Your pension is tied to these companies stocks. I can pretty much guarantee that “your” pension fund owns quite a few of these stocks.
But, and this is the important part, that isn’t your pension. It is the pension for those that are retired right now. There is no saved stack of money that you earned during your life thats waiting for you. Unless there is an equal amount of tax paying workers by the time you retire, you wont be getting that pension.
I’m not sure how old you think most of us are, but I don’t think pensions are a common retirement vehicle anymore, and haven’t been for a while. 401k would probably be the modern equivalent, and it’s still running on the stock market for the majority of its life prior to beginning to withdraw.
A pension implies benefits are distributed to the person in retirement, usually with some fixed amount per month. My understanding is that in the UK, defined contribution plans are required to be invested largely in annuities by retirement, which satisfies that, whereas in the US, 401ks don’t have such restrictions. So a 401k could be depleated well before death, or be passed on to children as inheritance, unlike an annuity. There are required minimum distributions, but they don’t kick in until your 70s.
If 401ks switched to a defined benefit plan at retirement, I could see calling it a pension. But since they’re not, I think that’s misleading, and employer sponsored plan makes more sense.
When you’re able to take your pension, you can choose how and when you want the money. This usually includes the option of taking up to 25% as a tax-free lump sum and using the rest to get a guaranteed or variable income.
Looking more into it, I guess it’s similar?
The 401k typically doesn’t offer the guaranteed income, though I suppose some plans could offer annuities. You can choose to take fixed payments though, but there’s no guarantee how long that will last. I don’t know what the options are in the UK, but in the US, you can do whatever you like, as long as you withdraw the minimum (percentage of assets based on your age, starting at 73).
I see a pension as having some kind of guaranteed benefit. A 401k doesn’t have that, so it doesn’t count.
Yeah, again this is just semantics, a 401k in British English is 100% a pension. A UK defined contribution “workplace pension” is just a tax sheltered retirement account until it is annuitized, which is common and sensible but not necessary. The annuity is technically a totally different product, offered by life insurance companies (who interestingly with reference to above conversation would typically hold very little equity exposure backing it). Brits also call the equivalent to the social security retirement benefit the “state pension”. It’s a catch all for assets you use in retirement. Whether that’s used to fund an investment drawdown product or a life annuity or just taken out and splurged on a Ferrari makes no difference.
Interesting. I think people here would agree Social Security is a state pension, we just only call it by its name.
A pension specifically refers to a plan that makes consistent payments throughout retirement and stops at death (or may pass to the surviving spouse until their death). Anything else is a retirement plan if it’s tax sheltered until some age, or an investment account if it’s not.
I hear annuities are unpopular here, most seem to prefer either a dividend strategy, or sell securities as needed to cover whatever Social Security doesn’t.
I am in the US. In regard to employer based retirement, there are a few pension programs still available, mostly union based. In other corporate environments that do not offer union pensions (as they are non-union)- they offer the 401K if a for-profit or a 403B if non-profit. As you get closer to retirement, many 401K/403B recalibrate to a larger proportion of Bonds vs riskier stocks/futures. Although I also invest in some ETFs that are not pretax (only the earnings are taxable).
Right. OP’s point is that they call both defined benefit (i.e. what some union people get) and defined contribution (i.e. 401k and whatnot) a “pension.” My understanding is that a “pension” is a specific amount of money paid monthly in retirement (used to also just be the wage for certain jobs, not a retirement benefit).
A quick search yielded “defined contribution pensions”, which seems to be a mix: your contributions are invested during employment, and then you get a fixed payment in retirement.
With a 401k, there’s no fixed withdrawal in retirement unless you set one up, the only thing is a mandatory minimum withdrawal at a certain age (73?). My understanding is that wouldn’t be considered a pension since the withdrawal isn’t guaranteed or fixed, and you can withdraw everything if you so choose.
Maybe I’m wrong and a pension is a looser term there, but my understanding is that a pension needs to have a guaranteed benefit in retirement.
Your pension is tied to these companies stocks. I can pretty much guarantee that “your” pension fund owns quite a few of these stocks.
But, and this is the important part, that isn’t your pension. It is the pension for those that are retired right now. There is no saved stack of money that you earned during your life thats waiting for you. Unless there is an equal amount of tax paying workers by the time you retire, you wont be getting that pension.
