Pensions are a gimmick

[dodo]

Go interest only, pay the difference into a pension.

(Moderator note-split from )

All this talk of paying into a pension sometimes is not as straight forward as it seems, I had a pension with a big American company ,stated to one of the best around, after 10 goods years of stock markets doing well it was great, but since 9/11 the value has only gone up around 10% or so, I did not add in last 5 years as I left the company but still I thought I would have gained more than 2% a year, I was putting in 7% and employer 8% for 10years,some pension have lost alot of funds in same period aswell
I hear of very few people on the average wage bracket walking away with 100K or more when they retire.
I heard of many people who where told that if they want the retirement money they where told , that they would now have to put in more money
If between worker and employer say 10% of average wage was put into pension each year, about 3,500 Euro x 40 years 140K, and say inflation was 3 % a year as in alot of the EU, would you get same 140K with inflation for 40 yrs ,I dont think so.
,I think it is a bit of a gimmick,I think op could be right about paying of mortgage even though that was not the question.

 

[ClubMan]

Re: Most Tax efficient renting?

I think it is a bit of a gimmick

Dismissing pensions as a gimmick is surely a ridiculously sweeping statement?

 

[dodo]

Re: Most Tax efficient renting?

Dismissing pensions as a gimmick is surely a ridiculously sweeping statement?

Well you will find out when you retire I guess,but do many average earner's get even 4 times their salary in a lump some when they retire I'm thinking,or even 70% of their current wage on a weekly basic, ask the question to people you know,I did and it does not even come close,it was just a thought,

 

[ClubMan]

Re: Most Tax efficient renting?

Where are you getting this 4 times salary lump sum figure from? I'm satisfied with how my pension investments are doing to date based on what I've put in and market performance in spite of obvious volatility over the years.

 

[Trustmeh]

Re: Most Tax efficient renting?

i think the issue with pensions is that no one starts them young enough anymore. Also the fact that you might start one at a job, then when you leave that job you may have to start a new pension at the next job. They arent all that flexible. It would be nice if you start one at say 20 years of age that would stay with you for life (and your employer would contribute to that). But i dont think that will ever happen.

 

[dodo]

Re: Most Tax efficient renting?

Where are you getting this 4 times salary lump sum figure from? I'm satisfied with how my pension investments are doing to date based on what I've put in and market performance in spite of obvious volatility over the years.

Happy new year clubman,
I was always told through different pension schemes in work ,that one should expect 4 times their salary when they retire at the least,or 70% of their current wage,that is something I was told by irish life many years back and it always stuck in my mind,and I think this does effect your state pension not sure though,
My Dad paid 4% and his employer the same for just over 30years, and he has always been just above the average wage,his policy was with Irish life for some part then with Canada life,
He got a lump some of 16,000 euro and gets around 800.00 euro a month, does not seem alot to me for someone who has had 8% of his wage going into to a so called good pension, all I say is be weary and your pension might be doing good now but really that means nothing until your cash in when you retire,Can I ask you what % of your current wage would you expect when you retire on a weekly basic, I know In some Countries you automatically get 70% of your wage when you retire after you have paid into your pension during your working life,

 

[ClubMan]

Re: Most Tax efficient renting?

Happy new year clubman,
I was always told through different pension schemes in work ,that one should expect 4 times their salary when they retire at the least,or 70% of their current wage,that is something I was told by irish life many years back and it always stuck in my mind

Never heard such rules of thumb myself. Anyway they are probably not much use - what matters is how much you put in and the performance of the assets/funds in which you invest. There is obviously risk and volatility involved but to dismiss pensions as you seem to be doing is ridiculous.

and I think this does effect your state pension not sure though

State contributory pensions are subject to PRSI contributions only and are not affected by means. Non-contributory pensions are means tested. On the other hand occupational or private pensions are normally paid net of any state pension which you qualify for.

