Pensions - how good an investment realistically?

[Gordon Gekko]

People are happy to get 0% for deposits these days.

This “goverment back bond/pension” stuff is a complete red herring.

We’d spend a fortune putting it together and then nobody would do it because lots of people either can’t be bothered or can’t afford to do it.

 

[AAAContributor]

A previous government has raided the invested pension funds of its citizens.

This is too extreme.

The State had a serious situation on its hands. What if you lost your job during that time and were told social welfare was halved in value? Resources had to be drawn from somewhere. We are not all individual atoms on this island. We depend on each other in lots of respects:

Protecting social welfare during the crash lessened income inequality - ESRI

A new report finds that protecting those on social welfare impacted on income inequality.

www.thejournal.ie

it is uncertain if investing in a pension in Ireland is a good idea. Pensions are a very long term investment and the rules should not be constantly changed by the government.

It is precisely because the pension reliefs in this country are so good that current or future governments may dial them back! Even if they do, after-tax investments will still be in the ha'penny place in comparison.

 

[Allpartied]

Not sure that someone on a salary of 70k could save 26k a year but maybe ...
A pension pot of € 280,000 would give you a pension of around € 10,000 per year with no frills such as inflation protection, spouse pension,

Yes, but , we can assume full entitlement to the state pension of 13k. And 280k, could be used over a shorter period. First of all, to maximise the tax free lump sum entitlement. Then use the rest duing the first 10/15 years of retirement, would be my recommendation.
Once you hit 75 or 80 your spending habits will change. Travelling will be more problematic, less appealing.
This idea that you need the same income at 65, as you do at 90 is a little misleading. Plus, there is a very good chance we won't make it to 75 or 80, let alone 90.

 

[Marsupial]

Of course, it won't happen and it won't happen because it would be hugely popular. The vested interests, some of whom appear on these pages, would not be happy and they have the ear of the Dept of Finance.

In other words you haven't bothered to consider any of the counter arguments as you are so convinced that you're right! And you are! Of course it would be popular, because it's a very populist proposal!
(You wouldn't by any chance be an honours graduate of the Pearse Doherty Economic Academy, would you?)

 

[Allpartied]

People are happy to get 0% for deposits these days.

This “goverment back bond/pension” stuff is a complete red herring.

We’d spend a fortune putting it together and then nobody would do it because lots of people either can’t be bothered or can’t afford to do it.

It wouldn't cost a fortune. The entire infrastructure is already there and all you would need to do is create another instrument on the State Savings scheme.

In other words you haven't bothered to consider any of the counter arguments as you are so convinced that you're right! And you are! Of course it would be popular, because it's a very populist proposal!
(You wouldn't by any chance be an honours graduate of the Pearse Doherty Economic Academy, would you?)

I'm happy to consider the counter arguments, once they are proposed.
So far, all I've heard is people saying it won't make as much money as the equity investments, run by private institutions. Which might be true, but might not be true.
it's just another option. I'm not sure what people are getting so worked up about. Competition is good. Isn't it?

 

[AAAContributor]

there is a very good chance we won't make it to 75 or 80, let alone 90.

That's not how the numbers are looking. See 'Mortality Assumptions' in this link:

Population and Labour Force Projections 2017 - 2051 - Central Statistics Office

www.cso.ie

Yes, but , we can assume full entitlement to the state pension of 13k.

That's not how the numbers are looking.

If we were to maintain the real value of the State Pension and assume there is a massive takeup of this idea as it is being assumed it would be "hugely popular", what would we cut back on in order to balance the shortfall in revenues to the State by offering such terms on the investment?

 

[bstop]

AAA contributor said

It is precisely because the pension reliefs in this country are so good that current or future governments may dial them back! Even if they do, after-tax investments will still be in the ha'penny place in comparison.
[/QUOTE]

The government can dial back on reliefs. Why would any citizen want to commit to a long term locked in investment when the government will not commit to a fixed set of rules for the investment term.

 

[Gordon Gekko]

Why would that citizen not just play the hand that they’re dealt and adapt if the rules change?

I’d feel like a bit of a clown if in 30 years’ time I’m struggling to buy a nice bottle of wine because I decided the pension rules might change and didn’t bother funding one.

They might evolve, or they might not, but the Approved Retirement Fund option, for example, is around for over 20 years. In that time the silly stuff has been cut-out (e.g. ARFs of unlimited value or ARFs being used purely as investment vehicles). But the whole thing has also been democratised now that more or less everyone can access them.

 

[AAAContributor]

Why would any citizen want to commit to a long term locked in investment when the government will not commit to a fixed set of rules for the investment term.

They would be advised to do so because any tinkering that has heretofore been done (or may arise in the future) still leaves the citizen in a far superior place to the alternative route of non-pension saving.

Why would we tie the government's hands? Things change - such is life. As a collective grouping it is in the interests to promote long-term saving. There may be policy changes at the edges but unless the country goes to hell in a handbasket, I fail to see what material changes have been made (or could be made) to this area that would deter the average citizen with any sense to avail of what is on offer through this route.

