All pensioned up?

Former_MSE_Andrea

The Turner report last week said we all need to save more for our pensions. Yet do you believe its worthwhile, which of these is nearest to your view

A. Pensions have performed so badly I'd prefer to put my money elsewhere
B. A pension is a great way to save and invest tax free for my future, I use it
C. Not really thought about it, haven't done anything yet
D. I know I should save for retirement, but haven't a clue how
E. I prefer to put my cash in property rather than a pension
F. I do have some money in pensions as a way of balancing my assets

Vote here or click reply to discuss

Related Article:

Stakeholder Pensions

Nile

Option B for me.

Plasticman

Same here Nile. You don't get much tax free these days!

carras

I became self-employed in 1983. Pension plans were highly recommended and since I did not have an employer I took out over 14 years three separate pension plans as my income rose.
Then I became ill - given I had a bad medical history I had not been able to take out medical insurance cover so I was caught out - in a big way. For 5 years I slept my life away with no recognition that there really was a major problem.
It was a massive brain tumour.
I have been very lucky - it has not killed me but it has left me very broke and very dependant upon the state!

I do believe in pensions - or at least some way of saving for the future.
I do not believe that the state should have to provide

I hate the fact that I have been caught up in the means testing system. 30 years worth of work and savings has been wiped out.
I hate having my life curtailed and my social ativities limited.
Two of my pension plans from Mutual insurers have been privatised - the benefit from one was clawed back as Capital Gains tax while I was 'away with the faries'.
The third one is going through the pre-floatation stage. The IFA I used to use has closed, I can not afford another and I know that whatever I recieve in payment will vanish as have all of my savings and investments.
I do not know what I can do to prevent it!
I have just three years left before I hit my retirement age. I have no way of knowing what my pensions will pay out. Although I am old enough to claim them I thought leaving them until I am 60 would help.
I just have no way of knowing if I have done right or wrong and I can see no light at the end of the tunnel!

Smitty

MSE_Andrea wrote:

B. A pension is a great way to save and invest tax free for my future, I use it

But it's not completely tax free. Yeah sure you put your money in tax free, enjoy tax free growth on your investment and you can take out 25% tax free at the end, but the rest of the money you take out is all taxed as soon as you use up your taxable allowance.
Whereas if you put the money into a savings account, you've paid tax on it as you've earned it, you pay tax on the interest as it grows but you can take it all out free of tax at the end.

Just something to think about....

Murphy_The_Cat

yep i'm well pensioned up, as is Mrs Cat as well.

But as well as us, Murphy The kitten is covered on the pension front and has been since 18 months of age. If you get the chance to look at what compound interest dows to a long term investment you will be staggered.

As a further point can I suggest that anyone who contributes to a pension actively monitors it and changes funds as time goes by. If your pension is available on line, check it's value on a monthly basis (especially the individual fund values) and on a frequent (say 3 monthly basis) go to a site who will show you the performance of all of your pension providers funds (e.g. https://www.trustnet.com) and make your adjustments as you see fit - I personally have a swap around once a year. The performace of differing funds within your pension can be staggering and can make a huge difference.

Don't depend on someone else to do it for you - noone else gives a stuff. But a few minutes work once a month can make a HUGE difference to your future comfort.

MTC

p.s. and start your pension when you're young - the younger the better.

TonyW_2

It seems to me that whilst there are tax breaks for putting money into a pension, unless you are a high earner and can put in a lot then the means testing of state benefits will eventually nullify all your efforts. Until the perverse incentives are removed, as suggested by Frank Field before he got sacked, then most of us are probably better off spending whatever we can and allow the state to support us later. :mad:

As you can probably guess, this is not how I think it should be. Really no one should be discriminated against for benefits because they have managed to put something aside for later in life.

If you want flexibility you are probably best off using ISAs first as you can draw from these as you wish.

Murphy_The_Cat

TonyW wrote:

It seems to me that whilst there are tax breaks for putting money into a pension, unless you are a high earner and can put in a lot then the means testing of state benefits will eventually nullify all your efforts. Until the perverse incentives are removed, as suggested by Fran Field before he got sacked, then most of us are probably better off spending whatever we can and allow the state to support us later. :mad:

If you want flexibility you are probably best off using ISAs first as you can draw from these as you wish.

Hi TonyW (& welcome to MSE)

If i understand your first paragraph correctly, you're basically saying that most people are going to have to rely on the mercy of the means testing system to rely on their pensionable income - bloody scary when you look at the staggering level of incompetence that governments run at.

as for the ISA route mmmmm, i know what you mean, but £1.00 of pension contribution means that you have to put in £1.40 to your ISA (if you follow the salary sacrafice route) so in THEORY your ISA has to make an additional 40% than your pension to catch up with it. I know your ISA is tax free when you get it, but the tax relief compunded on year after year makes a hell of a difference.

