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can i cancel my pension?
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# 1
lukemed1
Old 22-01-2006, 12:10 PM
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Question can i cancel my pension?

hi everybody!

just a quick question

i currently have a stakeholder pension with virgin worth about 2000, could i in anyway 'cancel' this to use the money to pay off some debts?

best regards

Luke
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# 2
nearlyrich
Old 22-01-2006, 12:22 PM
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The short answer is NO sorry you can't access any money in a pension fund until you reach the age it becomes payable. You might be able to suspend your payments to divert the premium into paying off your debts??
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# 3
margaretclare
Old 22-01-2006, 12:24 PM
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Hi Luke

You should have some paperwork about your stakeholder pension - dig it out and have a read of what it says.

AFAIK once you start a pension and are still under 50 (or 55?) you can't take the money out - this is because of the concessions given you from the Inland Revenue. You can of course stop paying into it and re-start any time. But I don't think you can take the 2000 out.

The 2000 is growing where it is - leave it alone and one day you'll be glad of it!

Aunty Margaret
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# 4
lukemed1
Old 22-01-2006, 12:36 PM
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ok!


thanks alot for your replys guys!!

thought i wouldnt be able to access it!

regards

Luke
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# 5
EdInvestor
Old 22-01-2006, 4:39 PM
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Yet another one.

Note to Moneysavers:

If you are thinking of saving up in a personal pension (rather than a company one with free money from the employer) and you are a basic rate taxpayer, then consider instead using an ISA.

Both of them offer tax relief, but with an ISA you can take out both the capital and the income tax free any time, while you can't ever take the capital out of the pension and the income is not available until you are aged 55, when 75% of it is taxed.

Be warned!
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# 6
lisyloo
Old 22-01-2006, 5:21 PM
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I agree to an extent with what Ed says but it's one side of the story.

You get tax relief on a pension so if you put in 78 you get 100 in your pension, so you get a 28% uplift.
It's true that you would have to pay 22% tax on 75% of that but the whole lot would have grown in that time, so apart from 25% tax free, you get capital growth on 128%.

So in summary I would like to point out that
1) flexibility is better in an ISA, but there are greater tax benefits to pensions.
2) Cash ISAs are limited to 3K per year per person.
3) Some people are already using ISAs.
4) Some employers match contributions in pensions which makes them even better.

I am not trying to say pensions are great.
In fact I think there are some huge downsides, however I wanted to balance up the discussion a bit as only one side of the argument had been put.

Other downsides with pensions are that you currently HAVE to take an annuity and rates are rubbish at the moment and likely to get worse.
You are also at the whim of governements. The tax laws could changes at any time (same could be said for ISAs).

Also bear in mind that if you fall on hard times, then your ISAs will count against you for means tested benefite. Pension assets will not.

I agree with you Ed but what you said is only one factor in a much bigger picture.
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# 7
ReportInvestor
Old 22-01-2006, 5:25 PM
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Quote:
Originally Posted by lisyloo
4) Some employers match contributions in pensions which makes them even better.

Other downsides with pensions are that you currently HAVE to take an annuity and rates are rubbish at the moment and likely to get worse.

I agree with you Ed but what you said is only one factor in a much bigger picture.
Ed specifically excluded pensions where employers make a contribution from his post.

Good point about annuity rates.

The big stories that won't go away in this weekend's press are how we are going to be surprised that 18% stock market growth in 2005 may still result in lower pension estimates on our annual future estimates .
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# 8
dunstonh
Old 22-01-2006, 5:51 PM
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Quote:
Other downsides with pensions are that you currently HAVE to take an annuity and rates are rubbish at the moment and likely to get worse.
Although post 65 annuity rates are better than savings rates.

There are lots of pros and cons with a pension and an ISA which is why most sensible people will do both at some point in their working life. Doing nothing is the worst thing.
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# 9
EdInvestor
Old 22-01-2006, 7:32 PM
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Hi lisyloo

Quote:
Originally Posted by lisyloo
...so apart from 25% tax free, you get capital growth on 128%.
Actually this makes no difference at all.It's a common misconception that there's additional growth on the tax relief, but there isn't.

Quote:
Cash ISAs are limited to 3K per year per person.
The equivalent ISA investment to a pension would be a Stocks and Shares ISA, max 7k a year.

Quote:
Also bear in mind that if you fall on hard times, then your ISAs will count against you for means tested benefite. Pension assets will not.
Fair point.

The main thing I wanted to remind Moneysavers about was that once the money is put into a pension, you can't get it out. About once a week we get someone coming on here asking about cashing in their pensions, it's quite clear this doesn't get pointed out when they start it - or if it is, they don't take it on board.
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# 10
dunstonh
Old 22-01-2006, 8:28 PM
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Quote:
The main thing I wanted to remind Moneysavers about was that once the money is put into a pension, you can't get it out.
Some people need that tie in. It isnt necessarily a bad thing.
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# 11
thor
Old 22-01-2006, 10:15 PM
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There is a problem with ISAs in that the amount you can stash per annum is variable. It has been 3K pa for mini cash isas so far but after 2010 whoever is the chancellor can decide if they want to change that figure. Also they can even cease to be altogether - although some kind of tax free savings vehicle would probably be offered instead as were ISAs themselves when they began to replace their predecessors the TESSAs.
Having said all this, I've gone for ISAs instead of a pension as they are so much more flexible.
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# 12
lisyloo
Old 23-01-2006, 9:03 AM
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Quote:
The big stories that won't go away in this weekend's press are how we are going to be surprised that 18% stock market growth in 2005 may still result in lower pension estimates on our annual future estimates
How does that work then???

