In a recent edition of the Sunday Times, the author Hunter Davies proposes an interesting concept regarding pensions. He puts forward a good argument that it may not actually be worth having a pension (he for example is not paying money into one) due to the present mess of the whole pension industry, the complexity of running one combined with the financial raping you can expect from your advisors/administrators.

Davies's Pension Contentions

The main problems Davies has with the present pension system are as follows;

• The population is living longer which in itself is a big problem (annuities are having to pay out for more years)
• Soon with the advent of pension policies like SIPPS you're (on paper) going to be able to put all sorts of investments into your pension pot, but will you actually easily be able to do this (he argues no), and
• even if you can add different investments such as property, wine and antiques you won't be able to do this on you own, no you'll likely have to employ another financial firm/advisor and be forced to buy their complicated and expensive packages, fill in endless forms, conform with ridiculous money-laundering regulations and of course pay a 5%+ upfront fee alongside with another 1-3% for managing your pension pot year on year
• So in the end, just how much will you be left with?

Davies go onto say that 12million of the adult population are failing to save properly for a pension including many people like himself who can actually afford to, especially with the 40% tax-break on offer. His argument of not having a pension is simple. 10 years ago he cashed in a small personal pension fund and received an annuity rate of 13%, whereas today he'd be lucky to get 7% even though he's got 10 years less to live. In theory he suggest they should be paying him more.

Nasty Fees

• These fees are not uncommon amongst pension companies - deduct 5% of every contribution, a 1.5% annual fee and a monthly policy fees of around £2.50
• The FSA's data show that a 45 year old man contributing £200 a month in a personal pension over 20 years could easily pay £24,000 in charges over the lifetime!!!!
• That's 50% of TOTAL CONTRIBUTIONS
• It makes the author shiver when much of the population is being financial raped liked this, BUT don't realise

Pension versus Investments - Some Simple Calculations

Davies has done some back of an envelope calculations and reckons that even counting in the 40% tax break someone who invests in a traditional pension can reckon on getting a 1/4 back in cash due to the expected low annuity rates. As he puts it 'they're so kind in letting us have some of our money back'. Pensions therefore might not be worth it for the effort and the possible few extra pounds due to the tax-break.

So the solution is simple, just invest the money yourself and be free to put it to work anywhere obviously taking full advantage of the tax-breaks that are offered for different savings and investment plans.

Summary

Davies puts forward an interesting concept. Almost everyday we see pension debacles in the press whether government or company pension schemes. Obviously by opting out of a pension and just investing for the future you've got to have a certain amount of available cash (a 40% tax payer for starters) but for people worried about the future of both state run pensions and those run by the ever greedy financial institutions it wouldn't be a bad idea to do some further research down on the ideas presented.