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Money Matters
Pensions?
By Louisemember has saluted, click to view salute photosPremium member Comments: 17315, member since Thu Jun 06, 2002
On Thu Mar 29, 2012 03:19 AM

I'm knocking on a bit so it's definitely time I starting thinking about a pension. In fact I probably should have done about five years ago :?

I have a SMALL NHS pension from my time working in the hospital. If I end up going back to the NHS then that would kickstart again and I'd pick it up from where I left off, but it's not for definite that I'd move back so it would be foolish not to set up a private pension. My current company doesn't offer one.

Where do you even start?!

Is there anything I should be looking out for in particular? For example with credit cards a high APR = bad bad bad. Is there anything like this in the pension market?

Naturally I'll be asking the husband and the in-laws who are quite knowledgeable on financial matters but it's good to get as many opinions as possible.

Mainly looking for UK responses (which will probablymean no responses to this, roffle).

4 Replies to Pensions?

re: Pensions?
By Angelinamember has saluted, click to view salute photosPremium member Comments: 10300, member since Mon May 06, 2002
On Thu Mar 29, 2012 04:52 AM
Heh, well I'm going to reply just so you have a UK response even though I'll be of very little help, as mine is through my work and I just put the minimum contribution in every month. Pensions are otherwise a total mystery to me, so I'll be keeping an eye out for anything useful that comes from this thread!
re: Pensions? (karma: 1)
By Chaconnemember has saluted, click to view salute photosPremium member Comments: 6359, member since Thu Jul 12, 2007
On Thu Mar 29, 2012 10:07 AM
I'm not in the UK, of course, but there are some universals here. Pensions vary widely, but fall into a few broad categories.

1. Government pensions. A typical case would be the US Social Security System. US citizens and residents MUST pay a percentage and their employers MUST match the amount on all earned income. If a person is self-employed they pay both the employee's half and the employer's half, currently a total of 14% up to a certain figure each year. Throughout one's working career in many countries, people and their employers pay a tax to the government and earn "credits" (the money you and your employer contribute is not actually yours) which are used to calculate some sort of government pension when you reach a certain ages. When you reach that age (it's a sliding scale in the US depending upon when you were born and is now tending to go upwards) your contributions are calculated along with the number of years you worked and you get that amount as a monthly pension. I don't get this because of some unique laws as applied to Civil Servants hired before a certain date, but my wife does based upon her career. I actually would hate to have to live on it, but for many people (my mom, for example) it is their total source of income in old age. Fortunately my mom remarried after my father's death to a fellow with his own employee's pension (see below.) The whole US Social Security System is based on the premise that more people will be working and paying into the system than are drawing from it. This may prove to be a shaky premise and many fear for this system here.

2. Some people have defined pensions from their employer. (This is what I have and also my wife.) This is an option with employers...some offer it as an incentive to retain employees and other provide absolutely nothing. More highly skilled people tend to be offered this. Peons get zilch! During a working career an employer and usually with contributions from the worker (in my case 8% of my income) contribute to a fund which upon retirement is paid out depending on length of service and final income according to a set formula. Governments and many big corporations have these for their employees. It is a device to promote long and faithful service and a hook to keep valued employees hired. My pension and my wife's pension are both from the government as I was a civil servant and she was a public school (in the US sense) educator and these pensions come from the government's role as our employer, not because we are tax-paying citizens. Many (such as ours), are quite generous if you have many years of service, and many come with built in inflation escalators based upon rises in the national cost of living. While ours is administered by the governments we worked for - me from the federal government as I was a federal employee and my wife from the state we live in because the state is the custodian for all teacher's pensions in the state - many from corporations are either administered by the company (if a large firm) or paid out in a lump sum, or the company hires an insurance company to administer the payout in the form of an annuity. Because my career with the government started immediately after college, I had many years of service and was able to retire at a comparatively early age. I was 57 and I could have retired at age 55.

3. Increasingly, people, at least in the USA, must finance their own pensions. A most common way to do this is by using some tax incentives. We can invest a portion of our earned income into a retirement account, receive a tax deductions (actually a deferment) and invest it in some sort of investment such as stocks, certificates of deposit, and hope that the long term reinvestment of dividends and capital gains will provide enough income to supplement any tax-sponsored program as outlined above. Many larger firms, as an employment benefit, will match all or a portion of the employee's contribution. If sustained for a long period of time and no withdrawals are done, one can build a considerable amount of money this way through compounding. I'm not a millionaire because of this type of investment, but I am at least a multi-thousand-aire because of it. Upon retirement a person could just live on this, purchase an insurance company annuity to provide a monthly income (essentially a bet between you and the insurance company as to whether you can outlive your investment); or (in my case since we both have generous employee's pensions), just let it sit in case it is needed. In the US, if one has such an account, you must start to draw down on this investment starting the year one turns 70 1/2 (which means me this year) if that account had tax deferred provisions. Starting this year, I have to withdraw and pay taxes on a portion of my total "kitty" based upon my life expectancy until the entire total is taxed. The government eventually wants its tax money, but in theory, my tax rate is lower now than when I was working (it actually isn't, but that is just my situation.) What I do with the rest of that money after I pay taxes on it is my business.

There are many variations upon this depending upon your country, the terms of your employment and many other factors. If laws in place now had been in place when I was in my 20's and I had started investing modestly back then rather than in my late 30's I would be a multi-millionaire by now. Fortunately I also have essentially a gilt-edge government pension and so does my wife, so we are doing quite well, but increasingly every individual, especially in the US must take responsibility for their eventual old-age care and welfare.

I can try to answer further questions of this, but what I have is really a layman's knowledge of how this works. The details are best left to professionals, but DDNer's who are in the early stages of careers should educate themselves as soon as possible so they know what the options and risks are.

Jon
re: Pensions?
By Gioiamember has saluted, click to view salute photosPremium member Comments: 3024, member since Sun Jun 20, 2004
On Thu Mar 29, 2012 02:07 PM
Obviously I am not in the UK, but if I were you I would start by googling "Personal Pensions" and seeing what comes up. Once you know a bit more about what you personally want, contact The Pensions Advisory Service (TPAS), their service is free!
re: Pensions?
By SarahdncrPremium member Comments: 634, member since Wed Jul 29, 2009
On Sun Apr 01, 2012 04:05 AM
Edited by Sarahdncr (214611) on 2012-04-01 04:06:09
I will not be a lot of help either as I am in the US, and I will be receiving two retirement pensions from the US Govt (1-because I work for them, and 2-Social Security when the time comes - if (big if btw) it will still be there??). Do they have private financial planners you can go to in GB as we have in the US? Have you asked your insurance company or the bank you do business with if they offer financial planning services to their customers? How about any professional (medical in your case) organizations you belong to? You may have to pay a fee for their advice and counsel, but it would probably we worth it. Hope this helps.

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