I’m not sure how old you think most of us are, but I don’t think pensions are a common retirement vehicle anymore, and haven’t been for a while. 401k would probably be the modern equivalent, and it’s still running on the stock market for the majority of its life prior to beginning to withdraw.
Pension is the correct English term. 401k doesn’t mean anything unless you’re american.
I don’t think it is.
A pension implies benefits are distributed to the person in retirement, usually with some fixed amount per month. My understanding is that in the UK, defined contribution plans are required to be invested largely in annuities by retirement, which satisfies that, whereas in the US, 401ks don’t have such restrictions. So a 401k could be depleated well before death, or be passed on to children as inheritance, unlike an annuity. There are required minimum distributions, but they don’t kick in until your 70s.
If 401ks switched to a defined benefit plan at retirement, I could see calling it a pension. But since they’re not, I think that’s misleading, and employer sponsored plan makes more sense.
Not true of UK defined contribution, you can do what you want just like a 401k, though it may be disadvantagous for tax purposes.
It’s pretty normal in British English to use pension as a synonym for retirement account, though I can see why you don’t like that.
Really? This is what I see with a simple search:
Looking more into it, I guess it’s similar?
The 401k typically doesn’t offer the guaranteed income, though I suppose some plans could offer annuities. You can choose to take fixed payments though, but there’s no guarantee how long that will last. I don’t know what the options are in the UK, but in the US, you can do whatever you like, as long as you withdraw the minimum (percentage of assets based on your age, starting at 73).
I see a pension as having some kind of guaranteed benefit. A 401k doesn’t have that, so it doesn’t count.
Yeah, again this is just semantics, a 401k in British English is 100% a pension. A UK defined contribution “workplace pension” is just a tax sheltered retirement account until it is annuitized, which is common and sensible but not necessary. The annuity is technically a totally different product, offered by life insurance companies (who interestingly with reference to above conversation would typically hold very little equity exposure backing it). Brits also call the equivalent to the social security retirement benefit the “state pension”. It’s a catch all for assets you use in retirement. Whether that’s used to fund an investment drawdown product or a life annuity or just taken out and splurged on a Ferrari makes no difference.
Interesting. I think people here would agree Social Security is a state pension, we just only call it by its name.
A pension specifically refers to a plan that makes consistent payments throughout retirement and stops at death (or may pass to the surviving spouse until their death). Anything else is a retirement plan if it’s tax sheltered until some age, or an investment account if it’s not.
I hear annuities are unpopular here, most seem to prefer either a dividend strategy, or sell securities as needed to cover whatever Social Security doesn’t.
I am in the US. In regard to employer based retirement, there are a few pension programs still available, mostly union based. In other corporate environments that do not offer union pensions (as they are non-union)- they offer the 401K if a for-profit or a 403B if non-profit. As you get closer to retirement, many 401K/403B recalibrate to a larger proportion of Bonds vs riskier stocks/futures. Although I also invest in some ETFs that are not pretax (only the earnings are taxable).
Right. OP’s point is that they call both defined benefit (i.e. what some union people get) and defined contribution (i.e. 401k and whatnot) a “pension.” My understanding is that a “pension” is a specific amount of money paid monthly in retirement (used to also just be the wage for certain jobs, not a retirement benefit).
A quick search yielded “defined contribution pensions”, which seems to be a mix: your contributions are invested during employment, and then you get a fixed payment in retirement.
With a 401k, there’s no fixed withdrawal in retirement unless you set one up, the only thing is a mandatory minimum withdrawal at a certain age (73?). My understanding is that wouldn’t be considered a pension since the withdrawal isn’t guaranteed or fixed, and you can withdraw everything if you so choose.
Maybe I’m wrong and a pension is a looser term there, but my understanding is that a pension needs to have a guaranteed benefit in retirement.
About half of the US population is enrolled in a pension even today…
https://www.unpri.org/private-retirement-systems-and-sustainability/private-retirement-systems-and-sustainability-united-states/5990.article#%3A~%3Atext=The+US+is+the+world's+biggest+funded%2Cactive+(working)+members+and+10.3+million+retirees.