Pensions - endowments for dummies

Gorgeous_George

I like cash ISAs

If S&S ISAs have fees that are likely to be higher than any profits then I wouldn't like them.

With pensions, IMHO of course, the tax advantage is almost entirely eaten up by the charges. I prefer to make my own investments and pay the tax.

GG

dunstonh

With pensions, IMHO of course, the tax advantage is almost entirely eaten up by the charges.

Please can you identify a pension that has 205/40% initial charges? Or even 72% intial charges which is the maximum effective relief you can get if you fall into the right income bands.

I will save you the trouble. You wont.

I dont know where you get your pension opinion from but its very flawed. The pension tax wrapper may not be perfect but for provision of income, which is what it is meant for, nothing beats a pension. The criticisms on pensions tend to be from those looking for capital retention or capital provision. Something the pension is not geared for.

The same investments you choose to invest in outside of a wrapper and pay tax on will be available inside a pension at the same cost and be tax free.

Gorgeous_George

I'm sure my opinion on pensions is a little tarnished but if somebody starts a pension at age 20 they will pay 1% every year in management fees. By the age of 65 they will have paid 45% of any money invested in Year 1, 44% of that invested in Year 2 and so on.

If the pension fails to deliver what was promised (like endowments) the salesman and fund managers will still have done extremely well (like endowments).

GG

dunstonh

if somebody starts a pension at age 20 they will pay 1% every year in management fees.

Only if they pick investment funds. The same investment funds that are available unwrapped or in other tax wrappers.

What about people that have cash savings. They are paying similar charges as well. They are not disclosed though.

If you go shopping you are paying around 10% in charges as that is the typical mark up.

By the age of 65 they will have paid 45% of any money invested in Year 1, 44% of that invested in Year 2 and so on.

So? Its not as high as that as the money in the early years is much lower than the final year. However, you cannot expect fund managers to work for free. If you want to take on that role yourself you can by utilising shares which avoids the charge but requires more work.

You are criticising the tax wrapper when your gripe is with the type of investment. That isnt logical. Its a bit like saying you dont like tea but prefer coffee. So you chose to throw away the mug you drink from. The mug wasnt the problem the liquid in it was.

If the pension fails to deliver what was promised (like endowments) the salesman and fund managers will still have done extremely well (like endowments).

Fund managers are increasingly paid on performance. Especially the boutique firms. Salesmen are paid to sell the product. Performance wont matter to them. Servicing advisers are paid on the value of the fund. fund goes down, remuneration goes down. If it goes up, remuneration goes up.

Pensions actually tend to not to fail to deliver. What happens is that people set them up 20 or so years ago paying £20pm and continue to pay silly amounts like that expecting to get massive amounts. Its more a case of unrealistic expectation rather than being unable to deliver.

Anyone paying in less than £150pm into their pension is deluding themselves if they think their pension is going to give them a decent amount (although £150 from an under 30 year old is ok as long as the index link the contribution). A rough guide is that someone should have £35k in their pension by age 35. Very few hit that.

dimbo61

Hi Dunstonnh
If you need £35k by 35 invested how much do you need by 47 !

EdInvestor

dunstonh wrote: »

However, you cannot expect fund managers to work for free. If you want to take on that role yourself you can by utilising shares which avoids the charge but requires more work.

It's not very much work when you consider how much you save (up to half of your money may go in charges if you use funds).

Simply open a low-cost online SIPP(for pension) or stocks and shares ISA with low transaction charges, and buy a portfolio of shares. Choose big blue chip companies, preferably with low debt, and preferably paying decent dividends. Put together a diversified list (not all banks or oil and mining companies) as this will reduce risk.

Do not trade the shares, hold for the long term. If you can invest say 7k over a year, get 7 shares.Reinvest the accumulated dividends once a year to keep costs down.In the following year get 7 more shares.If you get 21 in total in a range of different sectors, you have diversified away a lot of the risk. Use contributions after this to top up your holdings.

You should end up paying around 0.1%-0.2% a year for this, so you will lose 3% of your money in charges over 20 years.

That compares with losing at least 40% over the same period if you use managed funds in a conventional pension or ISA.

No contest. And very little work involved either.

SmileyG_2

EdInvestor wrote: »

It's not very much work when you consider how much you save (up to half of your money may go in charges if you use funds).

Simply open a low-cost online SIPP(for pension) or stocks and shares ISA with low transaction charges, and buy a portfolio of shares. Choose big blue chip companies, preferably with low debt, and preferably paying decent dividends. Put together a diversified list (not all banks or oil and mining companies) as this will reduce risk.

Do not trade the shares, hold for the long term. If you can invest say 7k over a year, get 7 shares.Reinvest the accumulated dividends once a year to keep costs down.In the following year get 7 more shares.If you get 21 in total in a range of different sectors, you have diversified away a lot of the risk. Use contributions after this to top up your holdings.

