Pension vs Inflation

R

roker

Registered User
Messages
2,045
Now I that inflation has taken off, I find that it is eroding my payment of contributory pension. Where my defined benefit scheme for the rest of my retirement does not go up with inflation my, state pension does. Is it beneficial to pay in for 40 or 50 yrs while inflation does its thing, and then have the payment at retirement frozen in an Annuity
 
Last edited:
Are you referring to an annuity that you bought at retirement? Or a defined benefit scheme? Or something else?

As far as I know when buying an annuity there is normally an option to choose index linking or not.

I'm not sure if some or all defined benefit schemes offer index linking either as an option or by default.

The state pension is not index linked.

Is it beneficial to save into a pension during one's working life? Definitely!
 
Hi roker

Are you asking for practical advice for yourself or are you asking a theoretical question about the value of contributing to a pension?

Yes, contributing to a pension is worthwhile. Although, at times, other objectives such as clearing your mortgage may be a priority.

On retirement, you normally have a choice of
1) An ARF
2) An annuity linked to inflation
3) A higher annuity but not linked to inflation.

If you chose option 3 ten years ago then you have done very well so far. You won't know for some time, whether it was the right choice or not.

Brendan
 
Most existing DB schemes are not indexed linked as they are too expensive. Many others are at the trustee's discretion but given the cost of index linking annuities, you can assume that they won't increase.

When buying an annuity was a thing, we always advised clients to purchase a level annuity (one that doesn't increase) because it would take over 20 years for an index linked annuity to pay out more. By that stage you would be in your 80's and, as long as you had your health, your need for money would be less.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I paid in to a Defined Benefit scheme which converted to Annuity on retirement.
If you look back over your working life the contribution as a percentage of wages are very small at the start and cannot add much to the retirement package.
 
roker said:
I paid in to a Defined Benefit scheme which converted to Annuity on retirement.
Click to expand...
Are you sure that it wasn't a defined contribution scheme? I don't think that you buy an annuity from a defined benefit scheme?
roker said:
If you look back over your working life the contribution as a percentage of wages are very small at the start and cannot add much to the retirement package.
Click to expand...
I don't understand your point here. Even a small contribution to a pension early on has decades to grow and benefits from significant tax reliefs so will generally accumulate to something significant at retirement. In fact small contributions early on are arguably more important than larger ones near retirement.

But that's moot for a defined benefit scheme which you claim to have...
 
Last edited:
roker said:
I paid in to a Defined Benefit scheme which converted to Annuity on retirement.
If you look back over your working life the contribution as a percentage of wages are very small at the start and cannot add much to the retirement package.
Click to expand...
DB schemes do pay an Annuity on retirement. That Annuity can be paid monthly out of the Fund OR the Scheme might offload the longevity risk and buy an Annuity with an Assurance Co.
 
Thanks @Conan - I assumed that DB schemes paid directly from the fund rather than via an annuity. My mistake so thanks for correcting it.
 
You must log in or register to reply here.
Menu
Log in
Register