You weren't by any chance someone who got caught by the changes to ARFs in the early days? I believe that when they were first brought in, the terms were exceedingly generous and I have heard anecdotally that an ARF or two above EUR 100million were accumulated and the rules had to be tweaked to knock that on the head.

 

[JohnRoberts]

Not sure that someone on a salary of 70k could save 26k a year but maybe ...
A pension pot of € 280,000 would give you a pension of around € 10,000 per year with no frills such as inflation protection, spouse pension,

Why would you buy an annuity? The rates are too poor and you loose control over your fund.

 

[bstop]

[QUOTE="AAAContributor said

You weren't by any chance someone who got caught by the changes to ARFs in the early days? I believe that when they were first brought in, the terms were exceedingly generous and I have heard anecdotally that an ARF or two above EUR 100million were accumulated and the rules had to be tweaked to knock that on the head.
[/QUOTE]

I am one of the ordinary hardworking citizens who managed to accumulate a modest ARF to pay for a subsistance life style in my retirement. I am also one of the citizens who objects strongly to the government raid on my PRSA. Just because certain millionaires managed to accumulate large ARFs, I do not agree that it was correct for Units to be taken from the PRSAs of the ordinary worker.

 

[jpd]

Why would you buy an annuity? The rates are too poor and you loose control over your fund.

You might live to be 65+29 = 94 and then have no money left?

And remember, that in 28 years time, 10,000 will not be worth much - even if inflation is kept to 2%

 

[silverfox239]

Given the 'Mortality Assumptions' link above and fewer workers to support pensioners bigger question is will the State Pension be 'means tested'

My guess.... government probably won't means test but just let inflation eat away at it, so really need private pensions and auto-enrolment.

Only Ireland & New Zealand out of the OECD countries still do not have auto-enrolment

 

[Marsupial]

I'm not sure what people are getting so worked up about. Competition is good. Isn't it?

Fair competition is. However, I'm not convinced that the heads I win, tails someone else loses approach that you're espousing would be particularly fair.

 

[Allpartied]

Fair competition is. However, I'm not convinced that the heads I win, tails someone else loses approach that you're espousing would be particularly fair.

State Savings Scheme competes with private institutions for deposits. Not sure how it's unfair.
Govt backed scheme offers state backed guarantee, but lower returns.

Of course, when the financial system collapsed in 2008, those people who did use the security of the state savings scheme were no better off. Indeed, they looked like right chumps . They accepted a lower interest rate, to ensure security of funds. Yet the state ended up guaranteeing all deposits in the private sector anyway, so the state guarantee was pointless.
They might as well have lumped their savings into Anglo Deposits ( with higher interest rates) and joined the queue outside Mr Lenihan's office, when the bank went belly up. Now that really was " heads I win, tails you lose. "

 

[Conan]

Once you hit 75 or 80 your spending habits will change. Travelling will be more problematic, less appealing.
This idea that you need the same income at 65, as you do at 90 is a little misleading. Plus, there is a very good chance we won't make it to 75 or 80, let alone 90.

For a male retiring at age 65, the average life expectancy is now c20 years (and about 3 years longer for females). And life expectancy rates are only going in one direction.

 

[Allpartied]

For a male retiring at age 65, the average life expectancy is now c20 years (and about 3 years longer for females). And life expectancy rates are only going in one direction.

That's average. Which means half of us won't get there.
I had two relatives pass away in the last few years, both of whom made it to 95. Great age and all that, but they really weren't able to do much in their final 10 years. I mean they had a nice quality of life, watching TV, tipping about the house, eating their dinner, drinking their tea, chatting with children, grand children. The State pension was fine, more than covered their expenses in those final years.
Likewise my parents are both still alive, in their 80's. But, with one thing and another, they don't travel much, they don't go out too often, they spend very little.
Your scope for an active, action packed retirement is narrow. And, as I say, for many getting past 80 is not going to happen.
So, my advice, if you have some extra cash, is use it in your 60's or early 70's, because your ability or desire to do things, will change as you age.

 

[Marsupial]

State Savings Scheme competes with private institutions for deposits. Not sure how it's unfair.
Govt backed scheme offers state backed guarantee, but lower returns.

I completely accept your inability to understand my point and have no intention of wasting any further time responding.

 

[AAAContributor]

That's average. Which means half of us won't get there.

That's correct.

But if you drill into the numbers, those with higher levels of wealth live longer.

I suspect that those who come to AAM are looking to make smart decisions with their finances and may ultimately end up in this demographic.

I'm not sure the advice to have 100% of pension assets in government bonds at retirement age and then to spend this down at an accelerated rate serves people well.

 

[Conan]

Irish Govt Bonds are currently yielding less than 1% pa. But Bond values are only guaranteed if you hold the Bond to maturity. Otherwise the capital value rises when interest rates fall , BUT the capital value FALLS when interest rates rise.
So looking ahead, are interest are more likely to rise or fall? All the current evidence suggest interest rates are more likely to rise in the near future. So Irish Government Bond holders are getting a very low interest rate and may see capital values fall (if not held to maturity). Hardly an ideal investment strategy for retirees.