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Interesting People's Pension email

lots of members, not much saved

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Four point five milion people now saving with The People's Pension. However, the average pension pot is £1,700 Fear not - their email advises: "these savings will grow over time...."

Really?

 I fear many are going to be sorely disappointed when they come to retire!

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By carnmores
04th Nov 2019 16:26

you are such a pessimist ;-)

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Replying to carnmores:
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By memyself-eye
04th Nov 2019 17:44

Accountants are realists not pessimists. :)
reading between the lines and noting People's Pension fee structure is changing next year I guess...err surmise, that they have way too many people contributing tiny sums towards their pensions and its' costing PP money to manage them.

I have one to submit this month totalling twenty pence!

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Hallerud at Easter
By DJKL
04th Nov 2019 18:05

They will accelerate in growth rate a little as early years' contributions were likely at reduced rates.

The trouble is people seem to think there is a total cure re retirement, actually it is more likely that individuals able to afford to retire will retire with multiple income sources, state pensions, other pensions, ISAs, shares, property etc, it is very unlikely there is a cure all solution here but really we ought not to expect one.

Having said that AE pensions are of least use to the lower paid where too big a percentage of their earnings are below contribution threshold, but if the schemes had contributions based on total earnings they would make a difference. (I actually believe they ought to be based on total earnings)

For those earning over the max limit the contributions are reasonable; mine comes in at employee £146.20 per month and employer £109.65 which is £292.40 gross a month with basic rate relief added, £3,508.80 a year , and I get this for £146.20/4x3 x12=£1,315.80 each year (after HR relief)

I frankly see the AE scheme as a bonus as AE has been the first contribution in my life that an employer has ever made on my behalf, I have been personally saving towards my pension since age 25 with only my contributions and contracting out contributions.

Whilst £3,500 p.a. contributed over say 40 years is only £140,000 in total contributions, with decent investment the sum invested will likely double every ten years (P/E target of 10 giving roughly 8% TR),

Very roughly first decade's £35,000 made between ages 25-35 will be £70,000 at age 45, £140,000 at age 55, £280,000 at age 65.

Second decades's £35,000 made between age 35-45 will be £70,000 age 55, £140,000 age 65

Third decade savings age 45-55 will be £70,000 at age 65

Fourth decade savings say £35,000 no growth

That still roughly gives a fund at £280k +£140k+£70k+£35k=£525k (Appreciate inflation erodes in real terms) but that could certainly be invested to give an income of £21k per annum with no erosion of capital (4% Div yield)

To be clear I would not advocate just relying on AE, I make other contributions, and a final salary scheme similar to my wife's would be very pleasant, however if offered money from employers one really ought to take it even though it is not the whole cure.

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By WhichTyler
04th Nov 2019 20:04

AE at the current levels is a toe in the door; Australia is taking about 25 years to get from a total contribution rate of 8% (where we are now) to 12% so the journey has only just started

So yes it won't make much difference to people relatively close to retirement at the moment, but for those just entering the workplace with 50 years of work ahead of them, it will be significant

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By carnmores
04th Nov 2019 20:38

they need to remove the bands and ensure contributions are paid on all earnings this is only am option now

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Replying to carnmores:
Hallerud at Easter
By DJKL
04th Nov 2019 20:50

Happy to keep an upper cap in fairness to employers but there ought to be no threshold, contributions ought to start from zero. An individual with two or three part time jobs can readily end up with no contributions which given how the economy currently operates is plain unfair- those who need AE the most are those currently left out

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Replying to DJKL:
By djn24
06th Nov 2019 10:56

DJKL wrote:

Happy to keep an upper cap in fairness to employers but there ought to be no threshold, contributions ought to start from zero. An individual with two or three part time jobs can readily end up with no contributions which given how the economy currently operates is plain unfair- those who need AE the most are those currently left out


I agree that contributions should start from zero. It would just be far simpler and would make a huge difference to the contributions.
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By atleastisoundknowledgable...
05th Nov 2019 07:59

The People's Pension wrote:

"these savings will grow over time...."

Is that a promise? No caveat about investments going down in value?

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Replying to atleastisoundknowledgable...:
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By memyself-eye
05th Nov 2019 10:27

That's the elephant in the room...
A decent recession will wipe out any gains made in the last few years.

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Replying to memyself-eye:
By Red Leader
06th Nov 2019 11:00

Time in the market rather than market timing is usually the deciding factor.

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Replying to Red Leader:
Hallerud at Easter
By DJKL
06th Nov 2019 13:10

Agreed, especially when investment is still being made (fresh money).

Whilst sitting watching my SIPP go up in value is fine ( albeit pretty stagnant last 12 months or so), it gives a rosy glow, I also appreciate that the dividends it earns each year, providing they are not cut, and the contributions I am still making, get to buy me more shares when the market has taken a kick in.

