Pensions?!

clarkie28

Hey all.

I was just reading the post on NI contributions etc and thought i would ask y'all about pensions.

I am 32 and a couple of years ago i thought i should start a pension or savings plan of some sort for when i retire. I went and chatted with a financial advisor in Barclays (but he was an independant broker with no strings with Barclays!) and i was given 3 potential outcomes for when i retire, which were all rather poor!
I was advised that even at today's monetery value i would need to put £500-£600 a month into a pension fund to receive £15000 a year! Who can afford that?

Plus, what with banks and financial institutions going under recently you could lose everything you have paid in.

On the upside, the government add to your contributions. And they make a big thing of saying its tax free, but you get taxed your money when you start to draw your pension when you retire!!!
So i just started to stick away a set amount each month into an Isa. What do you all do and what can you recommend? Many thanks

rml380z

In the "We're all doomed" moments I have, I think anyone below 40 is going to be shafted by the time it comes to draw a pension, no matter how much you shove into a pension, so there's no point.

Also, I'd be suspicous of those 'independent' advisors in banks. They may not recommend their own products, but I'd be surprised if they didn't recommend a product in company that's in the same banking group (http://www.moneysupermarket.com/c/news/who-owns-who/0003118).

I always thought that pensions were better than ISAs for retirement planning because pension contributions are tax-free. Now, however, I'm not sure, since - for instance - you get taxed on pension interest but not on ISAs. Anyone know how to do the maths?

PBo

rml380z wrote:

In the "We're all doomed" moments I have, I think anyone below 40 is going to be shafted by the time it comes to draw a pension, no matter how much you shove into a pension, so there's no point.

Also, I'd be suspicous of those 'independent' advisors in banks. They may not recommend their own products, but I'd be surprised if they didn't recommend a product in company that's in the same banking group (http://www.moneysupermarket.com/c/news/who-owns-who/0003118).

I always thought that pensions were better than ISAs for retirement planning because pension contributions are tax-free. Now, however, I'm not sure, since - for instance - you get taxed on pension interest but not on ISAs. Anyone know how to do the maths?

I'm not sure what you mean by "pension interest".

Here's my understanding

For a personal pension, your money goes into a pot and is invested in shares etc. The size of that pot (hopefully) increases, either by buying and selling shares at a profit, or by earning dividends. I think these "extra" bits of money can be taxed, which means that your pot doesn't grow quite as quickly as it could. On the otherhand, I think your pension contributions are before tax, so it feels like you get more (80 pounds for an ISA is worth 100 pounds in a pension at basic rate)

Once you get your pension, I think the lump sum is tax free, but the regular income is taxable as any other income.

If stock market behaves averagely, you'll do better than regular savings - and if it does really well, you'll get a lot more, but there is risk. Obviously it can crash, and to offset this, as you get closer to retirement, a larger part of your cash goes into safer (but potentially lower returns) investments like bonds.

An ISA is tax free on the interest earned, but of course your contributions have already been taxed (if you earn enough). And whilst having better interest rates than a normal savings account, can't match the potential returns of a pension, nor even the returns on the safer investments that pensions use close to maturity. Plus, the maximum amount in an ISA is absolute, whereas I think a pension is a percentage of income, so the more you earn, the more you could invest.

Now, this may or may not help you in your decision - depends a lot on your income and expectations.

Pross

I started a pension when I left school and joined a local authority at 16. When I left 8 years later that was worth around £3k a year. I have since been paying into a private company pension plan (well, the company has been at 4.5% of salary and I keep promising to make contributions 'next year' which of course never happens!) but these have been stopped for the past year as a recession measure although now restarted at 1%.

If I'm really lucky I may end up with £15k a year when I retire in about 25 years time but it's a lot more than I would have if I didn't have a pension scheme as I'm useless at saving. My grand plan is to get back into the public sector for the last 10 to 15 years of my career to top up that pension scheme but this will fall apart if final salary schemes get stopped.

Headhuunter

clarkie28 wrote:

Hey all.

I was just reading the post on NI contributions etc and thought i would ask y'all about pensions.

