All pensioned up?

megaroons

I am sure there are many people in a catch 22 situation.

You don't earn enough to spare any money for any kind of pension above that already taken out of your pay by the state.

You go along the ISA route to save for your retirement, (as I understand it savings count against any working tax credit you receive). You get less working tax credit or none at all (if you get none, you also lose all nhs payment exemptions, i.e. dental, prescriptions etc.,). In this situation you rely on the government for your state pension!!

You opted out to a private pension scheme (not contributed to/by your employer) but are then advised to opt back into the state scheme because your earnings are low. Apparently under the current pension rules you will be better placed with the state scheme.

If I am wrong about ISAs used for pensions counting against working tax credit (or anything else) I would be grateful if someone would put me right!! :-)

TonyW_2

Murphy_The_Cat wrote:

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 !

Hi Murphy
Thanks for the explanation - I can see how you can get to the 40%. The salary sacrifice is an interesting option but you need a big enough salary to be able to do it of course and an accommodating employer! Good for you that you have been successful in this.

My own pension is a group stakeholder scheme, so I have no options in terms of the insurance company and limited choice on the funds, and has been hit by the fall in the markets over the last 5 years or so. I don't have quite as long to go to retirement as you - well at least 10 years less anyway! So there is a relatively short time left to enjoy any recovery.

You have obviously chosen very well in last few years - I certainly hope that continues - it is good to hear of success!

Murphy_The_Cat

Hi TonyW

thank you for your kind thoughts and input onto what is really a very important subject (well it is to me anyway !).

You're right I do have a good employer - it's me . I own a small company and employ 12 people within it. Please don't think i'm a muti-millionaire plutocreat because nothing could be further from the truth. I started in the company when I was 13 working after school and in the school holidays (just the think that the government has made illegal) and started working here full time when I left school at 15, bought my first shares in it when I was 20 and bought the company outright from the previous owner when I was 34 - it is the only job that I've ever had. Some of the people here have worked with me and for me for over 20 years, it is a proper family owned small company.

One of the things that i have to do by law is offer a stakeholder pension to my employees. This I have happily done, but i have also gone the extra mile and explained to my staff how pensions work and what "pension speak" means in plain English.

The salary sacrafice scheme is really easy to implement and operate and just needs will on the part of the employer (it also ties in to child care costs mentioned elsewhere on the site). It also does not require a large sacrafice by the employee to make it worthwhile.

At one stage 85% of my staff had stakeholder pensions that I was contributing to and this is something I am (was) very proud of. The youngest member of the staff contributing at one time was 16 years old and had to get this parents permission to take part. sadly he no longer works for me but I hope that he has carried on contributing and that he hunts me out when his pension matures to buy me a pint !

It is a shame that your pension is not performing as well as you hoped, but have you considered that while the individual units on your fund have fallen in price, the number of units that your contributions are buying will increase. e.g. at 50p per unit your £10.00 will buy 20 units, but if each unit costs 40p your £10.00 will buy 25 units. So that when the market recovers you will gain then. You would only really lose out if you were to cah in your pension now (which of course you are not going to do due to your age).

Have you looked at moving your funds around ? I know that you have said your choice is limited, but could you improve things by moving them. Please don't think i'm being nosey, but if you tell me who your pension fund company is e.g. Scottish Widows, axa, Legal & General etc and I'll send you a link showing the different performace of the stakeholder funds that you are able to use (as an aside you can use any funds that your provider offers, it's up to you if you want to pay the extra charges). Please don't forget that it is YOUR pension fund, not the providers, not your employers, but YOURS.

Naturally, if you don't want to send your pension providers name, it is your business and I will not be upset in any way.

It's good to talk.

MTC

Harrumphh

Got no income. Got no savings. Got no pension. Aged 48. Do I face a terrible old age or do I wish for an early death?

Comments? Ideas?

Murphy_The_Cat

Harrumphh wrote:

Got no income. Got no savings. Got no pension. Aged 48. Do I face a terrible old age or do I wish for an early death?

Comments? Ideas?

Hi Harrumph

I don't know if you face a terrible old age and I certainly hope that you don't wish for an early death - but I agree with you that at the moment things don't look to bright.

Is their anything on the horizon that may possibly improve your situation ?

MTC

sneekymum

carras wrote:

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!

If you post this as a New Thread "Help Needed" (sort of title) on the Pensions Board there are IFAs who will talk to you about it there. :rudolf:

sneekymum

TAX CREDITS :j

People who receive Tax Credits also get 37p back for every pound they put into a pension.

That's on top of the 22% tax back.

This really isn't discussed enough.

It doesn't matter about the complicated maths of Tax Credits either - a maximum award is made for each circumstances - but that is reduced by 37p for each pound your income goes over the bottom threshold (£5k ish) - but your income is then "reduced" by £1 for every pound you put in a pension.

So if you receive Tax Credits taking your money out of your ISA and putting it in a pension could be the way to go. - you almost Double Your Money.

:beer:

For 40% tax payers the benefit of reducing your salary to increase Tax Credits is only about 8% - but still worth doing - as its on top of the usual tax back.

Clowance

Plasticman wrote:

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

Hear Hear. As a mum who gave up a decent career as an analyst/programmer, and cant now get a decent job(out of date skills), I have NO disposable income to save. When I am in (part time) work), all my money goes on food. When out of work, our debts mount. My husband doesnt earn enough at the moment to keep us, having been made redundant a year ago he is 2 years in to a three year training course to be an electrician. When he qualifies, we will just about manage. How are people like me supposed to save for a pension?
By the way, I am not stupid, I have an MSc for all the good it does. Currently applying for a part time job at £5.05 per hour. The government, (and even annoyingly the MSE poll) NEVER mentions people in my situation. I have some pathetic pension provision from about 16 years in work, but dont expect this to amount to anything if we are ever allowed to retire.
The government hope we will die before claiming the state pension. That is quite clear. If you dont earn enough to save a large pension amount, dont bother to save at all, as they will take it all away anyway.

leccylite

I've been lucky - I think
Joined the electricity board in 1990 - before the pension scheme shut. Since then I've been consistently told that the Electricity Supply Pension Scheme is one of the safest going - and it's one of those nice final salary jobs.
However, Maxwells pensioners thought there money was safe. Also, as one of the last people to retire out of the thing I sometimes wonder how much will be left at the end. I keep following the advice though, and that means I don't have to think about it. Only time will tell if this is a good idea or not.

Former_MSE_Archna

Poll started 6 December 2005: The Turner report last week said we all need to save more for our pensions. Yet do you believe it's worthwhile, which of these is nearest to your view?

A. Pensions have performed so badly I'd prefer to put my money elsewhere
30.2% (391 Votes)

B. A pension is a great way to save and invest tax free for my future, I use it
25.1% (326 Votes)

F. I do have some money in pensions as a way of balancing my assets
18.7% (242 Votes)

E. I prefer to put my cash in property rather than a pension
12.9% (167 Votes)

D. I know I should save for retirement, but haven't a clue how
7.8% (102 Votes)

C. Not really thought about it, haven't done anything yet
5.1% (66 Votes)

Total Votes: 1294