Pensions – Why are they so bad?

It’s that time of year when  I receive pension statements. I do wonder what the point of a pension is as every year their value may increase (a little) but their payout forecast just drops and drops each year.

This year my paid up personal pension is quoting a ‘massive’ £283 PER YEAR pension when I reach 60 – Wow that is really going to give me enough to live off! ** I did look at re-starting this pension but they want me to get a solicitor to sign off forms to prove my identity!? WTF ?! They know where I live, they have history on me and can check the DD details and ID check me electronically – I still pay contributions to them for something else – so why do I need to provide all this info, just so I can restart monthly payments as a fixed rate ( due to their rules(?) I can only pay in the amount that I was when I stopped it. Which is a pittance anyway).

I stopped it because it was a pension I took out when I first started working and my employer at the time did not have a pension scheme. I then moved job and wanted to join my new employer’s really good company scheme (it was a final salary!) – at that time you couldn’t have two pensions on the go so I had to stop this one. My final-salary pension is now deferred as I have left that employer and I know what that will pay out from 65, they currently guarantee me an annual value. Can I be sure it will still be there when I reach 65 – possibly not if BHS, Hoover, etc… are anything to go by?

The next pension statement was for my personal pension (a stakeholder) which I still contribute to, a small but regular payment. If I retire at 55 (I set the age to this when I opened it to give me flexibility to drawn from that age onwards if I wanted to), I will receive a whole £850 PER YEAR. Not even enough to pay my annual council tax never mind monthly living costs.

The next pension statement received is from my current employer pension scheme. Now, this scheme is a money-purchase – I don’t know anyone who has an active final-salary one now. It’s value is open to fluctuation and heavy interpretation anyway. If I continue to work for my present employer until I reach 65 (which I very much doubt – given the fact that I am looking to leave), I can potentially claim a pension of £3,000 PER YEAR.

I don’t get to claim my state pension until 67 due to the government changes, which could change again between now and then. I also cannot get a figure out of DWP either as due to opt-out years, my state pension value will have a deduction due to SERPs opt-out years, which they will not calculate until I actually reach state pension age. So all I know is that it will be less than £8k per year as I will have opt-out deductions.

That’s why I am so glad I am investing separately to gain some control over my future with savings via ISAs and a SIPP, I can see the value when I want to and do something about it. Well, at least try to do something about it! 🙂



6 thoughts on “Pensions – Why are they so bad?

  1. Still, the £850 + £283 = £1133 less which you will have to find when you come to retire.

    In isolation, those small pension pots seem hardly anything, yet there will be some people who will need to live on that (plus whatever state pension they have) because that is all the pension savings they will have.

    Auto-enrolling is good but it’s only the start – having gotten people enrolled, these people need to be advised that saving a few %, whilst better than nothing, still won’t be enough.

    • Indeed – People see all these current pensioners with great pension income which is due to final salary schemes. It’s going to be a big shock to the generations as the defined pension schemes start to kick in and retirees start to see that pension income has collapsed and with successive governments tinkering – the situation is only going to get worse.

  2. You can be sure that it will still be there when you are 65. That is the point behind the Pension Protection Fund, to step in in case the company go bust. Having said that, there is some limitation on the payment and index linked but it is still better than nothing.

    I had the same reaction with my work pension which I contribute 3% as my employer contribute 3%. The last statement reckoned I will get a level pension of £1,100 per year so the index-linked pension is much much lower), thirty four year down the road. My own personal work pension which I am very committed to paying 25% of my salary (I sometime to do wonder…) and likely until I retire only suggest £5,000 per year, again a level income. Not particularly high either. Got a long way to go to catch up with assumed retirement income of 70% or £18,000. 😦 I will still contribute as much as I can though. Of course, the numbers on these pension statement you are looking at tend to be the worst case assumptions and set by a regulator so they have to use these assumptions. It is likely that you should may get higher income than projected. My plan is to retire at 55 or whenever the pension can be accessible..

    But, it is still one of the best way to save up for the retirement and all the funds in personal pension are protected by FSCS with no upper limit unlike the SIPP which only go up to £50,000 limit. Which is something you should bear in mind with SIPP should a SIPP provider goes bust.

  3. I think you may be surprised, if you ask for the transfer value of these pensions, that they are higher than you would expect from the small projected payout. I was in the same position, requested a forecast for a couple of small pensions I held, and found in both cases that the projected fund value decreased in time, owing to the practice, common enough, of taking charges out of the first couple of years pension contributions. I own shares in a company, Chesnara, that makes a healthy profit out of just such practices. Consolidate them into a SIPP is my advice.

    In short: get the transfer value. If it is more than say 15 times the projected pension value of 283, then move to a SIPP and invest it yourself.

    • I agree; it’s generally a better idea to consolidate pensions, as long as they are defined contribution, not defined benefit (final salary) pensions – the lstter should be left alone.
      Also, although the amounts appear pathetic, they’re based on a lifetime annuity; the recent changes give more options for pension drawdown.

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