I am 32 and a couple of years ago i thought i should start a pension or savings plan of some sort for when i retire. I went and chatted with a financial advisor in Barclays (but he was an independant broker with no strings with Barclays!) and i was given 3 potential outcomes for when i retire, which were all rather poor!
I was advised that even at today's monetery value i would need to put £500-£600 a month into a pension fund to receive £15000 a year! Who can afford that?

Plus, what with banks and financial institutions going under recently you could lose everything you have paid in.

On the upside, the government add to your contributions. And they make a big thing of saying its tax free, but you get taxed your money when you start to draw your pension when you retire!!!
So i just started to stick away a set amount each month into an Isa. What do you all do and what can you recommend? Many thanks

As the last poster explained, putting money into an ISA means you have already paid PAYE and NI whereas putting it into a pension means you don't get taxed on the portion of your salary you pay into the pension. Of course as you point out, there is an element of tax to pay at the other end...

TheStone

The main benefit of a pension is that it's not taxed on the way in.
If you're in the higher tax rate this makes some sense are you're unlikely to be paying
higher rate on the way out.

The downside is that between fees and tax on any profits (Brown added this one), it's not
that great.

Lets assume you pay in £250/month for 30 years = 93k

Assuming growth of 1% above inflation (profit - fees and tax)
Lower rate tax: 135k Higher rate tax 180k

And 3% above inflation
Lower: 187k Higher: 250k

Now with that pot, you can take 25% tax free, then invest the rest in an annuity.

Taking the very highest figure of 250k and assuming an annuity of 5%, (I think they're lower at the moment), you'd get 62.5k lump sum and 9.3k/year, so you'd only just be
outside your tax allowance and hardly pay any tax.

That said, how long can anyone last on 9.3k/year???

passout

This thread is so depressing........

I pay as much as can into a pension but I'm increasingly thinking you need a plan B - property (not including where you live), shares, gold, art work, bank heist, something high risk/return.

wildmoustache

Assuming you don't need the fund till retirement, you're better off in a pension than an ISA, assuming you take the 25% Tax Free Cash ... but there is more political risk in that your investment is locked up and the benefits (including Tax Free Cash) could be reduced/removed by a future Govt. No getting round that one I'm afraid ...

verylonglegs

PBo wrote:

An ISA is tax free on the interest earned, but of course your contributions have already been taxed (if you earn enough). And whilst having better interest rates than a normal savings account, can't match the potential returns of a pension, nor even the returns on the safer investments that pensions use close to maturity. Plus, the maximum amount in an ISA is absolute, whereas I think a pension is a percentage of income, so the more you earn, the more you could invest.

Now, this may or may not help you in your decision - depends a lot on your income and expectations.

You can buy and keep individual shares within an ISA wrapper along with managed funds, tracker funds etc. An ISA is not just for cash and the annual limit will soon be £10000 which is more than the OP was talking about as monthly savings anyway.

The trouble is you are making plans for, in my case, around 30 years time using todays rules which can effectively be changed by government whenever they feel like it. Remember Mr. Brown scrapping the dividend tax credit as soon as he got into power? Who's to say someone else won't go even further. You could bust a gut saving for your own retirement only for those in power to decide through punitive taxes you should share it with people who simply couldn't be arsed to save. Cheery thought eh?

My own personal preference at the moment is using the company scheme with matched contributions as its free money effectively but the bulk of my retirement saving are in shares held within ISA's which I manage myself. One of the biggest drains on your fund can be the fee's your pension/investment company likes to think they are worth for looking after your money. I've always been of the opinion why would you hand over hundreds of pounds of your money that you'll eventually come to fully depend on over to someone you don't even know! So although it's time consuming I prefer to do the share picking bit myself and if you don't fancy it or dont have the time then use a low cost tracker fund.

wildmoustache

verylonglegs wrote:

PBo wrote:

An ISA is tax free on the interest earned, but of course your contributions have already been taxed (if you earn enough). And whilst having better interest rates than a normal savings account, can't match the potential returns of a pension, nor even the returns on the safer investments that pensions use close to maturity. Plus, the maximum amount in an ISA is absolute, whereas I think a pension is a percentage of income, so the more you earn, the more you could invest.

Now, this may or may not help you in your decision - depends a lot on your income and expectations.

