Savings or pension?

Ronnie4ds

I'm unsure whether it's worth starting my pension up again. I'm 35 and only have around £5000 invested and realise that I cant touch this until I retire. If I opted for a high interest savings where I didnt touch it at all, would it be worth doing?

What I'm getting at is... If I became terminally ill before I was due to retire I wouldnt be to touch my pension but with my savings I could and then use that money to have an easier life. I know am looking on the bright side but you have to look at the big picture and the way world is going..

I would be grateful if someone could give me expert advice on this matter.

Thanks,
Ronnie.

LongTermLurker

Hardly "expert advice", but I think it's always good to have access to some savings, but pensions do offer some great tax advantages. I'd suggest you start by reading the Pensions vs ISAs thread on the Pensions board. If you do go down the savings route, then fill your ISA allowance each year first. Basically, pensions give you tax advantages going in plus a 25% tax-free "windfall" when you retire, and ISAs give you advantages when you withdraw the money.

You don't say how much tax you pay, or whether your company would contribute to your pension, and if so, how much. If your company contributes 5%, then that's a 5% payrise and you don't get taxed on it, so for a basic rate taxpayer it's like a 6.25% payrise and for a higher-rate taxpayer it would be like a 8.3% rise (not accounting for the NI you would pay on such a rise, but it gives an idea).

Aegis

Ronnie4ds wrote: »

I'm unsure whether it's worth starting my pension up again. I'm 35 and only have around £5000 invested and realise that I cant touch this until I retire. If I opted for a high interest savings where I didnt touch it at all, would it be worth doing?

What I'm getting at is... If I became terminally ill before I was due to retire I wouldnt be to touch my pension but with my savings I could and then use that money to have an easier life. I know am looking on the bright side but you have to look at the big picture and the way world is going..

I would be grateful if someone could give me expert advice on this matter.

Thanks,
Ronnie.

I'm fairly certain you can commute (take) your pension on terminal illness grounds, and if you invest a pension carefully it will grow a LOT more than any savings account will. With savings you'll be lucky if you can stay ahead of inflation over the long term.

dunstonh

If I opted for a high interest savings where I didnt touch it at all, would it be worth doing?

Savings rates traditionally just about keep pace with inflation. So, there is no real long term growth on these. So from an investment vs savings point of view, you need to consider the pros and cons there.

If you decide to use the investment route (which for 30 years or so timescale, does make sense) then you can decide which tax wrapper is suitable.

If I became terminally ill before I was due to retire I wouldnt be to touch my pension but with my savings I could and then use that money to have an easier life. I know am looking on the bright side but you have to look at the big picture and the way world is going..

True. However, if you were not ill and retired as most people do, then the pension pays the highest income of all the options available. So what are you odds on living into retirement or being ill early?

I'm 35 and only have around £5000 invested

Thats low for your age. You really ought to be in to the tens of thousands by now. Ideally looking at £50,000 or so.

Remember that the basic state pension is just £4700 a year. Do you really want to rely on an amount that low?

Ronnie4ds

Thanks guys,

I think my option is to go for a bit of both. Mostly on the pension side with 75% pension and 25% savings. I've got a meeting with an adviser next week and I'll see what my best pension will be.

The adviser will take a commision fee out of my initial investment but he tells that all advisers do that and it wont come direct from me but out of my investmentor payment or something similar.

I didnt understand him fully but if you know of a better way to get pension advice then please let me know.

Thanks again,
Ronnie.

dunstonh

The adviser will take a commision fee out of my initial investment but he tells that all advisers do that and it wont come direct from me but out of my investmentor payment or something similar.

Only if you see a commission based adviser. A fee or hybrid fee adviser is usually cheaper.

IFAs have to offer a fee based option. Tied sales agents do not. Make sure you see an IFA.

Ronnie4ds

I think my adviser is independent, in fact am sure he is.

The company is called Cullen ( financial company based in stockport ) I was told that all IFA's will charge but will find me the best one that suits me.

Unless you know of a better company then am willing keep my options open.

dunstonh

all advisers charge for the advice given. There is no such thing as free advice. The payment for that advice may be hidden within product charges or paid explicitly by cheque (so product charges are lower) or the hybrid where you agree a fee and product charges are set to equal that fee (quite useful on pensions as you effectively get tax relief on the fee).

Sometimes the commission option is best (small premiums for example). However, dont rule out the fee option. For example, you are 35 years old. Your state retirement age is 67. So, you roughly have 32 years of investment. In which case a fee based pension would be cheaper than a commision based pension as the fee is done and dusted in the first few years and you then spend the other 29-30 years with an annual management charge that is half that of the commission adviser. On a £100pm premium (without increases) the difference in charges to you would be around £20,000 over the 32 year term. Yet the adviser would receive a very similar amount whether they do it commission or fee basis.

Ronnie4ds

Thanks, its all becoming clearer now but thought my advice would only be a few hundred pounds at the most. I'll have to wait until next week when I see all the details.


Thanks,