Workplace pensions get off to flying start

Ed, I have to admit to enjoying these very civilised debates with you, though I fear we are never going to agree. The government has played a very clever (for once) chess game, where they have almost forced the lower paid into saving for a pension. Why? Because there is no spare money in most companies. So any money now required for future staff pensions is going to effectively going to be taken from any future salary increases. Companies look at the [i]total[/i] cost of employment, including, NI, holiday pay, sickness and now of course pensions. There is no such thing as free money. If it's paid into pot "a", you'll loose it from pot "b". Those who could make better use of it are effectively stuffed! So from that perspective, you're right. The problem is, it may be it's actually costing you in getting what is in effect, your total salary. Furthermore, as already discussed, you'll probably never recover the total value. That for me is [i]not[/i] a good deal. I would also query your assumption that (for example) £1000 a year will provide a significant sum over 30 years. It may seem like it now, but inflation will take it's toll and 30 years down the road, it's probably going to end up as something very average. It's only people like me coming towards the end of their lives that have lived through these scenarios and experienced it first hand, can really understand the pitfalls of these schemes. There are simply too many unknowns. Make the contracts binding, with no changes allowed on either side and then you can get a realistic projection of the probability of success. Even then, due to stock market unknowns, it could only ever be a projection. As it stands, no one has a clue. For everyone's sake, I hope I'm proved wrong and although I think it's unlikely I'll be here in 30 years to have this discussion with you, somehow I think those that are interested will look back on this (if they remember) and say, "he was right".

Hi Lastchip, I know we've had this debate before, but I think it's worth repeating myself as new readers may see this. going through your points: - yes, auto-enrolment will affect many low paid workers, but I suspect you may underestimate how many people in the 30-50K bracket aren't paying into a pension at the moment. (I don't have facts to back up that suspicion though!) But even with the low paid - if you only save £1000 a year into a pension for 30 years - that will still become a significant sum when you retire. - Like you, I'm not a fan of managed funds. NEST will primarily use passive funds as the main component of its equity investments. It will only charge 0.3% a year in charges - plus an initial 1.8% when you pay money in. There are other low-cost pension providers emerging as well. - over the long-term I'd expect any passive fund tracking a mainstream index to beat inflation - I accept there are problems with annuities, but I stand by my view that things will eventually improve. - yes, current regulations mean that pension savers with relatively small pots can be penalised for saving by the welfare system - losing out on benefits. But the government's new state pension regulations should greatly reduce this problem from 2017 onwards. And anyway, even if the government continued with the current regulations, I still think it makes sense to build your own pot. At least with your own pot, you know that you'll definitely have some money when you retire, rather than relying on what a future government may or may not pay out. - yes, you're right, the government tweaks pension rules far too much. It's a pain, and it creates an unhealthy environment for pension saving. That said, I'd still like to build my own pot. And I'm happy to do that within a pension wrapper if that means I can get contributions from my employer. Ed

Hello Ed, [i]"I strongly disagree with you. If you opt out of a pension where an employer makes a contribution, you're losing out on free money. "[/i] I expected you to, but your argument only covers a small part of the equation. First, these pensions are designed (generally) for lower paid workers, therefore by definition, the amount they can save (even with the free money) is extremely limited. Second, look at the performance of managed funds over the long term, and the vast majority under perform their benchmarks. Third, now take inflation linked figures and see if the fund even keeps up with inflation. It may just about if it's one of the better funds, but many won't. So in real terms, it could be costing you to save your [i]own[/i] proportion of the money. All the employers contribution is doing (to a point), is propping up the management charges - however small they may be. Fourth, now having saved all your working life, look at the options to get your money back. Pathetic annuity rates that make sure in the vast majority of cases, you won't ever be able to recover the full amount. Most of these funds won't be large enough to initiate draw-down. I wouldn't incidentally agree, annuity rates are not going to remain low forever. Once they're down, they take a hell of a long time to go up. The insurers make damn sure of that. Fifth, now consider how your meagre pension will affect your potential pension credits (or whatever they'll be called by then). You've probably destroyed any chances of getting an enhancement and it could even have cost you money in the process. There is a crossover point that Dr Ros Altmann describes eloquently, where you are actually worse off with a personal pension. Sixth, consistent governments cannot resist in "tweaking" the pension rules to suit political ends. You're not even entering into a stable contact, where the parties commit to maintaining their side of the bargain. How can you plan in that scenario? The rules have failed for the lower paid, in my view, it's as simple as that. I don't believe I have ever said don't save for old age, but pensions are not the answer for the majority. If you're at the higher rate threshold, then it may be a different story. One could probably justifiably argue, any losses incurred throughout the life of the fund, are well covered by generous tax relief given by the government. Even then however, it's not cut and dried, as there is still an opportunity loss, that for some, may be worth passing on the tax relief. It's not as simple as "you're getting free money".