Why I've turned my back on pensions

There is a long list of potential problems with pensions.

I stopped paying into pensions quite a few years ago.

While I can still see a place for pensions for some people, everyone should be thinking about how much they should save elsewhere and whether a pension is right for them.

While there are many problems, here are the big ones for my situation.

Throwing money down the drain

One of the main problems comes from the fact that saving for retirement is not compulsory, so those who save often do little more than subsidise everyone else.

Most people who put money into pensions typically haven't saved enough, despite the high expectations in their youth. The state, and taxpayers, feel a moral obligation to ensure these retirees have enough to live on, so income-related benefits top up any shortfall in their state and private pensions.

But they typically don't get much more, altogether, than those who saved nothing.

The bottom line is that many who have pension pots of tens of thousands of pounds (the average is about £25,000) only get a few pounds more per week in retirement income than people who have saved nothing and spent all their money. You might need to save a lot more before you really see a dramatic improvement in retirement income.

Running a variety of scenarios through the Government's own online calculator, Benefits Adviser, I think many of these people won't even get back the amount they saved. I wrote about two of these scenarios in Saving in a pension? You're as well off on benefits.

Government tinkering

That situation should hopefully improve (although only up to a point) for new pensioners when the single-tier State Pension is introduced in 2016.

But this leads me on to my next big problem: Government tinkering.

All too often politicians break their promises and reduce the perks of pensions in order to pay for a pre-election bribe. And there's usually nothing you can do about it, because you can't take your money out of pensions early or under any terms other than those dictated by Government.

Government meddling is possible regardless of how you save, be it in an ISA, pension, or even with your own home. I'm a little worried about the future of share ISAs, for example. The only thing that might have a fair chance of avoiding a grab from very desperate future UK Government is foreign property (although it comes with plenty of other risks).

It is particularly easy for Governments to change pensions and, unlike ISAs, there are fewer opportunities for pension savers to take evasive action.

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Lack of flexibility

If we could get the pensions system working better, and make it compulsory, it'd be great. Forcing everyone to save and then allowing them to take just a small piece of it every month until they die is a great way to counter our primitive, impulsive and short-sighted behaviour, which just becomes a burden on later taxpayers.

The Government has taken a first step towards this with auto-enrolment, where all employees are automatically entered into a pension which they, their employer and the Government contribute to. For more, read Workplace pensions: what it means for you

But since the system is not working very well, I don't want to tie up my own money in that inflexible way. There are too many emergencies or other situations that might arise where I will need a larger portion of that money sooner.

Shaky maths

For me, especially in conjunction with the benefits issue, the maths is particularly shaky.

One of the biggest advantages of pensions is that employers often contribute, perhaps doubling your contributions or even a lot more.

I'm self-employed, so I don't have that advantage. If I was employed and offered a pension with low annual charges and high contributions from my employer (or a good, safe defined-benefit scheme), rejecting pensions would be a much tougher decision. If you're in this position, you need to think even more carefully than me before deciding not to use pensions at all.

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Not saving at all is far riskier

Even if you save outside of a pension wrapper, your state benefits in retirement might be reduced in proportion to your assets. But rejecting pensions doesn't mean you shouldn't save elsewhere.

With ISAs, you'll be able to spend more money sooner if you find it's not beneficial to hold onto it throughout your retirement. And with your own home, you have the option of downsizing or releasing equity only when you need the cash. This flexibility will allow you to maximise your State Pension and other retirement benefits.

The main risk of not saving at all is that you become reliant on the taxpayer funding you. The moral case aside, it's risky. Taxpayers might not always have the spare cash, or the goodwill, to do so.

What do you think? Is Neil right to turn to alternatives? How are you saving for your retirement? Let us know your thoughts in the comments box below.

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More on pensions:

Changes to auto-enrolment push 170,000 out of pensions

Only Mexico has a worse State Pension than the UK!

The worst places to put your pension

OFT orders reforms on poor value pensions