fund that they're comfortable with and understand. A customer should understand the potential for growth AND ALSO the potential for loss before they sign on the dotted line. If someone isn't comfortable with the idea of possible loss, they should be steered into a fund with a guaranteed return where they can avail of the valuable tax relief and a little bit of growth, even if that comes at a cost of lower long-term potential growth.

I have sympathy for your 67 year old colleague. Who was he taking advice from? If he had the intention of retiring at 63 he should have been moving out of high-risk funds and into low-risk guaranteed funds in his 50s. He should never have still been invested in a high-risk fund at 63.

Because of bad advice (or perhaps a lack of good advice) this man and all his acquaintances will presumably conclude that pensions are a bad idea. When in fact the correct products and advice were out there for him and presumably he was just never told about them.

Sorry - rant over.

Mort5000

ssbob wrote: »

One such case, a guy I was working with was planning to retire in 2008 at 63 yo, he still cannot retire 4 years on because his pension had more or less been wiped.

I just think myself that guaranteed returns are better than less than you put in.

The value of your investment can go up and down.

If you're nearing retirement age, you MUST move to safer, lower risk pension plans/schemes. Then you won't get clobbered.

digzy

god i love these threads!! the 'honest brokers' come crawling outa the woodwork telling us how great pensions are. we've all heard the phrase 'pensions timebomb' and my personal favourite 'for every 58 euro you put in the taxman is putting in 42':rolleyes: It reminds me of the story with jfk's dad. when asked about the stock market he said he knew it was time to get out when the 'shoeshine boys' were telling it was time to buy in. maybe we could say the same about our property market!

Just so we're clear i've no vested interest.I dont care what you do with your cash. However, i detest these gob****es with their sharp suits pulling the wool over the eyes of a poorly informed public.i'm self employed dentist, no kids, married in my early thirties and luckily enough reasonably comfortable financially and i've paid off my mortgage.

Now, onto what you're looking for......You haven't given much info tbh. i'm gonna assume you're single in your 20s no sprogs or mortgage? So, theres loadsa variables to consider. if you're as i assume above, keep your monay in a deposit ac. personally i've put my savings into kbc instant demand. it pays 3.25% b4 DIRT. i feel its worth considering just in case you need it instantly unlike the 6 month or 1 year options from tsb and ebs. however, if you're fairly sure you wont need it for a while go with ebs /tsb. Also 100% mortgages are no more so i'm gonna assume you'll buy at some stage.therefore you'll need a deposit of at least 10%. you'll get a better interest rate the more equity you can provide.telling the bank manager you've tiny savings but 10 k in a pension wont do you any favours.

I've been investing in pensions since i qualified in 2003. the best performance is the one in 2003 ironically enough. i put in 12k. it's now worth 12045:rolleyes:. Even though i think the industry stinks i'm still putting in money while there's tax relief at 42%. once it dips i'm gonna forget it. my broker more or less admitted that once the relief goes-as is signalled in upcoming budget-pension investment is a waste of time. if you do the sums investing makes most sense if youre in the higher tax band. indeed the higher the income the less sense it makes though. why? because as the brokers usually dont mention you can only withdraw 25% lump sum tax free. you'll pay tax at whatever rate after that. if you're pension pays enough to put you in the higher tax band at 65+ your tax relief is negated.

now there's a few myths i want to expose.
1, when you go to a broker/bank/direct they'll get you to fill in a bullsh1t questionnaire to 'assess your attitude to risk'. i've dealt with a few different providers going with the safe to the risky. they've ALL performed poorly without exception. My favourite was an irish life on circa 2007. i put in 24k at last update it was circa 18k. it's dropped 25% yet it must go up 33.333333% to reach its original value-ignoring inflation.
2, for every 58 you put in the taxman puts in 42. no he doesnt. instead of you giving the revenue 42 and spending 58 on whatever you want you're putting away 100, which you cant touch till ou're 65.If you pay tax at the lower rate investing in pensions is madness imho.
3, the state wont be able to provide you with a viable pension. just remember that when you're 65, chances are your potential family will not be dependant upon you and you'll have your mortgage paid if you have one. within reason how much do you need for the other stuff which while important wont require over 500 per week at todays levels.
4, you'll get 100% allocation rate. fair enough but check out the management charge. it's usually about 1% per annum. over 30 years thats about a third that the company shaves off. therefore you pension MUST increase by 50% (ignoring matching inflation) just to stand still:rolleyes: and dont forget the governments 0.6% levy for the next few years and possibly longer.

