You Shouldn't Pay into a Pension | Hacker News Reader

You Shouldn't Pay into a Pension

orth.uk

2 pointsSpaghettiX10 comments

This seems to be the argument for “defined benefit” (pension) vs “defined contribution” (401k) to use the us as an example. In the latter case, it’s cash under the workers control and it’s usually wise to contribute enough to pick up the full match. Countries have various mechanisms to save for retirement and it’s wise to do so, while keeping an eye on how taxes will be deferred or avoided with each mechanism.

This avoids trusting the employer.

Don't get confused by the word pension - the defined contribution version (closest equivalent of a 401k) is still called a pension in the UK.

I guess it’s where the money is and how it’s controlled. Here in Canada, we have a tax free and tax deferred mechanism and both are owned by the individual. Pension, as far as I can tell, is used as in the us - it’s a defined benefit mechanism. Having worked in tech, such things are unfamiliar to me. There are also work based, and residence based government pensions/benefits separate from whatever comes from some aspect of government or corporate employment.

> Pension, as far as I can tell, is used as in the us - it’s a defined benefit mechanism

My point was to draw a distinction between this and the UK (where the author of the post is). In the UK there's

- state pension (similar to social security in the US) (not the topic of this thread)

- defined benefit pensions - increasingly rare because they're expensive for the employer (some older companies and the National Health Service still have this type)

- defined contribution pensions - similar to a US 401k - you contribute some % of your salary, your employer does too, you can decide what to invest in or transfer to a different provider when you move jobs - this is still called a pension in the UK, it's the most common type of pension and it's the topic of the original post

(Hi, thanks for reading, I'm the author).

In this case, the article uses the term pension to include "defined contributions", like in https://www.moneyhelper.org.uk/en/pensions-and-retirement/pe....

> Countries have various mechanisms to save for retirement and it’s wise to do so Could you elaborate on why is it "wise to do so"? On paper, these contributions is free money.

In practice, you don't have access until retirement and the law can change at any time. (See article for more disadvantages that are often overlooked or not mentioned.)

How can anyone forecast the economy in 40 years? It looks like people rightfully "avoid trusting the employer", but how can anyone trust the governments more than employers?

You can't, but setting out to save for retirement in a way that you control the funds seems safer than trusting that a big company or the government will provide all that you need. If they do, great, you'll be better off than you think. Other things that should occur is setting up to have paid-off living arrangements and as few debts as possible when the income stream runs down or out. You're the only one responsible for your career, and you have yourself to a small group depending on your decisions.

And for the N American systems, the funds are accessible at any time with probable tax penalties and possibly other fees. Only the defined-benefit pension is out of reach. Each country might define loopholes that permit use of funds for specific purposes - have not checked.

This ignores that most employers will do a pension match. So yeah you pay in X% of your salary, but so does your employer. That's X% more money that you're getting — for free.

It also ignores that you can take out a portion of your pension tax free, and that your marginal tax rate is likely to be lower in retirement.

It also ignores the amount of flexibility and options that you have in terms of picking your provider and your investments.

A bunch of things in the article are outright wrong, others are misleading - it's a bad look for the author to criticise things they understand so poorly.

Hi, thanks for reading it. I'm the author. I'm sure others might understand the pension world more than me - I wanted to share my perspective. I was offered a pension match in th past, some were good (e.g. up to 7% match).

I didn't include the "positives" of having a pensions, because that's common knowledge about pensions. I might improve this article based on your concerns.

Yes, is free "pension-money", but until you take it out, it means nothing. Some of the disadvantages in my article are more certain to actually happen. All of the disadvantages I noted need to be resolved before you get your extra 7%-matched pension money.

Is the risk worth it? For me: no, pensions are not worth the risk.

Assuming you ever manage to get it back out. I've met more people working after retirement than not, very few of those felt they could do without the job.

My employer assured me for years that I was paying taxes, Social Security, and pension savings. Turned out not to be the case. I spent my health on that job and found out that I'm not eligible for any assistance because I never paid in. The difference between me and most folks is I already know how boned I am, it isn't a looming surprise.

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