Alternatives to a pension?

Goldiethedog_2 · 7 October 2004 at 1:41AM

I don't have a pension currently, at least not since i left my last company 5 1/2 years ago.
My current company offers one but it didn't seem a great thing to do 5 1/2 years ago.
I currently put some money into a savings account each month but this is not enough.
Are there straight alternatives to pensions without investing in property etc? Or should I opt for the company pension with their meagre contributions?
I can't afford both...

dunstonh · 7 October 2004 at 12:13PM

Their meagre contribution is still free money. Then add in the tax relief and you have more free money.

You will not find a financial advisor out there who will tell you not to join the occ scheme. Even if it is the worst scheme in the world, you take the maximum free money from the employer that you can get.

Is the occ scheme a final salary, defined contribution scheme or a group personal/stakeholder pension?

Darryl · 11 October 2004 at 1:40AM

Goldie

I would recommend reading the Motley Fool's guide to pensions.

http://www.fool.co.uk/pensions/pensions.htm

I also agree with DD, in that if my employer was contributing anything into a pension for me I'd take it. But, is their contribution dependent upon you paying into your pension, or not? If not, I'd take their money and the tax relief you'll get in the company pension. Nice free cash, as DD says.

Whether you also contribute to it is another question, if it's not a requirement.

Hope this helps

Darryl.

deemy2004 · 11 October 2004 at 4:41AM

CASH ISA's

are the best alternatives to pension, RATHER I should rephrase that are FAR better than pensions.

Until this business about means testing is sorted out, its not worth having a pension unless your fund is likely to exceed 40k in TODAYS money.

So yeh, get your employer contributions, but don't put a penny of your own hard earned cash in !

Pal · 11 October 2004 at 1:02PM

Given that you don't know how old Goldiethedog is, it seems a bit odd to assume that £40k is somehow an unattainable limit.

Means testing in its current form will not exist in 10 years time. The position may have improved or it may be worse, but it will definitely have changed. Not saving now because of a current means-testing problem that will have changed by the time you retire is foolish in the extreme.

Cash ISAs are also not going to earn you a lot of money in interest, and you cannot contribute much to them, particularly when the contribution limit comes down to £1k a year in the near future. The tax relief on them is also not guaranteed past 2009, making them a somewhat dubious long term savings vehicle.

As DD says, anyone who works for a company that contributes to a pension scheme should join it and maximise the company contributions that they can receive from it, and if that involves contributing something themselves, it is still worthwhile doing it.

dunstonh · 11 October 2004 at 2:33PM

CASH ISA's

are the best alternatives to pension, RATHER I should rephrase that are FAR better than pensions.

Until this business about means testing is sorted out, its not worth having a pension unless your fund is likely to exceed 40k in TODAYS money.

So yeh, get your employer contributions, but don't put a penny of your own hard earned cash in !

OUCH. Cash ISAs are fine for someone with no retirement planning of any sort and less than 3 years to go to retirement and dont want to pay much in.

If you are risk adverse, you can still invest in cash funds, index linked, fixed interest, corporate bond funds and gain the tax relief on the contributions on a stakeholder pension. A stakeholder makes 22% overnight (assuming NRT, LRT and BRT and 40% with HRT). A Cash ISA would take at least 4 years at current interest rates to get that and wouldnt have the growth in the mean time. In addtion, in retirement you have a tax free earnings allowance. You should utilise this and a pension will do so. A cash ISA wouldnt. In 2006, a cash ISA drops to £1000 a year and that isnt enough for most peoples retirement planning.

Cash ISAs are way down the list of products to use to build up a retirement fund. Interest rates appear to be levelling out now and longer term expectation is to remain at this level and then slowly drop again. This will make cash isa rates drop not much higher than the level of inflation.

Until this business about means testing is sorted out, its not worth having a pension unless your fund is likely to exceed 40k in TODAYS money.

The minimum income guarantee (MIG)has gone and has been replaced with the pensions credit which does not penalise savers and smaller pensions in the same way the MIG did. There is also no guarantee that the pension credit will exist in the future. The country cannot afford to maintain it long term so relying on it would be foolish.

Alternatives to a pension?

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