There was a prime time expose about the pensions industry a few months back. it's worth a look as lets be fair you've brokers who'll convince you otherwise here. prime time've no vested interest either.I rang irish life after it's abysmal performance enquiring about what was going on. i was told i could manage my fund however i choose. fair enough. yet there's a circa 1% management charge! i still dont understand why i'm being charged a management fee for what is an unmanaged account:mad:

In conclusion, i've been badly burned with these products. i've plans with zurich, irish life, friends first and aviva.i'm equally unimpressed by each. i must admit i'm biased against them. yet i still invest-purely cos of the tax relief.Consider where you are in life. the broker isn't your friend. they want you to plough in so that they'll get their cut. best of luck

Liam D Ferguson

Ah go on then digzy - I'll take the bait.

Where to start?

Do you feel you've been mis-sold a pension by a broker or a financial service provider...one of these "gob****es with their sharp suits pulling the wool over the eyes of a poorly informed public"? If so, there are formal complaints procedures. Have you made a complaint?

Right - here goes: -

(1) Maximum rate of tax relief on pension contributions is 41%.

(2) It was suggested that tax relief on pension contributions could be reduced from 41% to 20% over a three year period. Although this was expected in last December's Budget it didn't happen.

(3) At present, a single person over 65 can earn up to €18,000 per year and be entirely tax exempt. A married couple can earn up to €36,000 and be entirely tax exempt. So any pensions they have up to these limits are paid out tax-free.

(4)

...check out the management charge. it's usually about 1% per annum. over 30 years thats about a third that the company shaves off. therefore you pension MUST increase by 50% (ignoring matching inflation) just to stand still and dont forget the governments 0.6% levy for the next few years and possibly longer.

If the annual charge is 1% per year, then the fund has to achieve growth of 1% per year to stand still. If the annual charge is 1.6% per year including the Government levy (that expires in 2014) then the fund has to achieve 1.6% per year.

(5)

for every 58 you put in the taxman puts in 42. no he doesnt.

Okay - so €100 goes into your pension and it costs you a net €59 (not €58). So who puts the other €41 in? The tooth fairy?

(6)

the state wont be able to provide you with a viable pension. just remember that when you're 65, chances are your potential family will not be dependant upon you and you'll have your mortgage paid if you have one. within reason how much do you need for the other stuff which while important wont require over 500 per week at todays levels.

I love this one. First of all, the State pension for a single person is around €230 per week at the moment. So if, by your reckoning, everyone needs €500 per week (which I presume is after tax) then where's the other €270 per week going to come from? €270 per week for, say 25 years of retirement = €351,000 and that's ignoring inflation.

Secondly, the State pension is not funded. Yours and my taxes today pay for today's State pensioners. At the end of 2010 there were 6.1 workers for every pensioner. By 2050 there will be around 2 workers for every pensioner.

Still confident that the State will be able to provide for a viable pension?

About your coments on your own funds, let me put it simply: -

(a) If you want a fund that has the potential for higher returns, you have to be willing to accept the risk that your fund value can drop.

(b) If you're not comfortable with the idea that your fund can drop, then pick a fund that can't drop in value. For example, at the moment, there are funds available that guarantee a return of over 4% per year after all charges.

The above is a greatly simplified explanation of risk vs reward in investments of any type, not just pensions. So which do you want?

when you go to a broker/bank/direct they'll get you to fill in a bullsh1t questionnaire to 'assess your attitude to risk'.

The fact-find that a broker will carry out is to help the broker assess what type of product, from the hundreds available, is most suitable to your needs. If you go into into with that attitude, I think I see where the problem lies. As they say about computers, garbage in, garbage out.

i've dealt with a few different providers going with the safe to the risky.

You need to have your risk profile clarified, as you don't seem to be clear on what level of risk you're willing to take with your funds.

Don't get me wrong. I know that there are some dodgy brokers out there and I'm not trying to defend them at all. Regulation has got a lot tighter in recent years so a lot of the cowboys are getting squeezed out of the business, and they're no loss.

But there are literally thousands of pension products and funds out there to choose from. To dismiss pensions because of the perceived failings of one is like saying that cars in general are a bad idea if you buy a poor car.