My Dad paid 4% and his employer the same for just over 30years, and he has always been just above the average wage,his policy was with Irish life for some part then with Canada life,
He got a lump some of 16,000 euro and gets around 800.00 euro a month, does not seem alot to me for someone who has had 8% of his wage going into to a so called good pension

8% is not an awful lot to be putting away though. And you cannot extrapolate from a single example such as this to the general case as there are so many factors that could have affected the ultimate payout.

all I say is be weary and your pension might be doing good now but really that means nothing until your cash in when you retire,Can I ask you what % of your current wage would you expect when you retire on a weekly basic

No idea. Haven't assessed this. I just maximise my pension contributions to my age related tax relief limit because I can afford to for the past years and invest in relatively high risk/reward funds because I still have a good while to go. I do put a bit more thought than that into it but I not an awful lot!

I know In some Countries you automatically get 70% of your wage when you retire after you have paid into your pension during your working life,

What countries? And what pension funds? State or occupational/private? Defined benefit (largely a dying breed) or defined contribution?

 

[dodo]

Re: Most Tax efficient renting?

What countries? And what pension funds? State or occupational/private? Defined benefit (largely a dying breed) or defined contribution?

Finland is a Country who I am quite familar with , and that seems to be the case there 70% no matter what your job, My inlaws both retired one was school teacher and other was in private sector, both now get 70% of the wage they once where on before retirement. I think private pension is not really a big thing there as the state pension is done this way. Also if one was to find themselves in an old folks home regardless of what your pension net is automatically 80% is taking from your pension to pay for your care the other 20% is for your personell use.this 80% would include all earnings profit after tax paid, ie if you had your house rented out the net income would also have to be deducted 80% to pay for your care. So you could have one person with pension of 1000K a month in same Old folks home as someone with pension of 5000K a month.Pension's are also taxed if it is over a certain amount.
I also think that 8% into a pension would not be to far of the average in Ireland, As I said before I did for over 10Years put in 7% and my employer 8%, 15% of total earnings, and earning good salary. But looking at the stats through the years it is no where near where I was told it would be.
I think I should have a choice to where I want my employer to put his contribution, ie if I wanted it to go into a high yield savings account along with my contributions which could not be touched until retirement, maybe their is such a thing ?
I calculated 5k at 3% over 30yr using compound interest = 12,136 Euro, taking 5K between combined contributions , so adding a minimum of 5K a year after that for each year and growing with wage increase and inflation, I dont know how to calculate in full but seems a good yield come retirement, I know taxes are an issue but I think the 3% sample is on the low side. Any idea how much this would amount to in 30years,

 

[ClubMan]

Re: Most Tax efficient renting?

Finland is a Country who I am quite familar with , and that seems to be the case there 70% no matter what your job

Seems to be or is? And what rates of tax and social insurance apply there?

I also think that 8% into a pension would not be to far of the average in Ireland

On what basis do you think this?

I think I should have a choice to where I want my employer to put his contribution, ie if I wanted it to go into a high yield savings account along with my contributions which could not be touched until retirement, maybe their is such a thing ?

Many occupational funds offer a range of funds investing in a range of assets. Many offer bond/cash funds but these are arguably not a good idea other than for those nearing retirement.

I calculated 5k at 3% over 30yr using compound interest = 12,136 Euro, taking 5K between combined contributions , so adding a minimum of 5K a year after that for each year and growing with wage increase and inflation, I dont know how to calculate in full but seems a good yield come retirement, I know taxes are an issue but I think the 3% sample is on the low side. Any idea how much this would amount to in 30years,

You have totally ignored inflation. 3% gross or net could well be a zero or negative real return when you take it into account.

 

[MMilken]

Seems like a flawed argument, the argument from the OP seems to be:

State pensions are high in Finland
=> pension schemes in Ireland are a gimmick.

This takes no account of the fact that marginal tax rates may be higher, with a higher level of State Pension Contribution automatically deducted than in Ireland and also no ceiling on the level of salary on which the pension contribution is deducted.

This is no camparison to the State Pension system that applies in Ireland.