You can buy and keep individual shares within an ISA wrapper along with managed funds, tracker funds etc. An ISA is not just for cash and the annual limit will soon be £10000 which is more than the OP was talking about as monthly savings anyway.

The trouble is you are making plans for, in my case, around 30 years time using todays rules which can effectively be changed by government whenever they feel like it. Remember Mr. Brown scrapping the dividend tax credit as soon as he got into power? Who's to say someone else won't go even further. You could bust a gut saving for your own retirement only for those in power to decide through punitive taxes you should share it with people who simply couldn't be arsed to save. Cheery thought eh?

My own personal preference at the moment is using the company scheme with matched contributions as its free money effectively but the bulk of my retirement saving are in shares held within ISA's which I manage myself. One of the biggest drains on your fund can be the fee's your pension/investment company likes to think they are worth for looking after your money. I've always been of the opinion why would you hand over hundreds of pounds of your money that you'll eventually come to fully depend on over to someone you don't even know! So although it's time consuming I prefer to do the share picking bit myself and if you don't fancy it or dont have the time then use a low cost tracker fund.

Surely you're paying whoever's buying and selling the shares on your behalf?

TheStone

I'd avoid property for a while. Great hedge against inflation, but still way overpriced and
supports being removed.

Shares might be a better bet. The FTSE companies are so international that it's almost a
slight hedge against the £.

I've got some gold. Possibly overpriced (now in it's own bubble), but nice to have as
insurance against whatever might happen.

verylonglegs

wildmoustache wrote:

verylonglegs wrote:

PBo wrote:

An ISA is tax free on the interest earned, but of course your contributions have already been taxed (if you earn enough). And whilst having better interest rates than a normal savings account, can't match the potential returns of a pension, nor even the returns on the safer investments that pensions use close to maturity. Plus, the maximum amount in an ISA is absolute, whereas I think a pension is a percentage of income, so the more you earn, the more you could invest.

Now, this may or may not help you in your decision - depends a lot on your income and expectations.

You can buy and keep individual shares within an ISA wrapper along with managed funds, tracker funds etc. An ISA is not just for cash and the annual limit will soon be £10000 which is more than the OP was talking about as monthly savings anyway.

The trouble is you are making plans for, in my case, around 30 years time using todays rules which can effectively be changed by government whenever they feel like it. Remember Mr. Brown scrapping the dividend tax credit as soon as he got into power? Who's to say someone else won't go even further. You could bust a gut saving for your own retirement only for those in power to decide through punitive taxes you should share it with people who simply couldn't be arsed to save. Cheery thought eh?

My own personal preference at the moment is using the company scheme with matched contributions as its free money effectively but the bulk of my retirement saving are in shares held within ISA's which I manage myself. One of the biggest drains on your fund can be the fee's your pension/investment company likes to think they are worth for looking after your money. I've always been of the opinion why would you hand over hundreds of pounds of your money that you'll eventually come to fully depend on over to someone you don't even know! So although it's time consuming I prefer to do the share picking bit myself and if you don't fancy it or dont have the time then use a low cost tracker fund.

Surely you're paying whoever's buying and selling the shares on your behalf?

It's £10 or 1% of the amount you are investing, whichever is greater. I save for a bit and buy in four figures sums and really don't trade that much so its a one off cost. A lot of dealing is what fund managers do to try and justify their existence and annual fees but its really not necessary and I've always thought you'll only get burned anyway if you start flipping them and chasing the quick profit. The only time I broke this personal rule was on some Barclays shares which I bought when they were around 65p last year...couldn't turn down that sort of gain!

gabriel959

TheStone wrote:

I'd avoid property for a while. Great hedge against inflation, but still way overpriced and
supports being removed.

Shares might be a better bet. The FTSE companies are so international that it's almost a
slight hedge against the £.

I've got some gold. Possibly overpriced (now in it's own bubble), but nice to have as
insurance against whatever might happen.

Well, according to some in the known the Great Big Crash is about to happen any time now.

I am just waiting really, so that gold might come in handy.

mrushton

It's quite simple, you just need a high paying job!

I work for a University whose Vice Chancellor recently retired. In his last year his salary rose to just under £250k and he was on a final salary pension. His pension pot proviided by the Uni was 50k per annum, yes 50k! In his final year, his pension pot had reached the legal maximum so they gave him the money as a pay rise. When he left he was given £30k for 'loss-of-office' whatever that means. He also got a free house/living/chaffeur during his time in charge.