Or buy investment trust shares which have cheaper management charges and have already diversified the risk!

SmileyG

digii_dave

With respect, I have listened to Financial Advisor’s for the last 30 years of work and IMO you may just as well ask Mystic Meg for advice. They got my Pension and Endowment predictions wrong. "Stay in a Final Salary Pension they cried" Yep I did and the company went bust stealing my money and have this far taken 13 years to sort it and I have 13 years left till retirement. Now every company is getting rid of FSP’s

"Take out an endowment they cried" Yep, I did and the wife worked or NU as well at the time so great I thought. Now having paid it for 25 years I have 13 years left and 30 grand to find on a 52 grand mortgage.

A senior manager I worked for was in a the company pension at 25. On advice he paid Equitable life AVC's so at 55 he could have a lovely retirement by swinging that golf club and have lovely romantic cruises down the Nile as the sun was setting with his wife. (As advertised on TV) Well, EL went tits up, the company nicked his pension and at 65 he now delivers cars for a living and watches the sun set alone on the biggest car park in the world, the M25! seeing no end to it cos he has lost his money.

Last September we again took FA as we smelt a rat with endowments and the recession a looming. NU sent us surrender values in Sep, an Oct so we could keep an eye on them. We asked our FA should we stick or twist. He got a surrender value in Nov but never offered any advice and all he ever did was agreed with whatever we said.

We again asked NU for surrender values in Dec and nothing arrived so I again asked NU for one and nothing arrived. I guessed they are stalling to stop the masses withdrawing all the dosh. I phoned 4 times and was ignored as nothing arrived in the post even allowing for Christmas in the way. I wrote to the NU complaint department and they replied and said they are looking into it. They still are cos I have not even had a response form that! I wrote to our saviours the FSA and guess what? Have been ignored on that one.

Along with the NU complaint response letter a surrender value arrived and now our FA tells us they have added that they will charge an extra MVR 20% if we cash it in.

I would have been better off ignoring the advice altogether I think as the only ones who are well off are the Financial Advisors.

As I said earlier and no offence to the decent FA's but your guess is as good as ours is it not?

Sorry but I am bitter!

dunstonh

With respect, I have listened to Financial Advisor’s for the last 30 years of work and IMO you may just as well ask Mystic Meg for advice. They got my Pension and Endowment predictions wrong. "Stay in a Final Salary Pension they cried" Yep I did and the company went bust stealing my money and have this far taken 13 years to sort it and I have 13 years left till retirement. Now every company is getting rid of FSP’s

Staying in the final salary scheme was best advice and would be today if the same scenario was in place.

"Take out an endowment they cried" Yep, I did and the wife worked or NU as well at the time so great I thought. Now having paid it for 25 years I have 13 years left and 30 grand to find on a 52 grand mortgage.

And for 30 or 40 years endowments did a splendid job. As no doubt your wife would have agreed at the time. The change in the economy killed that but most people were actually better off with that change. So, its swings and roundabouts.

A senior manager I worked for was in a the company pension at 25. On advice he paid Equitable life AVC's so at 55 he could have a lovely retirement by swinging that golf club and have lovely romantic cruises down the Nile as the sun was setting with his wife. (As advertised on TV) Well, EL went tits up, the company nicked his pension and at 65 he now delivers cars for a living and watches the sun set alone on the biggest car park in the world, the M25! seeing no end to it cos he has lost his money.

Eq Life happened. Not much you can do about it but I think you are going a bit far when you say he lost his money. It wasnt quite that bad.

Last September we again took FA as we smelt a rat with endowments and the recession a looming. NU sent us surrender values in Sep, an Oct so we could keep an eye on them. We asked our FA should we stick or twist. He got a surrender value in Nov but never offered any advice and all he ever did was agreed with whatever we said.

Tied and salesforce FAs cannot give advice on the products of other providers. Rather than highlight their limitations, they will just let you make your own mind up and supply a bit of generic information in the process.

I would have been better off ignoring the advice altogether I think as the only ones who are well off are the Financial Advisors.

As I said earlier and no offence to the decent FA's but your guess is as good as ours is it not?

Sorry but I am bitter!

Some advice decisions are clear cut. Some are judgement calls that you will get right or wrong. If you had to make the those decisions again, you would have probably done the same even without advice.

For instance, MSE would be promoting Eq Life right now. It would also be promoting endowments. No-one has a crystal ball but it appears that is what you are looking for.

Gorgeous_George

To the tune of Wonderwall

He offered me protection
A safe haven for my pension
But after all......
I got sod all......



I'm not saying that I want a crystal ball. I'm saying, if you want to invest in shares go ahead and do it. Just don't pay somebody else to do it for you because if it goes belly up, it's your money that's lost and the salesman will be cruising the Nile.

GG