The OP seems to be comparing the Finnish State Pension System to Private Pensions in Ireland, a completely meaningless comparison.

 

[GeneralZod]

Since 2000 I've had €88k in contributions (employee + employer) into my DC pension. The value of the fund in September was €110k. I'd have got better performance if it was invested in savings accounts. Pension provider is Canada Life.

 

[ClubMan]

But if you were saving in a deposit account then surely you would have only been able to save about half of the €88K since you presumably received c. 41% or 42% tax and 6% PRSI/health contribution relief on your contributions which you would not have received on deposit savings? And you would not have received the employer contribution.

Note that €110K from €88K over 7 years is c. 3.24% net which would equate to a gross deposit interest rate of c. 4.05%. Are you sure that you would have consistently received that or better over the same period on deposit? I was just shredding some old statements and the NR/Anglo rates on offer over some of that period (the best on offer at the time) were c. 3.5% if I recall correctly.

Also - what charges apply to your CL scheme? These could be a significant drag on performance and not an attribute of pensions in general whatever about specific offerings.

 

[CCOVICH]

Since 2000 I've had €88k in contributions (employee + employer) into my DC pension. The value of the fund in September was €110k. I'd have got better performance if it was invested in savings accounts. Pension provider is Canada Life.

What was the fund value in, say, March of 2007?

 

[CCOVICH]

Seems like a flawed argument, the argument from the OP seems to be:

State pensions are high in Finland
=> pension schemes in Ireland are a gimmick.

This takes no account of the fact that marginal tax rates may be higher, with a higher level of State Pension Contribution automatically deducted than in Ireland and also no ceiling on the level of salary on which the pension contribution is deducted.

This is no camparison to the State Pension system that applies in Ireland.

The OP seems to be comparing the Finnish State Pension System to Private Pensions in Ireland, a completely meaningless comparison.

Exactly-who funds 70% pensions in Finland?

 

[GeneralZod]

The tax relief is the saving grace.

I don't know what the charges are but they certainly aren't the best available if I was able to shop around. I should contact the trustees to request they get better value.

Here's a breakdown of the contributions and fund value.


Date-----------Contributions-----Fund Value
March 2001 7k 6k
March 2002 16k 16k
March 2003 28k 22k
March 2004 39k 40k
Sept 2004 45k 48k
March 2005 50k 54k
March 2006 62k 80k
Sept 2006 67k 86k
March 2007 78k 102k
Sept 2007 88k 111k

 

[Daddy]

Expect another poor year in investment returns General Zod.

Agree the tax relief is the saving grace.

I'm with Canada Life/Setanta - returns very poor over last 5 years.

The original projections on taking out the pension showed projections based on 8% p.a.

Projections in the last few years have now changed to 6% p.a.

I've achieved about 2% over last 5 years.

 

[ClubMan]

The original projections on taking out the pension showed projections based on 8% p.a.

Projections in the last few years have now changed to 6% p.a.

Those projections are meaningless in terms of what might actually happen. They are just done so that you can get projections using the same figures from a number of providers and based on those compare the net effect of charges on performance.

 

[MMilken]

The Financial Regulator adjusted the max projection rate that may be used by regulated firms from 8% to 6% in about 2003, that is why it changed.

 

[GeneralZod]

Clubman, you mentioned you're happy enough with the performance you've got over the years. What sort of return have you got and who's the provider if I may be so impertinent to ask?

 

[ClubMan]

I don't have the figures handy. I have three pensions at the moment:

• Hibernian personal pension plan - single contribution a few years ago plus the recent transfer of my Equitable Life WP/UL pension fund late 2007. Performance on the EL fund overall was a disaster for obvious reasons - just about breakeven in nominal terms since late 90s/early 2000s.
• Irish Life buy-out bond into which I transferred previous occupational scheme funds (from three previous employments consecutively and transferred each time I moved)
• Eagle Star PRSA which I have been contributing to for a few years now and which my current employer facilitates contributions to and matches 6%.

I have a good deal on charges on all three which minimises any drag on performance.