I have noticed recently that in many times in newspapers pensions are given a net worth. Surely a pension to a person has not net worth but has an income per year: there being a difference between income and wealth. Also when a government document was published in the newspapers that 1 in to households were worth 1 million pounds: a substantial amount of this was pensions: if memory serves me correct about 7-800,000 of it.
When you take into account that in the uk any money saved in a penions has to go to buy an annuity, and that if you stop paying into a private pension before you retire you lose all the money: as 1 in 3 people do in the first 3 years. Are pensions really the easiest way to transfer wealth from a alrge amount of people to financial institutions.
Pensions are sold on fear and not numbers.
1. The fear of having no money in retirement.
2. The fear of losing the money you have paid in(which increases as they years go by).
3. Also that on retirement what you get is not decided by you but the company you get the annuity from.
So are pensions a con?
reply to post by FyreByrd
The pension has a networth to the pension company as they own the money you have given them. Whereas you own the income and income and net worth are very different concepts. For instance would you put your salary down as an asset? No.
The income of something would be something which would be placed on an income statement. Where as the net worth of an individual would be simply what things would be sold for. Although it would be interesting if the amount people had paid into pension schemes and invested in the same form and the possible income to derive, could be compared with the annuity rates I think it would be most enlightening.
Definition of 'Net Worth'
The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure of how much an entity is worth. A consistent increase in net worth indicates good financial health; conversely, net worth may be depleted by annual operating losses or a substantial decrease in asset values relative to liabilities. In the business context, net worth is also known as book value or shareholders' equity.
Investopedia explains 'Asset'
1. Assets are bought to increase the value of a firm or benefit the firm's operations. You can think of an asset as something that can generate cash flow, regardless of whether it's a company's manufacturing equipment or an individual's rental apartment.
2. In the context of accounting, assets are either current or fixed (non-current). Current means that the asset will be consumed within one year. Generally, this includes things like cash, accounts receivable and inventory. Fixed assets are those that are expected to keep providing benefit for more than one year, such as equipment, buildings and real estate.
reply to post by FyreByrd
Annuities are the worst thing ever in the US. The guarantees are tricks. For example many annuity companies offer guaranteed life income benefits of say 5% annually. The average sheep thinks geez I can get 5% a year guaranteed. This is not the case. The income they give you (using a completely different rate) is guaranteed to go up 5%. The problem is once you begin that income, you give up any principal you may had. That income also includes any principal you may have given up so part of their guarantee is actually return of capital and not actually income.
The only time annuities would be a good investment is if we saw a huge decline in the markets over a very long period. Then the returns would make sense. However if we saw such a prolonged decline the insurance companies would all go broke, leaving the policies worthless as well.
I don't sell my clients because that's not my style - the downfall of that is that an insurance gets a hold of them and sells them what they think is security and stability with these annuities - and they end up bailing on me to their own detriment. Makes one think doing the right thing for people is actually the wrong thing for myself. I know- too much information. Annuities are the biggest con on the planet. Pensions as a whole are not, although they have their whole set of problems.