Given I plan to try to retire by initially only making withdrawls equal to the dividends my SIPP receives it is the earning power of my SIPP that to me is more important in some ways than its capital value as decided by the market on any particular day.

Frankly market price really does not bother me, earnings cuts and dividend cuts are of far more concern.

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Replying to DJKL:
By Red Leader
06th Nov 2019 15:52

Yes, my plan also is to live off the dividends rather than the total return. It is an interesting - and I think essential - exercise to accurately calculate current actual yearly expenditure and compare this to the current dividend income.

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Replying to Red Leader:
Hallerud at Easter
By DJKL
06th Nov 2019 16:13

Remember Mr Micawber.

I sit down every year or two and add up current pensions we will receive, likely state pensions (forecasts were back up and working) come 66 and reliable other income sources, the only unknown unknowns now are kids wedding costs and presents re same (first one looks likely to be late 2020/early 2021- just got rid of paying for Uni for the younger one and the older one goes and gets engaged)

Whilst other half can take her local authority one next year with no clawback (60) I suspect we will run on to at least 63 and more likely 65/66, but given I am now a part timer who knows.

The catch is working out discretionary spending, whilst we could retire next year and pay the bills and feed ourselves am not sure that would be as comfortably as I would want, degree of extras, meals outs, holidays, changing the car etc are far more difficult to calculate

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By norstar
06th Nov 2019 12:45

What they should have done is to ring fence and guarantee the state pension by introducing Class 5 NI for employees and employers. 5% each. The system was already in place to collect it (PAYE), it's not something you can opt out of and it would have solved the issue. Even pension advisors I spoke do didn't want AE introduced. Too many small pots with savings eaten up by charges.

But no, we'll go with a fudged private system where the pension payments won't even cover the postage on the documents.

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Replying to norstar:
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By carnmores
06th Nov 2019 12:57

THE PROBLEM IS THAT THE GOVERNMENT WILL SPEND ALL THE MONEY THAT WONT WORK

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Replying to carnmores:
Hallerud at Easter
By DJKL
06th Nov 2019 13:20

For once we agree on something- I would not trust any pledges and undertakings from one generation of politicians vis a vis tying the hands of a subsequent generation- I stayed contracted out long after I was professionally advised I ought to return to the government fold, in fact until the rebates stopped, my reason was by contracting out I, not the state, had more control over my finances .

Certainly I think my SIPP funds ex contracting out are worth far more to me re financial planning, wife's future income if I die or children inheriting once we both go than had I stayed contracted in (remembering with state pensions once you both die there is nothing left to leave to anyone).

I also think the income from same will likely turn out to be higher even at day one than if I had stayed contacted in. (Hard to tell as both my contracted out PP and my non contracted out PP got merged together in the SIPP quite a few years ago now)

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Replying to DJKL:
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By carnmores
06th Nov 2019 13:34

Once? lol

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Replying to carnmores:
Hallerud at Easter
By DJKL
06th Nov 2019 18:36

Apologies, I had mistaken you for A N Other, I am pretty useless at names, maybe an age thing. For avoidance of doubt I actually cannot really remember us disagreeing.

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By memyself-eye
06th Nov 2019 15:46

Happily enough I get my state pension from today - deep Joy! While I also have 3 small private pensions and investments that give a decent dividend return (AVIVA, BP etc) I suspect the government schemes are more risk averse and the mood in the markets is one of doom and gloom with talk of overpriced equities and a correction coming (except in gold which I'm also in....).

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Replying to memyself-eye:
Hallerud at Easter
By DJKL
06th Nov 2019 16:30

Congratulations, albeit you may be an age 65er so that is a resentful congratulations.

Sure some equities are overpriced but others will not be, catch as always is working out which are which (I like earnings/cashflow/gearing as my tests but some use goat entrails;each to their own)

I anyway do more ITs these days though do hold some single company stuff, I even bought some Begbies Traynor as a economic downside play (insolvency services) and hold Berkshire as a cash rich bargain spotter if the US market decides to tank (It does worry me)

Other than that it is ITs covering Asia, China, South America, North America, Europe and UK (No Russia) plus some mining and frontiers and even a smaller cos toehold. Large spread of risk both re geography and number of investments.

I do not do gold, I did over Brexit in 2016 but whilst my shares piled on gains in 2016/2017 re sterling's drop my gold play did not pan out, I like things that earn whilst I hold them, gold does not do this.

If I did go for gold etc I would this time also want it in physical form rather than paper so that would mean more jewellery for my other half but would likely need to be outwith tax wrappers.

(My current small scale physical investments are older Hornby and Wrenn locos)

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