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I'm not sure what it's like in America but in England the retirement situation is absolutely criminal. I went through high school and was never once taught about retirement (and specifically pensions), my knowledge of pensions was limited to "they pay for old people" and until last year when a pension adviser came into the company office and explained them to me I did not consider ever setting up a pension. Thanks to that adviser I now have a pension that will (assuming I continue contributing to it) give me a fantastic retirement that I would not have otherwise had because starting a pension at 20 provides massive benefits over starting at 30 or 40. I've found myself preaching the value of pensions to dozens of people also in their early 20s in the last 12 months, not one person I've spoken to has understood the value of starting a pension now until it was demonstrated to them, it's crazy.

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There are significant downsides to saving for a pension as well, as I will try to illustrate:

The advantage of putting money into a pension (rather than regular savings) is presumably that you get to save the money in a relatively tax-efficient way.

In the UK, you can presently take a percentage as a tax-free lump sum, and an annuity allows you take advantage of an assumed lower tax liability at retirement. That's all very nice. However, if you have 40 (or even 50?) years until retirement, you'll be relying on several governments not to pull those rules and pinch from your pension pot, and you're relying on the financial industry to kindly look after your money for that long.

More urgently, putting money into a pension means that you don't have it for what you need now: if you need to pay off (or simply avoid) expensive debt, or if you need to save for housing rather than paying extortionate rent/mortgage costs, those should likely be higher priority.

There are not many young people who can put those concerns to one side and start saving earnestly for retirement.

There are downsides and pensions are not right for everyone, that much is true, however to describe them as "significant downsides" is misleading and is the sort of claim that has led to a lot of people now approaching retirement having nothing[1]. Pension rules could be changed by any government (as they have been a couple of years ago) however there is little incentive for this to happen in any impactful way: private pensions are what reduce the dependence individuals have on the state at retirement and the more individuals with pensions then the less the state (through taxes) has to pay out, this is good for the government, this is why the government provides tax incentives to contribute to a pension[2]. There's no difference between the government stealing from pensions and stealing from bank accounts or taking back property, if you were concerned about the government stealing from your pension wouldn't you have other concerns too?

Pensions are certainly not a magic bullet that is perfect for everyone, they are however something that should be seriously considered by most people. You don't have to make the decision between saving for a house or having a pension, if you can afford to save for a house then it's very likely you can afford to contribute towards a pension too!

[1] During the 80s and 90s a lot of people looked upon pensions with suspicion and opted out, now personal finance forums are full of people regretting this and blaming the media for the hysteria that has left them penniless. Most people didn't opt out of contributing to a pension to instead invest in stocks or property, they opted out to spend an extra £100 a month on luxuries.

[2] For every £60 I put into my pension the government matches it with £40 (roughly).

Totally agree that personal financial management is far more important in schools than dates of the War or the Roses or analysis of Shakespearean poetry.

re your [1] : Compared to spending £100 a month on luxuries, almost any sort of saving is better. £100 a month on lottery tickets is probably better (from an investment point of view). If you haven't got the financial discipline to save £100 a month then set up a direct debit to take it soon after payday or whatever. Any high street bank will be happy to do this.

re your [2] : Can you please provide info on this? I can't easily find info on it. I found the following:

"You pay Income Tax on your earnings before any pension contribution, but the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot" [1]

First in any investment strategy it is far better to pay off any debt first. Borrowing money while saving is absurd because the interest you incur on your debt is always higher than the interest you receive on savings. And borrowing while playing the stock market is even worse. Given the recent new of most people's debt, I suspect reducing debt should be _most_ _peoples_ concern. This includes things like checking if your mortgage agreement allows you to pay off more than the minimum to finish the mortgage early.

After that, you can invest up to £11,520 a year in a tax free ISA (albeit only £5,760 in cash for unknown reasons). Unlike pension income, withdrawals from ISAs are not taxed, there is no age limit, you can withdraw as much as you like, and its always your legal property. That last point is a big plus.

My dad paid into a company pension for 30 years. Then they went bust, and it turned out the directors had raided the pension pot. Some diretors got suspended jail sentences but that doesn't mean they had money to give Dad though. So he only qualifies for the State pension all the time wishing he never went in with all the 'your money is protected' assurances.

[1] (http://www.hmrc.gov.uk/incometax/relief-pension.htm)

The amount the government contributes in tax relief depends on your income tax level. For a higher rate tax payer (that includes me) it's 40%. I was sort of sneaky with quoting that figure, as the average person does only receive the 20% but I figure the audience here is mainly well paid professionals so for the average HNer it's going to be 40%.

Also yes absolutely, trying to beat the cost of debt with savings isn't going to work for most people, perhaps I should have clarified my position a bit better: I think that if pensions and retirement were taught in school it would be a part of proper financial education, financial education would teach people how to properly manage money and so most people would be considering setting up a pension before they had any debt and if they did enter into debt it would be smart debt (mortgages, business loans and the like) not bad debt (to pay for a holiday or new gadget).