MTC

Plasticman

TonyW wrote:

It seems to me that whilst there are tax breaks for putting money into a pension, unless you are a high earner and can put in a lot then the means testing of state benefits will eventually nullify all your efforts. Until the perverse incentives are removed, as suggested by Fran Field before he got sacked, then most of us are probably better off spending whatever we can and allow the state to support us later. :mad:

As you can probably guess, this is not how I think it should be. Really no one should be dicriminated against for benefits because they have managed to put something aside for later in life.

If you want flexibility you are probably best off using ISAs first as you can draw from these as you wish.

Very true. People on very low incomes could actually end up worse off by saving for a pension. They won't have the benefit of spending the money as they will be saving it for old age, then when they get old they will lose additional state benefits because their income will be too high! Having said that you have to make the (pretty big) assumption that there will still be means tested benefits when they retire.

I still think that the best option would be compulsory pensions with additional contributions from the state for the lowest earners. That way we wouldn't be paying means tested benefits to pensioners because they couldn't be bothered to save, while penalising the ones who did. We would still be paying benefits to people who just couldn’t be arsed to work all their lives, but that's for another thread

TonyW_2

Murphy_The_Cat wrote:

Hi TonyW (& welcome to MSE)

If i understand your first paragraph correctly, you're basically saying that most people are going to have to rely on the mercy of the means testing system to rely on their pensionable income - bloody scary when you look at the staggering level of incompetence that governments run at.

as for the ISA route mmmmm, i know what you mean, but £1.00 of pension contribution means that you have to put in £1.40 to your ISA (if you follow the salary sacrafice route) so in THEORY your ISA has to make an additional 40% than your pension to catch up with it. I know your ISA is tax free when you get it, but the tax relief compunded on year after year makes a hell of a difference.

MTC

Sorry if my forst para was unclear. What I meant was that because more and more things are means tested - state pension will surely be there in a few years my suggestion is that unless we have a low income then we will get nothing form the state!
Incidentally your reply gives the hint about high earners - the £1.00 pension coontribution only generates £1.28 unless you are a higher rate tax payer. Also if you are in a cash ISA you receive money with no tax and would also be compounded. Additionally there are no charges which would be rare for a pension! It is also secure - my own personal pension is now not worth the money put into it over the last 6 years!

Murphy_The_Cat

TonyW wrote:

Sorry if my forst para was unclear. What I meant was that because more and more things are means tested - state pension will surely be there in a few years my suggestion is that unless we have a low income then we will get nothing form the state!
Incidentally your reply gives the hint about high earners - the £1.00 pension coontribution only generates £1.28 unless you are a higher rate tax payer. Also if you are in a cash ISA you receive money with no tax and would also be compounded. Additionally there are no charges which would be rare for a pension! It is also secure - my own personal pension is now not worth the money put into it over the last 6 years!

Hi TonyW

no your first post was clear, it's just that I was looking at things in a slightly different way.
My thing about the £1.40 / £1.28 / £1.00 level of contibutions perhaps needs soom explaining. If you are contributing to your pension via salary sacrafice (and your employer is willing to play the game) my scenario goes like this.
You agree to sacrafice £10 of your salary to your pension, the government will not tax you on that £10 so you gain another £2.20, you will not be liable to NI on your £10 so you have saved another £1.10 and here is the kicker - your employer is not liable to pay the employers NI of 12.8% or £1.28, so persuade him to put it towards your pension. Afterall it costs him nothing to do so and it makes his staff happy bunnies.
So as you can see in my scenario a £10 salary sacrafice to your pension fund actually gets a figure of £14.58 put into your pension, an increase of 45.8% that has cost you nothing (or a lesser percentage if you work out percentages differently). This is for a standard rate tax payer. A higher tax payer would be able to recoup more via his tax return.

You're point about charges is very true. But bear in mind that the maximum charge on a stakeholder pension is 1.5 % (for the first ten years, then 1% afterwards and in fact many providers do only charge 1%) and I have just shown above how to increase your contributions by over 45% at no cost to yourself then it is another option to consider. Not saying that you have to do it, just weigh up the options and make your own mind up !.
There are of course other funds outside of stakeholder that will charge more than 1 / 1.5% per year in charges but they widen your choice and "possibility " of investing in a higher performing fund (or riskier depending on your view).

As for your own pension not doing the biz, have you actively been monitoring your pension (I'm not being a clever sod for asking) as it could be that the funds that you are investing in are not the ones that you would like to be investing in. An example of this would be with (Say) Scottish Widows 'Fixed Interest (SH)' fund which has added 17.4% over three years as against a Scottish Widows 'Europe (Sh)' fund which has added 70.4 % over the three years. There are others within Scottish Widows which have done a lot better still, but that would complicate my post a bit.

Over the last 100 or so years the stock market has massively outperformed savings, goverment bonds or cash - in fact since 1900 the average stock market return has been 11%. I appreciate what you say about compound interest having a good effect on a 5% cash ISA, but can you imagine the return when the interest in compounding on at 7, 9 or 11%.

But at the end of the day it is all choices !

MTC

p.s. i'm not an IFA, neither am I in the pension/financial industry. I am not a "high earner" either. I am merely someone who has started to look at things a bit deeper. I am 38 !