lack of pension

heydee

I was hoping to get some financial advice/opinion....
I am 35 years of age and after a short stint playing professional sport (paid averagely) I have worked for various recruitment firms in the city; I have invariably earned (60-90k during the good years, base salary in the bad years) however I have never had a company pension nor have I taken the steps to get my own private pension (actually, I took one out in 1999, with Norwich Union, but have put barely a penny in it!)
I have saved quite well however and at the moment I have £10k in gold, £35k in s&s ISA's and about £75k in cash derived through savings and also from selling a property (just before the crash, phew!)
I have recently become increasingly concerned about my lack of pension - I appreciate that I could have been saving with an extra 40%ish on top of what I have had I been putting away at source, but of course this would have limited the amounts I was able to save in the ISA and for the deposit I put on the house.
A friend recently pointed out what I was denying, that the more you invest in the early years of a pension, the great the time for maturity (his actual words, over a beer, were - 'you're a bit **cked aren't you mate!'), but that got me thinking - given that most pension funds track the stock markets, and after the collapses that have recently taken place, would I really have been better off with the money in a pension after all!? My ISA savings, for rather fortuitous reasons, haven't been orverly hurt by the downturn, though of course I have lost some money. And at least this money is available easily should I want to buy another property.

I'm waffling a little now. I am keen to hear what people think I should do given that I am now liquid and they are saying cash is king.
In my shoes, would you open up a private pension and start to invest in it now?

I should point out that I have recently taken the decision to make a major career change and I am only earning £40k and will be for the foreseeable future (so that largeish bonuses I used to earn aren't going to be incoming!)

Again, apols for the waffle and thanks for any advice.

Cheers

dunstonh

given that most pension funds track the stock markets, and after the collapses that have recently taken place, would I really have been better off with the money in a pension after all!?

Yes. Sort of. If you had been paying in monthly then you would be back about 3 years due to investment returns, had you fully invested on the stockmarket. However, that is only about 3 years you can use that excuse for and it assumes you went 100% into the stockmarket.

My ISA savings, for rather fortuitous reasons, haven't been orverly hurt by the downturn

The investment options on an ISA are virtually identical to the investment options on a pension.

In my shoes, would you open up a private pension and start to invest in it now?

Depends on what you want to do. You benefit from 40% tax relief. However, even at basic rate, when it comes to providing an income in retirement, nothing beats a pension. With higher rate relief, that benefit is even more. That said, you should never pour all your money into a pension as a combination of things is usually best. (just as putting all your money in property is a bad move as well).

I should point out that I have recently taken the decision to make a major career change and I am only earning £40k and will be for the foreseeable future

So you have missed out on all that higher rate relief you could have had

The important thing is to plan for retirement. Putting money aside is the important thing. How you do it is secondary but can make a significant difference if you dont pick the right options. Just remember that pensions are best for income provision but not very good for capital provision.

EdInvestor

You might like to check out how much you will get from the 2 state pensions.Get a forecast here:

https://www.thepensionservice.gov.uk

Being guaranteed and index-limked they provide a basis for retirement income.

Assuming your cash savings will go back into a property at some stage, I would continue to max out your s&s ISA every year and perhaps save some more in a direct investment account. You lose the ISA allowance every year if you don;t use it, whereas you don;t with a pension, it's on a lifetime basis and you can put big lump sums in later on.

Pensions really come into their own when you can access a company contribution and are paying higher rate tax.Otherwise the small gain over the ISA does not really justify loss of control of the capital and restrictions on the income later IMHO.

MrMicawber_2

Does your new employer offer a pension and if so will they contribute into it for you. If the answer is yes and yes I would myself contribute to it to maximise their contribution.

MMmmmmmm I'm not convinced about Ed's note above. ISA's are indeed a great way to save and invest for a retirement income. Broadly if you expect to be a basic rate tax payer in retirement (which the vast majority of us will be) then it makes sense (if you can afford it) to contribute earnings on which you pay 40% tax into a pension because you will get full relief on the contributions of 40%.

If you are a basic rate taxpayer now and expect to pay 40% tax in the future then the maths says put your money into ISA's now and then tip the money into a pension when you pay 40% tax to maximise the relief.

HOWEVER remember that leaving the pure sums aside one of the great benefits of a pension is that you can't get at the money. You just can't let it burn a hole in your pocket.

jon3001

heydee wrote: »

I have saved quite well however and at the moment I have £10k in gold, £35k in s&s ISA's and about £75k in cash derived through savings and also from selling a property (just before the crash, phew!)

The reality is that if you had 'saved well' you'd have far more - maybe £2-300K. You lucked out on cashing in your home equity. Other than that you accumulated £45K in assets from saving. If you've been working for 15 years then that's only £3K/yr against an income of £60-90K/yr in some years.

You need to work on saving a higher proportion of your income on a regular basis if you intend to build wealth rather than spend it.

Recommended reading:
http://books.google.co.uk/books?id=LQZyfT1qpBUC&q=0671015206&dq=0671015206&pgis=1

MrMicawber_2

That's a bit of a confidence killer jon. He is after all trying to get ideas on how to proceed.

The Society of consulting actuaries recommends the following as a guide:

Age Percent of Salary to Save
25 10 – 15%
30 12 – 17%
35 15 – 20%
40 17 – 24%
45 23 – 30%
50 32 – 45%
55 50 – 70%

Let's just assume heydee that you are starting from scratch now; according to the table above you should be putting aside as a min 15% of your salary each year i.e. £6,500 at the moment (minus any employers contributions to a pension). This assumes you want to have a chance of retiring on an income of 2/3 final salary when you are 65.

It's a lot, but if you can't put aside this much don't give up, put by what you can.

jon3001

MrMicawber wrote: »

That's a bit of a confidence killer jon. He is after all trying to get ideas on how to proceed.

Sorry - just trying to provide a reality check! Hopefully he'll give spending situation some consideration.

Obviously, if he can't manage 15% then try 10%. If 10% is too much then start at 5%, etc. And then build up once spending is reined in and debt payed down.

heydee

Cheers to those who have posted, I appreciate the advice.

Jon, you do make various assumptions or misintperpretations, I actually didn't 'luck out' to the tune of £75k, as I said the cash in the bank is part savings, part equity from a house sale. I actually only made £40k on the house. Plus I earned a pittance when I was a sportsman (4 years trying to break into the big time) and I was at Uni for 4 years (generating debt, now paid off), so I've actually only worked in gainful employment for 8 years, so I've netted, with interest, 10K per year, not 3.

I also have absolutely zero debt and I'm far, far from a spendthrift.

Maybe my posting wasn't clear.

I just posted as I felt I had made a mistake in not taking out a pension at an early age.

Of course, we all could have saved more, but to be honest with you, I didn't think that £120k in immediately accessible assets was all that bad, especially compared to some of my friends who have only just bought their first house and now find themselves in negative equity.

I'd actually really like to speak to a (paid) financial advisor to get an idea how to structure my savings going forward. I live in Wapping in London - I'd love to hear from anyone who lives/works close by, please do get in touch.

Cheers for reading, any other tips welcomed....

MrMicawber_2

When you say a paid financial advisor you must be referring to paying a fee to see an Independent Financial Advisor. There are do's and dont's about finding an IFA that suits you e.g. someone you have a rapport with, someone you understand and so on. Try googling - finding an IFA