Pension Choices

Peartree

I'm keen to ensure my financial security but am finding the decisons difficult. I would welcome some help!

I am 43 and have been a member of the Local Government Pension Scheme for 5 years. I transferred two years' accrual from my previous occupational pension into the scheme when I joined. The details say it is a 'guaranteed pension based on your final pay' so I'm assuming it is a 'final salary scheme'?

In my early twenties I 'opted out of SERPS' as it was at the time, via a group scheme through my first employer. This is in a Norwich Union fund worth around £20K.

Recently, I changed my mortgage to a repayment to cover an endowment shortfall. I have been advised that because it is not a 'with profits' endowment and because I don't need life insurance, there's no point keeping the endowment going. With the compensation I got plus the surrender value of the endowment, I'll have around £15K and would like to put this in the best possible long term investment.

I thought of buying additional years in the LPGS scheme with it. However, I was told that this would only be of value if I intended to stay with my current employer until retirement, which I suspect is pretty unlikely, and that it would be as good to put it in a good personal pension fund.

I earn above the stakeholder pension limit but don't pay higher rate tax.

So, as you can see, I need some input on what to do next. How do I know if the Norwich Union fund is performing well? How do I decide if I should buy extra years in the LPGS fund? If not, how do I chose a well-performing pension fund?

I haven't had much luck in finding an IFA. I've used all the correct sources of info but most of those listed in my area are only interested in high net value clients. The one I did find was fine at finding a good mortgage for me but has disappeared off the face of the earth when it comes to the rest!

Than you in anticipation!

dunstonh

I thought of buying additional years in the LPGS scheme with it. However, I was told that this would only be of value if I intended to stay with my current employer until retirement, which I suspect is pretty unlikely, and that it would be as good to put it in a good personal pension fund.

I disagree. Buying of added years may be considered expensive but you get added years based on your final pensionable salary if you leave. This gets increased annually so it's no loss. It's one of the main reasons why old Final Salary pension schemes from previous employments nearly always should be left where they are.

How do I know if the Norwich Union fund is performing well?

Ask Norwich union for details on the plan and the fund you are invested in and others which are available. If you don't understand the information supplied or need to know how it stacks up against modern alternatives, then you are looking at an IFA to provide that advice.

How do I decide if I should buy extra years in the LPGS fund? If not, how do I chose a well-performing pension fund?

All these questions would be answered by an IFA. As far as buying extra years goes, fund performance is not part of it. That would only apply to AVCs, FSAVCs and you NU pension.

I haven't had much luck in finding an IFA. I've used all the correct sources of info but most of those listed in my area are only interested in high net value clients.

What you are asking is not going to earn the IFA anything unless you pay fees.

The one I did find was fine at finding a good mortgage for me but has disappeared off the face of the earth when it comes to the rest!

Perhaps all he does is mortgages. There are three advice levels, mortgage, general insurance and designated investment. You dont need all three and nowadays many IFA firms have advisors focusing on mortgages (as it is cheaper from a regulatory point of view). He may have just been an independent mortgage advisor.

EdInvestor

HI Peartree

Since you're a basic rate taxpayer and already have two pensions under way, you might be better to put this money into ISAs - you can put 7k in now and 7k after April into Stocks and shares ISAs where you can invest it in the same kinds of things you would invest pension money in.

The problem with pensions is they are very inflexible - you can't take any money out until age 55 at least and with the company pension probably later,so if you find yourself retired rather earlier than planned, you can have a problem.

The ISA money is available any time and both income and capital are tax free, unlike pensions.

The important thing for retirement is to accumulate assets - where the money is in pensions, in property (like a BTL), in cash savings or investments in shares or funds via an ISA doesn't really matter at all.

Peartree

Thank you both but I'm still feeling confused. I was concerned that I didn't have enough in my pension funds and was under the impression that a pension fund was somehow 'better' than other savings vehicles for retirement. I take it that's not the case? Not having started a pension until my 30s, I assume I've got a lot of catching up to do.

Re the IFA issue, I was absolutely clear about the help I required in the meeting I had with him. If he is just an independent mortgage advisor I would rather that he had actually told me rather than keep promising to source appropriate products for me and then not doing so. I went into this quite prepared to pay for advice but was guided, by the IFA, down the 'commission' option.

dunstonh

I went into this quite prepared to pay for advice but was guided, by the IFA, down the 'commission' option.

Commission can still be the cheapest option on some business. It also avoids the requirement to charge VAT which can make a big difference.

Thank you both but I'm still feeling confused. I was concerned that I didn't have enough in my pension funds and was under the impression that a pension fund was somehow 'better' than other savings vehicles for retirement. I take it that's not the case?

Perhaps it is easier to break it down into what you want.

1 - You want to save towards retirement. So you need a savings plan of some sort.
2 - Which is best way to do it.

In the past it would have been pension because of the higher tax relief and tax free growth that wasnt available elsewhere. However, as basic rate of tax has dropped over the years and Labour have removed many of the advantages of pensions and the ISA has come into play, the waters have been muddied a bit.

This doesnt mean pensions are still not the best choice. If you invest in the same fund with a pension as you would on an ISA (therefore growth being the same). The pension would provide the highest income in retirement. However, the ISA offers greater flexibility to withdraw it, move it around and hold onto on death (to pass to family). So its really a case of what you think is an advantage to you. Most times, its a good idea to have a pension and have ISAs.

caveat_emptor

Peartree wrote:

I went into this quite prepared to pay for advice but was guided, by the IFA, down the 'commission' option.

As someone in a similar position as yourself I was also guided down and took the 'commission' option on the basis that the IFA was acting in my best interest. I was wrong. Hindsight is a wonderful thing and I realise now that I should have asked my IFA to justify the commission arrangement, after all if the IFA is recommending commission based costs he must know what the fee based costs are.

Debt_Free_Chick

Just remember that to get the full amount of added years, you need to pay the contributions until retirement. If you stop or leave then you only get the pro-rata added years - so if you only pay half the contributions originally planned, you only get half the added years originally quoted

Regards