Although ISAs are good for saving (over not saving) the returns are negligible compared to a pension, with a pension the tax relief and potential employer contributions would greatly exceed any potential returns from an ISA. If we round up and say the limit on an ISA is £12,000 per year and the interest rate you could get on £12,000 was 3% and you're a 20% tax payer then you'd need to earn £15,000 to get £12,000 cash (after 20% income tax), then if that £12,000 sat in a 3% ISA for a year you'd earn £360 (tax free interest) making your total £££: £12,360.

If you earned £15,000 and paid it into a pension that £15,000 would never be income so it would never be subject to any tax, so already you're £3000 ahead. The tax relief on £15,000 for a 20% tax payer would be £3,000 meaning the contribution to your pension (assuming 0 employer contributions) is £18,000, 50% more than if you took the cash and put it into an ISA, after only a year! Pensions aren't ever taxed, it's only the income that is taxed once you take it at retirement, if your pension payments remained below the income tax limit (at present that's just over £10,000 for a retiree) you'd never pay a penny. ISAs and pensions are completely different in terms of what/why/when to use them but a pension is absolutely the more financially sound long term investment.

What happened to your father sucks a lot and it's definitely the case that some people did get the short end of the stick in years gone by (and it's shameful that it was allowed to happen) but fortunately pensions are now much more regulated and it's very unlikely for this sort of thing to happen again. If someone is confident that they can make better use of their money to secure their long term financial future by not paying into a pension then so be it, but for most people (in my experience at least) it's not "pension or ISA?", "pension or property investment?" it's "pension or an extra night out every week".

Pensions security information can be found here: http://www.pensionsadvisoryservice.org.uk/security-of-pensio...

I don't consider there to be a government contribution at all: in reality, they are permitting you to pay income tax at a later date (at a rate we don't yet know).

Assuming you have covered your debts and housing costs and have decided to forego luxuries and still have enough spare cash to save in a pension, then:

This situation can benefit you, yes, but only under the assumption that you will have a lower percentage income tax liability in retirement compared to your liability now.

This is typically true under the current system for present-day retirees, but is not guaranteed to continue. If you do end up paying the same percentage income tax after retirement, having a pension agreement or not will make little difference to your wealth. With a pension, we are now taking a risk that depends on the future of the political system. I understand if you think that's a fair enough risk, but there's more:

A pension is legally locked up until age 55, a pressure point that may prevent you from accessing accounts with properly competitive fees in the future (since you won't have access to accounts outside the pension system, you may also have to suffer the worst of the financial industry).

If there's any reason you need the saved money prior to 55 - you can't access it and will have to make expensive decisions to cover this. This is the final nail in the coffin for me: unless you have a whole bunch of rainy day savings, on top of your house ideally with no debts attached, a pension becomes a poor risk compared to non-pension savings IMHO.

In the example where you quote numbers, you seem to have double-counted the tax relief for a basic rate payer (your numbers are wrong; though they seem correct for a 40% payer - high earners may benefit more from a pension).

Best of luck with your investment decisions.

I don't think you have clearly understood most people.

Most young people genuinely can't afford to save for a pension beyond the state-provided pension - if you have any significant pension at retirement, you're in a position of luxury.

People with private pensions are, objectively, significantly wealthy retirees who don't really need or deserve such tax protection as they presently have. This has already begun to change: the age-related allowance for pensioners has been scrapped, this year.

You might be right that the political incentive won't be there (certainly, the media has spun the 'granny tax' impressively), and surely you won't suffer from being able to afford both housing and retirement savings, but the generation gap between wealthy old people and struggling young people is definitely causing increasing political tensions.

I believe the OP is actually speaking about saving in general, not specifically in a tax beneficial investment. He appears to be arguing more for the idea of saving in general over spending all your income. Obviously a preferable strategy.

The notion - not to save anything - actually comes as a bit of a surprise to me, so I thought I'd point it out.

In the US most financial education happens in books, radio, or television. There are several personalities who all say the same basic things: stay out of debt, save cash for when shit happens, save for retirement-probably 15% or as much as you can, save for your kids college as early as possible. Pretty much everyone says the same things and it's not bad advice.

People typically wait too late to save or pay off debt. It's very easy to hang yourself with debt in this country. It's probably the worst thing about living here. You can make good money and feel broke all the time because you signed up for two car payments, a student loan, and a 30 year mortgage where the payment almost entirely goes to interest for the first decade.

A cynical viewpoint: the acceptable curricula for most schools is set through an accreditation process heavily influenced by the government. The government has an interest in maintaining a supply of voters dependent on the dole. The curricula stays abstract and while the procedures to calculate retirement savings may be taught, the concrete examples stick to keeping the trains running on time.

I doubt it. A good retirement plan will make you a good taxpayer for decades longer.

That would be a good plan, except for the fact that those on long-term benefits have amongst the lowest turnout at elections.

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