There you are, quick tip to leaving with a good pension.

Stone Glider

I speak as someone who has reached that point in life when you find out if all the promises made by the "financial advisers" (it is quicker to think sellers) come true. The best investment I made was to work for Local Authorities in London in the 1970's. Non-contributory, index-linked and well manged. For nine years of sevice I got £8,000 in a tax-free lump sum and three hundred punds a month from the age of 60 To buy an annuity that would provide that sort of return you need approx.£200,000+

My other funds were a couple of company pension schemes which were good as long as the company contributed and Equitable Life They totaled less than £200,000 I took the maximum tax-free cash and obtained flat-rate annuities which pay out approx. £800pcm. On all that I pay tax @20% less allowances.That happened in the late summer of 2008, former colleagues made redundant later in the process, or slower to realise their assets lost 30% of the fund values the day after I converted the last fund to cash. They are too old to recover that loss. The annuity rates I obtained, with the help of an IFA, are no longer available.

So what am I saying? It all depends on timing that you do not control. Decisions made on the basis of sound advice, like Equitable Life can go wrong, returns on savings are rubbish and represent a huge fraud perpetrated by the government to prop up the banks. Cash ISA rates, unless you pay high rates of tax, are no better than some ordinary savings accounts but if you already have ISAs you are stuck. If you choose to save look for schemes with low charges, avoid "managed funds" as they are punting your money and if they lose you pay, not them. The best piece of financial advice I heard was "if it sounds too good to be true, it is".The pleasant person in the bank/building society/insurance offfice is earning a big wedge out of your savings before you do. Long term, stocks and shares always represent a chance to gain capital growth and you do get dividends Good luck, I have had some of both

redddraggon

mrushton wrote:

I work for a University whose Vice Chancellor recently retired. In his last year his salary rose to just under £250k and he was on a final salary pension. His pension pot proviided by the Uni was 50k per annum, yes 50k! In his final year, his pension pot had reached the legal maximum so they gave him the money as a pay rise. When he left he was given £30k for 'loss-of-office' whatever that means. He also got a free house/living/chaffeur during his time in charge.

Alan Gilbert?

shouldbeinbed

Pross wrote:

I started a pension when I left school and joined a local authority at 16. When I left 8 years later that was worth around £3k a year. I have since been paying into a private company pension plan (well, the company has been at 4.5% of salary and I keep promising to make contributions 'next year' which of course never happens!) but these have been stopped for the past year as a recession measure although now restarted at 1%.

If I'm really lucky I may end up with £15k a year when I retire in about 25 years time but it's a lot more than I would have if I didn't have a pension scheme as I'm useless at saving. My grand plan is to get back into the public sector for the last 10 to 15 years of my career to top up that pension scheme but this will fall apart if final salary schemes get stopped.

I'm in public sector and the only perk is the final salary pension scheme but the writing is on the wall for these BIG style. If its still around in a couple of years I'll be utterly amazed, I expect it to go sooner once the austerity measures start to kick in.

the only way to do well out of pensions other than being on a megabucks salary is to be retired now or very very soon, otherwise we're all working till we die.

gabriel959

Whatever you do we are doomed, FIAT is f00cked big time, end game is close.

Gold will delay the pain for a bit, but get sovereigns!

Stone Glider

The problem with gold is that it pays no dividend. IIRC there are strict limits on British people owning gold, so you might try gold minig shares or foreign coins/soverigns. The trouble is that Tesco, Netto and Lidl do not sell gold, there is no local branch of "Golderama", you are paying intermediaries for the privelege; you also have to store the gold securely, which will affect your home insurance if you keep it under the bed. If you want to sell some you pay agents yet again BTW Premium Bonds have lowered the prize fund over recent years to 10% of b*gger all, but the prizes are tax free

As Gabriel said we are doomed :?

Frank the tank

Three words.

BRICKS AND MORTAR

If I had my time again I'd be tempted to keep climbing the property ladder then downsize at retirement and live off the proceeds.

As has been mentioned, you can pay into a pension for years only for it to go t*ts up at the death.