Pensions - endowments for dummies

Gorgeous_George

We are all aware of the poor performance of endowment policies over recent years. I think pensions are just as bad.

With poor performance of most investments - savings earning around 1.5% there is one thing that remains strong. The management fee on most pensions is 1%. It would be 1% if interest rates were 10% and it will be 1% if interest rates are 0%.

So, a policy rising at 1.5% with a 1% management fee is pants.

GG

payless

I would like to see a performance realted management charge

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Linking endowments and pensions - though ?? .. one is for long term saving with tax breaks, the other is investment as a replacement for repaying debt

dunstonh

I think pensions are just as bad.

They are different beast.

Effectively you are saying that savings are bad, ISAs are bad and every asset class is bad as pensions can invest in virtually identical areas to ISAs and other tax wrappers.

You are talking access to possibly 50,000-100,000 different types of investments with a pension. Most endowments had access to 1 fund or if they were lucky 10-15 funds.

Pensions dont make or lose money. They are just a tax wrapper for the investments of your choice. If you dont like your investments, then change them. You dont blame the tax wrapper.

EdInvestor

Gorgeous_George wrote: »

We are all aware of the poor performance of endowment policies over recent years. I think pensions are just as bad.

So, a policy rising at 1.5% with a 1% management fee is pants.

Indeed so, and that's before you look at the hidden transaction charges which add another 0.5%-1% on top.

With endowments it's even worse, as up to 20% of your gains within the policy go in tax, and you are usually charged ridiculously high rates for the life cover.

turbobob

payless wrote: »

I would like to see a performance realted management charge

They already exist. Certain funds have a performance fee which is triggered by outperforming a benchmark (e.g 3 month LIBOR). Unfortunately these are usually in addition to standard management charges.

payless

EdInvestor wrote: »

With endowments it's even worse, as up to 20% of your gains within the policy go in tax, and you are usually charged ridiculously high rates for the life cover.

yes indeed most people also pay tax on deposit accounts :eek: , and other direct investments

cost of life cover is an area that can be abused, especially on w/p , although must admit looking at my own u/l plans the life costs are competitive

dunstonh

I doubt you are going to get facts quoted on this thread now. Just opinions which are wrong.

You dont get tax at 20% on life funds. You get the same tax on income. Growth is subject to 20% tax but life companies still benefit from taper relief so it brings it closer to 10% in reality.

EdInvestor

By contrast of course, ISAs are tax free as to both capital gains and income.

dunstonh

EdInvestor wrote: »

By contrast of course, ISAs are tax free as to both capital gains and income.

Although the charges are typically higher when using funds.

EdInvestor

dunstonh wrote: »

Although the charges are typically higher when using funds.

Use a discount broker such as https://www.h-l.co.uk, then you'll get lower charges and much better quality fund choice. Stocks and shares ISA will take 7,200 pounds a year, good timing to get it sorted now, you can use this year's and next year's allowance at once (in early April)..

dunstonh

I'm not arguing that quality may be a difference but internal funds on discounted terms are often half the cost of unit trusts. That more than makes up the tax difference.