The proposed Pension workaround

[Protheroe]

I don't see the need to invest in a higher risk funds if, as they are younger, they will have compound (safer) returns over a longer period. The higher risk returns are needed when you are near the end and your pot is short.

And with auto-enrolment is place then it is unlikely that the future pensioners will have just the State Pension and puts a limited time benefit on the PAYE proposal, as everyone will have more than one income and need to do a return in the future. Plus there is the added administration around that as there is with any PAYE system. Running a PAYE system for 20m pensioners would be a nightmare.

By focussing on the issue and not the reason you will get into a death loop - the focus needs to be on that dependant ratio and increasing those paying in as opposed to the ones taking out. Having said that though maybe Nigel really does have the solution by reducing the NHS it should stop supporting the elderly and hep them on their way earlier therefore reducing the pension bill.

That goes completely against any investment logic I've ever read! Thank goodness my kids have been long on US-tech in their kiddy ISAs rather than plodding along at a 1.5-4% return on cash/ 

As for auto-enrolment, it will end up being the greatest misselling scandal in history for a variety of reasons. The first being you can virtually guarantee the State Pension will become means-tested (paying twice anybody?) and the second being that higher earners probably don't appreciate they're not putting as much in as they think they are - and their employer certainly isn't!

[baggy1]

Who said anything about 1.5% to 4% return. Read what you will into any post and make out your kids are in a better place (I've got investment ISAs open for both my grandkids if that helps with the top trumps my kids are better than yours)

[Protheroe]

Who said anything about 1.5% to 4% return. Read what you will into any post and make out your kids are in a better place (I've got investment ISAs open for both my grandkids if that helps with the top trumps my kids are better than yours)

Your investment advice is nuts. What do you think constitutes a "safer" return (your words)? 

"Safer" returns won't have any equity exposure at all. Cash and bonds have delivered 1.5% - 4% gross over the last 20-odd years. You'd have handsomely lost money in real terms over the last 5.

[baggy1]

Taken in the context of the thread you would see that investing in safer doesn't mean put it into cash or bonds. The context was the standard risk pension funds as opposed to BBs suggestion of higher risk funds (standard being safer that high risk). The reason for standard risk is because it is a government backed initiative and they are risk averse.

And I don't recall giving any investment advice in this, just a suggestion on what the government could do. I'm quite comfortable with my investment spreads thank you.

[Protheroe]

standard risk pension funds 

Returns have been derisory v Benchmarks and even more so against something as simple as global ETF. The young should be actively seeking risk from pensions, there's no downside when the Treasury is effectively introducing means-testing of the State Pension by the back door anyway.

[baggy1]

Which is fine and they are entitled to make their own choices for that, however if the government enforce them to take out a pension (via auto enrolment) and then put the money in a higher risk fund then that isn't the individual's choice.

And how are they means testing the State Pension by the back door?

[Borin' Baggie]

It's higher risk compared to a stupidly low risk fund that's set up for people less than 5 years from retirement which is the current default for workplace pension funds. Global all cap ETFs track the global economy. Unless this is fixed auto-enrollment won't have the desired effect and people will still be reliant on the state to subsidise retirement because the returns won't have materialised, I worked an example with a fairly modest 7% Vs a generous 4% to highlight the extent of that effect.

[baggy1]

Aren't you discussing two different points there - the low risk element only impacts those in the latter years and you started by talking about the under 40s. I would agree that people should be given the choice on where they invest, but lumping them into a higher risk fund from the outset carries risks, and in the modern world compensation, if it goes wrong.

[Borin' Baggie]

No, have you looked at the default options offered in workplace pensions? They're defaulting to assets and bonds for people under 40, that's stupid. The default should be a higher risk, global tracker and then people who are closer to retirement and actively planning can reduce their risk in case of a global downturn because the chances of the global economy being worse in 40 years than now for someone in their 20s is remote and if that does happen we've got bigger things to worry about than retirement.

[CarlosCorbewrong]

As usual, Boring is right. A quick glance at global tracker performance (or even S&P 500) would show that (CAGR of around 10%). Of course, they have their dips, but £1000 invested in the s&p 500, 40 years ago would be worth around £90k (inflated, that £1k is worth about £4k now)

A fine poster, worthy of respect.