Thursday, 16 October 2008


I can stand back a little from the Pensions crisis since I have never been a member of a company pension scheme (actually for a few months I was in GEC's Pension since I reached a level in the organisation were it was compulsory, but the pension I receive from that is about £30 a year!). I did contribute to a private pension for a couple of years in my late 20's (The good old Prudential) and was convinced by a snake oil salesman (aka Independent Financial Advisor) to put some money into a "financial product" many years ago. I should have been suspicious about anything described as a revolutionary new financial product but I was young and naive. Both these investments still exist but profits are long gone in charges and fees!

The problem I've always had with pensions was quite simple. I give the pension company money every month for 40 years. They charge me fees to receive and look after this money which they invest on my behalf. If there are any profits AFTER they have had their slice off the top then that goes into my pension pot for the future. The annual fee is then taken again (usually a percentage so the better my pot grows the bigger the slice the pension company take in terms of number of pounds. In don't know why it costs more to manage £50,000 than £5,000 but it obviously does since at 6% a year the pension company make £3,000 to manage £50K but only £300 on £5K.

So after 40 years of handing over my money I';m then allowed to buy an annuity with it that gives me back some of my money every month until I die. Of course anything left after I die isn't part of my estate. it is kept by the pension company. So I've paid fees every month for 40 years to be allowed some of my money back when I retire but i never get control of the capital, I'm only allowed some of the income. If I put the money in the building society then they pay me for the privilege of investing it, they don't charge me to have my money in their account! AND when I want to retire the whole capital amount is mine!

Of course if you are in a scheme where your employer puts in matched (or even higher) contributions and your pension is a final salary scheme then you can't lose I suppose. Unfortunately for every winner in these public sector schemes at the moment there are dozens of losers in private sector money purchase schemes. Never mind who wants to retire anyway!

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