Or to continue the car analogy further, setting up a pension requires you and your advisor to understand your needs, circumstances and attitude. If I buy a Ferrari Testarossa and I'm unhappy because it won't lug five kids plus luggage and gets stuck every time I try to pull a horsebox across a field, is that the fault of the Ferrari?

the broker isn't your friend. they want you to plough in so that they'll get their cut.

This is great. Yes, most brokers get paid commission from the setting up of financial products. Regulations ensures that such commission must be disclosed before the client signs up.

So yes, shock horror, brokers do want to earn money for work.

Do you get paid for practicing as a dentist or do you do it for free?

Cheers,

L

migemo

Would petrol/diesel/oil prices not be much cheaper if these investors weren't clamouring over themselves to make a quick killing? This is my point. We give them our money to invest, but this just drives prices up.

Jim2007

migemo wrote: »

Would petrol/diesel/oil prices not be much cheaper if these investors weren't clamouring over themselves to make a quick killing? This is my point. We give them our money to invest, but this just drives prices up.

I can comment on Irish pensions, but of the European pension funds I am familiar with, I can say that not one of them is investing in commodities! Are you sure that Irish funds are investing in commodities?

Property is a different matter as almost all funds are required to hold a certain percentage of their investments in property. However things in mainland Europe are a bit different, since most people rent rather than buy and without the pension funds there would be a shortage of suitable rental properties.

Over all I would see pension funds as providers of long term capital either by investing in industry or property.

hmmm

I'm always amazed to see some people writing off pensions based on their own experience.

Pensions are like any financial product. Do your research and don't leap in until you're sure you know what you're doing. Pay someone like Liam above if you can't or won't do that research. If you get "free" advice from a pension company or a bank, they're going to sell you whatever they have for sale.

I know lots of people who are doing very well with their pensions and who will be set for a very happy retirement. With the current tax breaks in particular, I think a higher earner would be mad not to consider having a pension - and certainly if you have 30 years to go to retirement, the last investment you want is to stick your after-tax money into a deposit account.

BorneTobyWilde

Save your own,
If you have the disipline

hmmm

BorneTobyWilde wrote: »

Save your own,
If you have the disipline

Why not save your own and also save the tax as well?

Caseywhale

hmmm wrote: »

Why not save your own and also save the tax as well?

The minute they drop the tax relief any lower is the minute I save my own.

golden lane

the second half of the celtic tiger....was sustained by pension funds.......that is why the government had to guarentee the banks.......

the country spent that money.....and it should be paid back..........to the pensioners..

Liam D Ferguson

Caseywhale wrote: »

The minute they drop the tax relief any lower is the minute I save my own.

To date, the Government has steered clear of cutting the tax relief on pension contributions. It has been discussed for a few years now, but never implemented. As it has been proven that Irish pension funds have already contributed more than their fair share of additional tax revenue to the exchequer, there's talk now that tax relief on contributions may not be cut at all. But who knows what the future brings...

Pablo Sanchez

golden lane wrote: »

the second half of the celtic tiger....was sustained by pension funds.......that is why the government had to guarentee the banks.......

the country spent that money.....and it should be paid back..........to the pensioners..

Could you explain that a bit more?

Jim2007

hmmm wrote: »

Why not save your own and also save the tax as well?

I think this is a very good point and it is what I do, because it already puts you a head... if I invest a CHF 100 in the pension fund and get tax relief of CHF 25 on it, I save that as well, this already means I'm up 25% from the start. Do that over a 30 year period and the savings plus the return on the savings mounts up... Most people seem to spend the tax relief!

digzy

hmmm wrote: »

I'm always amazed to see some people writing off pensions based on their own experience.
People learn from experience shock:rolleyes: if you bought a renault and it broke your heart would you buy another?

Pensions are like any financial product. Do your research and don't leap in until you're sure you know what you're doing. Pay someone like Liam above if you can't or won't do that research. If you get "free" advice from a pension company or a bank, they're going to sell you whatever they have for sale.nobody has a crystal ball when it comes to pension performance. the only difference in going to a paid adviser is they wont be swayed by commission and will consider a wider number of funds

I know lots of people who are doing very well with their pensions and who will be set for a very happy retirement.Are you serious? i'd love to see a sample of people 55+ to get their opinion. Speaking to my colleagues-all in their early thirties-all of out pensions have performed poorly. All mine which are with zurich, irish life, aviva and friends first all are worth less than i paid in. thats not even considering the 'mgmt fee' 'gvmt levy' and inflation. With the current tax breaks in particular, I think a higher earner would be mad not to consider having a pension - and certainly if you have 30 years to go to retirement, the last investment you want is to stick your after-tax money into a deposit account.