Quote:
Actually this makes no difference at all.It's a common misconception that there's additional growth on the tax relief, but there isn't.
I don't understand that. Please could you explain.
Surely if you invest 100 then you would get more growth than you would if you invested 78 (assuming same charges and rate of growth).
The % is the same, but the actual amount you get is higher.
E.g. at 5% on 100, you'd get 5 on 78 you'd get 3.90, so you're 1.10 better off, aren't you??

Quote:
The equivalent ISA investment to a pension would be a Stocks and Shares ISA, max 7k a year.
My arguments remain the same.
1) Some people are already using this.
2) For some people it's not enough.
(I accept it's probably fine for the average 24K earner).

Quote:
The main thing I wanted to remind Moneysavers about was that once the money is put into a pension, you can't get it out.
I agree, but I think they should also bear in mind all the other points, so I'm glad this discussion has taken place.

Quote:
whoever is the chancellor can decide if they want to change that figure
In BOTH cases, the government can change the rules.
Both pensions AND ISAs are subject to whatever the tax regime is at the time.
The government did a few years ago take billions from pensions by removing tax relief on dividends.
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# 13
EdInvestor
Old 23-01-2006, 11:27 AM
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Quote:
Originally Posted by lisyloo
I don't understand that. Please could you explain.
Surely if you invest 100 then you would get more growth than you would if you invested 78 (assuming same charges and rate of growth).
The latest exhaustive discussion on this is [url="http://forums.moneysavingexpert.com/showthread.html?t=134712&page=1&pp=10"]]here
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# 14
lisyloo
Old 23-01-2006, 11:42 AM
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Thanks for the info.
I feel really dumb because I have a BSC in maths (don't tell anyone :-)
It certainly is counter-intuitive.
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# 15
Nick C
Old 23-01-2006, 1:44 PM
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Quote:
Quote:
The big stories that won't go away in this weekend's press are how we are going to be surprised that 18% stock market growth in 2005 may still result in lower pension estimates on our annual future estimates



How does that work then???
I assume this is because annuity rates have gone down again recently.....can you explain more ReportInvestor?
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# 16
lisyloo
Old 23-01-2006, 1:52 PM
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Quote:
Actually this makes no difference at all.It's a common misconception that there's additional growth on the tax relief, but there isn't.
Just had another thought and whilst I think this works mathematically I'm not sure it works in practice.

What we are saying is that if you money in a pension, get tax relief and get compound growth then it is the same as putting it in an ISA ,getting compound growth and then getting tax relief (by putting the whole lot in a pension).

I don't think the last bit will work becuase tax relief is just that, it's relief on tax THAT YOU HAVE PAID. As a general rule you can't get back more relief than tax you've paid.
So let's say in 30 years time you have 300K in your ISA and you want to get 84K in tax relief then you won't be able to because you haven't paid 84K tax in that tax year (unless you are extremely rich in which case you aren't a basic rate tax payer anyway).

If I'm wrong then please let me know, but I'm pretty sure this is how tax relief works. It's is "relief" i.e.you have to have paid it first. It's not a free unlimited bonus.

So whilst I agree with the maths, I don't think our current tax laws allow it.
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# 17
Nick C
Old 23-01-2006, 2:35 PM
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lisyloo, you're right that you're limited in the tax relief you can claim by the tax you've paid in a given year. The principle is still true, though, up to that limit. If you want to put 84K into a pension later, and you only earn 30, you'll have to spread it across several tax years.
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# 18
dunstonh
Old 23-01-2006, 2:47 PM
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That is the issue with putting it off. You will have to remember to review it a number of tax years before you finish work to ensure that if pension is the way to go, you have sufficient allowances to cover the contribution.

There are some risks as well. If you are unable to work due to sickness/accident or whatever, you no longer have an earned income to contribute against.

Death benefits will be lower on an ISA as well. Although you dont plan to die, 1 in 5 will not make retirement.
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# 19
lisyloo
Old 23-01-2006, 3:04 PM
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Quote:
There are some risks as well. If you are unable to work due to sickness/accident or whatever, you no longer have an earned income to contribute against.
Yes, sounds risky to me.

I'm not sure how many people retire when they plan to.
If you are unlucky enough to be made redundant at 55 or above then it's very difficult to get anyone to employ you.

I personally think it's sensible to do both (pensions and ISAs) and other things as well (like having a big house to downsize from or other property investments).

There are so many uncertainties that this makes sense to me.
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# 20
EdInvestor
Old 23-01-2006, 6:36 PM
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Quote:
I'm not sure how many people retire when they plan to.
If you are unlucky enough to be made redundant at 55 or above then it's very difficult to get anyone to employ you.
Indeed so, and this is when you could unexpectedly need money - which you may not be able to get if you've put all your savings in a pension.Particularly in a company pension, where you'll pay a big penalty to retire early.

Definitely sensible to spread your money around.

[And you still don't get any compound growth on the tax relief!]
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