Ajay Ahuja Blog Post on Holes, Gaps and Shortfalls


If you have a defined benefit pension scheme (which is very rare and expensive these days) then do not worry.  The full risk of meeting your final salary demands falls 100% to the provider.  Lots of companies have massive holes, gaps, shortfalls in their pension funds because the stock market has performed so badly.

If you are like the masses you probably have a defined contribution pension scheme.  The risk falls 100% to YOU.  Yes you.  All the scheme defines is what you have to give them!

They will do as they please, charge you 2.4% on the amount you contribute, lose you up to 25% of your contribution every year and then give you what remains when you turn 60.  Then you use this money to buy an annuity and let me tell you the income you can get is a complete rip off.

The only benefit of having a pension scheme to contribute to is the tax saving.  However I have been plugging away on my scientific calculator big time.

Over a 10 year period if you contributed £50 per month, £600 per year then the total contribution to the pension scheme will be £1,000 per year if you were a higher rate tax payer.  So a total contribution of £10,000.  Now lets ignore the charges and the fact that they would have lost you around 25% of your capital and assume they made 0%.

Your £10,000 will provide an income of £55.80 per month till death from age 60 onwards.  This was the best rate I could find.  Some offered just above £30 per month.

Now remember a contribution of £50 per month is cashflow outwards.  Cashflow negative, loss making, hurting your pocket etc.  However you name it its money outwards.  But that’s ok as you will get some benefit (if you survive) when you cash in the fund.

Now I find no money down deals which are sometimes cashflow negative.  Sometimes they are £50 cashflow negative.  If you carried a property investment with a £50 negative cashflow you could expect the property to be £80 cashflow positive in 10 years assuming a 3% rental growth rate and have £35,000 in equity assuming a purchase price of £100,000 and a property price growth rate of 3%.

Now this £80 positive cashflow will be inflation linked (as it will be based on market rent), receivable at any age (as no need to wait till 60 to comply with pension law) and receivable till your death, your children’s death and your children’s children’s death.  Basically FOREVER!.

The £35,000 equity will rise in the long term forever also.  You can cash it in whenever you want but remember you will have to say good bye to the monthly positive cashflow!

So if you want to provide for yourself during retirement then think about what I said.  Do you want to contribute to a massive reckless organisation called a pension company or do you want to invest it in a property with your name on it which you can see and touch and profit from now?

If you want to get some little or no money down properties or even properties that pay you a cashback then read some of my advice books.  We would love to hear from you and help you build a retirement income for life and beyond!