why not? there's deposit accounts giving access from instant to 5 years. if something unforseen happens-job loss, illness- I'd feel a lot better being able to access my money than being told it was locked into a 4 year product that's loosing money. I've been caught out with a wonderful boi product called a special bonus investor scheme:rolleyes:

As a profession i find this sector to have a disproportionate amount of charlatans and idiots. Most of them haven't a clue about what they're selling. there's a herd mentality with so many advisers. 'now's the time to invest in the 'bric' countries' 'irelands tanked, we advise all our clients to avoid it' etc......its this jump on the band wagon mentality thats caused our pensions to nosedive in the past. Ironically enough irish property might actually be the way to go given that it's on its knees!
The incredulity with which they look at you when you express your concers when a fund drops by 10% in a year ' ah its the early stages, you've another 30 years to make it up.....':rolleyes:

I dont see why we cant just get the go-ahead for tax relief to do our own thing-stick money into a property, shares cash etc.. without the need to engage with lads taking their cut. while the whole 'self administered' thing sounds ideal, when you delve into it the costs are greater and you need a serious pot -over 100k- for it to be viable!

lomb

All these large buildings and brokers in the financial industry with all their employees and overheads have to be paid for. Frankly I dont trust them and neither does history.
I believe one can run ones own pension fund where you are in charge of directly investing the money but a pension company runs the account for you.
Sounds like a better bet to me...
Stick it in the s+p 500 and hope for the best imho. History has proven this works. Obviously one would have to limit the payout to the pension company and lessen the fee to as little as possible to ensure the greatest gain possible.

Caseywhale

lomb wrote: »

All these large buildings and brokers in the financial industry with all their employees and overheads have to be paid for. Frankly I dont trust them and neither does history.
I believe one can run ones own pension fund where you are in charge of directly investing the money but a pension company runs the account for you.
Sounds like a better bet to me...
Stick it in the s+p 500 and hope for the best imho. History has proven this works. Obviously one would have to limit the payout to the pension company and lessen the fee to as little as possible to ensure the greatest gain possible.

I would prefer that too.
The only reason now i am putting money into a pension is the tax relief. Its already dropped and I was going to just stop and invest myself if it dropped any further.
The various pension funds that I started investing pensions in 19 years ago still have less money than I put in - and thats even after tax relief. And I put it into so called "Safe" funds.
I would have been better off with that money on deposit.

Liam D Ferguson

digzy wrote: »

why not? there's deposit accounts giving access from instant to 5 years. if something unforseen happens-job loss, illness- I'd feel a lot better being able to access my money than being told it was locked into a 4 year product that's loosing money. I've been caught out with a wonderful boi product called a special bonus investor scheme:rolleyes:

You went to a bank for financial advice and sound surprised that they sold you a bank product? Why? You wouldn't go to Pfizer for medical advice.

digzy wrote: »

I dont see why we cant just get the go-ahead for tax relief to do our own thing-stick money into a property, shares cash etc.. without the need to engage with lads taking their cut. while the whole 'self administered' thing sounds ideal, when you delve into it the costs are greater and you need a serious pot -over 100k- for it to be viable!

A nice theory, but who would administer the rules for Revenue, e.g. contribution limits, access, prohibited investments etc.? And how would they get paid, or by whom?

Liam D Ferguson

Caseywhale wrote: »

Its already dropped...

See previous post above. No it hasn't. Tax relief is still available in full on pension contributions up to the allowable limits.

Caseywhale wrote: »

I would have been better off with that money on deposit.

There are plenty of pension fund options out there that allow to put your money on deposit with virtually any deposit taker or rate you like - EBS, Rabo, KBC, variable rates, fixed rates etc.

Caseywhale

Liam D Ferguson wrote: »

See previous post above. No it hasn't. Tax relief is still available in full on pension contributions up to the allowable limits.

Please, please tell me you're not trying to dish out advice to people on pensions after a nugget like that. I fear for the health of the pensions industry if you are part of it.

You dont seem to be up on pensions at all there.

