Pensions Versus Savings

cheerfulcat

EdInvestor wrote:

CC,

If I'm not wrong, like me you favour HYP type investment.So as you know there's actually no real need to be distracted by the tax issue at all.

Until your income reaches the higher rate level :-)...as it happens, HYP is only part of my strategy. The rest is growth, where freedom from CGT is important. Very few people asking about "pensions" here will be suited to HYP investing; they will be looking for funds which rely on capital growth for their returns.

It beats me why people are so besotted with it.

Because for anyone wishing to increase capital by buying and selling shares or funds, sheltering the investments from tax adds considerably to the return...

deemy2004

margaretclare wrote:

Hi

In the NHS scheme, is it still the case that you put in 6% and the employer puts in another 6%?

No they don't .. the goverment goes and nicks the effectively free 50% contribution from future tax payers who will have to fund this freebie !!

Saying that I get 7% from a private company...

EdInvestor

margaretclare wrote:

Ah yes, but in my particular case, I'm on an age-related tax allowance.

In your case margaret, IIRC you get the state pension plus a couple of other pensions already? I imagine your age allowance is thus already used up? DH's mention of an IVP is irrelevant in your case and so I imagine is the IHT matter as you are doing equity release.

BTW let me just draw people's attention to a few more facts and views about pensions which are comprehensively NOT these days the public's favourite way to accumulate assets for retirement

Pension survey


#40% have lost faith in the private pension system and say it would take "an act of God or the Government" to make them reconsider investing.

#25% never have, or never would, invest in a pension.

#44% believe investing in property would provide the best return for retirement compared with 22% for a private pension. About 17% opt for shares and 15% bonds.

#30% contribute to a pension, but of these, 50% contribute less than £100 a month to a pension fund, 10% invest between £200 and £500 a month and only 3% make contributions of more than £500.

By contrast 70% of the population either already own or are buying their own home.Let us be realistic: pensions are not the flavour of the month.The OP's post reflects the scepticism of the majority.

dunstonh

DH's mention of an IVP is irrelevant in your case and so I imagine is the IHT matter as you are doing equity release.

Why?

Margaret is investing in pensions for the sort term. There would be no difference to the annuity rate whether its an IVP or a standard pension annuity. The only difference is that Margaret is waiting a few years before commencing it. So in her case, she gets growth added in addition to the tax relief.

So, going back to that point, what else will give a guaranteed income in excess of 10% of the net contribution, other than the pension?

How is it that you can completely fail to realise that although the pension product is not as desirable as it once was, it can still be very useful for people in the right circumstances?

EdInvestor

My point related to tax. How does it compare with a PLA for instance?

margaretclare

EdInvestor wrote:

In your case margaret, IIRC you get the state pension plus a couple of other pensions already? I imagine your age allowance is thus already used up? DH's mention of an IVP is irrelevant in your case and so I imagine is the IHT matter as you are doing equity release.

Not quite. Tax allowances: £7090 personal, £2280 wife's married allowance, total £9370. State pension + SERPS: £5604 plus allowances on other pensions: £2721, total £8325.

That leaves me £1045 tax-free. In addition, tax allowance will be higher when I'm 75. It's £7220 for this year.

I am not too worried about paying 'some' tax. This is the first year ever that I'm paying no tax at all, in fact - without knowing I was entitled to it and without asking for it - I got a tax refund a few months ago for tax overpaid in 2 recent years.

I am also not worried at all about IHT because it's most unlikely that my estate will ever be that high! I think I'm in a really comfortable position, not rich but a heck of a long way from being poor, and 'rich' enough to live as I want to and to still save. I also have nothing but warm praise for the Inland Revenue - they've always been extremely fair and prompt in all their dealings.

Of course my stakeholder contributions, £150 a month gross, are invested in unit trusts etc with Friends Provident. So I still have a little exposure to the stock market, but fairly safely.

Margaret

margaretclare

dunstonh wrote:

Margaret is investing in pensions for the short term.... The only difference is that Margaret is waiting a few years before commencing it. So in her case, she gets growth added in addition to the tax relief.

Yes, exactly. 5 years of growth, 7 years since I started it. I wish the idea of stakeholder pensions which you could pay into from non-earned income, had been around a few years ago. I'd have done it then.

So, going back to that point, what else will give a guaranteed income in excess of 10% of the net contribution, other than the pension?

Exactly.

How is it that you can completely fail to realise that although the pension product is not as desirable as it once was, it can still be very useful for people in the right circumstances?

Exactly. And I certainly hope that all of my descendants are making some kind of pension provision for themselves. I know my daughter is - Civil Service. And my eldest granddaughter is in her employer's pension scheme, B&Q. None of us can tell the future, the years go by very quickly, and we all need money to live on.

Margaret

EdInvestor

I certainly hope that all of my descendants are making some kind of pension provision for themselves. I know my daughter is - Civil Service. And my eldest granddaughter is in her employer's pension scheme, B&Q.

I don't believe there's ever been any disagreement in this forum about joining company pension schemes with employer contributions - certainly not from me.

But I doubt that personal/stakeholder pensions will regain popularity now that the "use it or lose it" tax relief on annual contributions is being phased out in favour of the lifetime limit.

The ISA will surely become the tax wrapper of choice as the "use it or lose it" constraint will remain.

Nick_C_4

If you didn't get the 25%, there would be no tax perk attached to pensions at all - and nobody would invest in them.

Not true. I receive tax relief at 40%, and depending on future changes, will pay tax at 22%, on a bigger personal allowance. The difference between the tax relief I claim now, and the tax I'll pay later is significant. Also, I can only invest £7000 a year in ISAs. In the not-too distant future I'll be paying more than this a year into my pension (it's about £6440 at the moment, and I invest in ISAs too). I realize this isn't a benefit available to the vast majority, but it will be for many people.

oceanblue_3

EdInvestor wrote:

The ISA will surely become the tax wrapper of choice as the "use it or lose it" constraint will remain.

Ed, how do you see people in retirement using ISA's to supplement their State Pensions? What would you judge to be the main advantages and disadvantages?