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The long game

June 11th, 2019 · Posted by Skuds in Life · No Comments · Life

Way back in 1974 my mother set up a life policy for me with a friendly society. The premiums were a shilling a week, and a man from the society would come round to collect them. Not every week because, after all, it was only a shilling. I think he came round a couple of times a year.

It was a 60-year life policy and over the years the company evolved and changed names a few times. Payment methods also evolved and changed, so at some point they stopped doing doorstep collections with stamps in books and would have ended up with direct debits, but mum kept up the payments. A few years ago she decided it was too much hassle to keep payments of 5p a week going. Of course the payments would not have been weekly, but even annual premiums would only have been £2.60 so she just paid the whole thing up front, which wasn’t a huge amount either.

She sent me the papers for it and we both assumed it would be worth so little it wasn’t worth thinking about. Last month I decided to call the company to see what the policy was because I didn’t know and mum couldn’t remember. I almost fell off my chair when they told me it would pay out £1847 if I died and had a surrender value of the same. There can’t have been more than £120 of premiums paid into it since 1974.

I decided to cash in now. The decision took me about 5 seconds. I filled out the paperwork and the other day found £1888.70 drop into my bank account. Since my phone call the policy value had gone up to £1851 and then they added on the pre-paid premiums that covered now until 2033. Sweet.

I’m not writing all this to brag or anything, but to point out how the miracle of compound interest and long-term growth rates make it worth putting a few quid away when young, or on behalf of somebody who is young. This especially applies to pensions. Retirement may feel like a long way off, but if you wait until it feels close it is too late to do anything about it.

I can add that to the list of things that I wish I appreciated a long time ago. My salary now dwarfs what I was earning when I finished at ICL in the early 90’s and I have contributions of about 15% going into the pension now, compared to 1% or 2% at ICL, but the pension I will get from ICL is way higher than what I will get from my current scheme just because of the miracle of time. If I had joined the pension scheme there earlier and paid a bit more in, maybe packing in the fags to afford it, I could probably retire now!

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