"From 1 January 2011, employee contributions to occupational pension schemes and other pension arrangements will be subject to employee PRSI and the Universal Social Charge. The PRSI change will be legislated for in the Social Welfare Bill."

But as is typical of those in the pensions industry you'll probably spin it now by saying that the tax relief has remained the same as PRSI and universal social charge are not taxes - or some stupid rowback line like that for when you've been caught lying.

So your line above is just bull****.

Liam D Ferguson wrote: »

There are plenty of pension fund options out there that allow to put your money on deposit with virtually any deposit taker or rate you like - EBS, Rabo, KBC, variable rates, fixed rates etc.

Yes I know that, but the professional advice I paid for over the last 19 years all told me I would be wasting money doing that.

A bit of honesty would be nice from pensions "experts" some time.

Liam D Ferguson

So you're admitting that tax relief on pension contributions has not been reduced, as I've said twice in this thread but you're trying to save face by bringing PRSI and the USC into it and accuse me of lying?

Let me repeat - tax relief on pension contributions has not been reduced.

Caseywhale

Liam D Ferguson wrote: »

So you're admitting that tax relief on pension contributions has not been reduced, as I've said twice in this thread but you're trying to save face by bringing PRSI and the USC into it and accuse me of lying?

Let me repeat - tax relief on pension contributions has not been reduced.

Oh jesus :eek:
You're digging a hole now for yourself.

Anyone ever worried if a pension "expert" is being skewed with the advice they are giving you, just read the last few posts.

Shows conclusively how they spin it when they are caught being economical with the truth.

I dont know about pension advisors, but I and 99% of the population consider PRSI and USC to be taxes. So please dont dare leave them out of the equation when saying "tax relief hasnt changed". Thats just be disingenuous. And if you treat your customers like this, then its no wonder they dont trust you.

Liam D Ferguson

Caseywhale wrote: »

I dont know about pension advisors, but I and 99% of the population consider PRSI and USC to be taxes. So please dont dare leave them out of the equation when saying "tax relief hasnt changed".

Your original assertion, which you made twice, was that tax relief on pension contributions has been reduced. This is simply wrong.

You are confusing tax relief with relief from USC and PRSI. Let me clarify: -

Tax relief on pension contributions has not been reduced.
Relief from USC is not available on pension contributions. Hasn't been this year or last year for that matter.
Relief from PRSI is not available on pension contributions. Hasn't been this year or last year either.

Yes USC and PRSI are considered to be taxes. So are VAT, VRT, the household charge, excise duty - I could go on. There's no relief available on pension contributions against those either.

Caseywhale wrote: »

And if you treat your customers like this, then its no wonder they dont trust you.

I'm willing to debate issues on Boards.ie with people who are willing and able to debate, but if the best you can do is resort to unfounded and untrue personal insults, then I've no interest in continuing this with you.

Caseywhale

Liam D Ferguson wrote: »

Your original assertion, which you made twice, was that tax relief on pension contributions has been reduced. This is simply wrong.

You are confusing tax relief with relief from USC and PRSI. Let me clarify: -
Tax relief on pension contributions has not been reduced.

Relief from USC is not available on pension contributions. Hasn't been this year or last year for that matter.

Relief from PRSI is not available on pension contributions. Hasn't been this year or last year either.

Yes USC and PRSI are considered to be taxes. So are VAT, VRT, the household charge, excise duty - I could go on. There's no relief available on pension contributions against those either.

I'm willing to debate issues on Boards.ie with people who are willing and able to debate, but if the best you can do is resort to unfounded and untrue personal insults, then I've no interest in continuing this with you.

I'm sure you will debate forever.
Spin yourself out of your omission from the facts all you want, but I can tell you that I will definitely be avoiding you if im ever looking for financial advice.
Everyone else can make up their own minds, but all they have to do is read over the last few posts and they can see what your attitude to "the facts" is.

Jim2007

Caseywhale wrote: »

Everyone else can make up their own minds, but all they have to do is read over the last few posts and they can see what your attitude to "the facts" is.

Well having read over your comments, as far as I can see you are one of those people who never let the facts interfere with your opinion! It is clear to me that you have neither the knowledge nor the mentality required to manage your own pension! You talk a lot about the advice you received, but I wonder if it is not the case that you took your advice from product salesmen or commission agents rather than truly independent advisors???

And before you go of an a rant at me let me point out that I am not a financial advisor nor do I earn a single cent of my income from the Irish pension industry.