How much do you pay into you pension?

deemy2004

But, Deemy, Pal's point re marginal tax rates is a vital one to consider in this, and could tend to negate your position surely?

Now, admittedly, the return on the pension and the ISA may differ.  But not by that much.  And over the long-term I think the average return on pension funds and the average return on your index-linked ISA will be much the same (or the pension fund will outperform - but that's a different matter).

The point is there are no guarantees with pensions with regards -
a. Return
b. Annuity rate

With an ever aging population both look likely to get WORSE with time.

You could concievable even get less than you put in ! (I know its unlikely given inflation etc...),

The 10%....22% .... 40%.... is immaterial if the return turns out to be rubiish....

As for ISA's , well yes you can guarantee your return as I have mentioned. Locking in cash-isas at relatively high rates, (you can still get 5.7% for 5 years),

And as for the index linked gov stock in an Shares ISA, well once bought you can forget all about it as its guaranteed no matter what happens your capital and annual interest IS INDEXED, no matter what happens to the stock market, bond market, inflation, interest rates, YOUR 100% SAFE !!! Not a single worry EVER ! Up some 8% this year with 2.25% interest on top, and thats with NO long-term risk

Where pensions are concerned, I am very risk averse, I don't want to be worrying about what the likely maturity rate will be if anything I want to underestimate what my pension is likely to be.

I leave the speculative elements for outside of the pensions and ISA wrappers.

MarkyMarkD

Agreed. If you take an extreme risk-averse attitude, then don't buy an equity- or property-based pension fund.

But you can buy a cash- or bond-based pension fund, if you so choose, getting the tax benefits I was referring to without the additional risk.

Index-linking might sound attractive, but compared to a cash- or bond-based fund, all you are doing by index-linking is protecting against the risk that real interest rates fall (or become negative). I don't think there's much evidence that is likely over the long term.

dunstonh

And dont forget that a couple will both have an increased personal allowance at age 65 allowing for £6830 each tax free. So, if they plan their retirement income jointly (as individuals but making sure that both have provision to utilise each personal allowance) then they can get over £13000 a year tax free in retirement. That again make the tax relief on pensions attractive.

I'm afraid I don't buy into your low risk/high risk discussion. There are loads of low risk funds, including index linked gilts, available for pensions for those that are more risk adverse. There are also commercial property funds which, although slightly higher in the risk scale than gilts/fixed interest etc but lower than stockmarket, have been performing at over 15% a year for quite some time now. Pick a low volatility commercial property fund which deals in retail/warehousing/govt only with guaranteed rental arrangements and the bulk of the arrangements have longer than 15 years and you can expect 7-9% returns on those. (WARNING: CRYSTAL BALL REQUIRED TO PREDICT FUTURE. THIS IS JUST AN OPINION BASED ON RESEARCH)

Everyone has a different view to investment risk. Other approaches are to have a balanced portfolio that invests in a range of fund areas but is rebalanced every year. So funds that have performed well have money taken out of them to put into the funds that have performed poorly. (generally a down period follows an up period and vice versa. The idea is to take out when high and put in when low)

deemy2004

My crystal ball can't see how the economy can finance a vastly growing elderly population, even if some work a little beyond retirement, its already visible in whats happening to final salary schemes. The markets will also reflect this in ever lower annuity rates and in the valuation criteria of assets such as stocks, property and shares.

Though I hope I'm wrong !!!, in this case it would be nice to think I was wrong :-/

dunstonh

and the rest is taxed at say 22% to give £4,118 net

Technically, the rest is taxable income. You musnt forget the personal allowance which means there could be some tax free amounts and some at 10%

Are you not forgetting the multitude of 'charges, fees, commissions etc.' along the way, that would make a serious dent in that figure

Multitude? hardly with pensions nowadays. If you assume 1% amc and 7%pa growth you are looking at 6%. The calculation used 5%.

My charges are actually a bit higher than 1% as I use a specialist pension provider but the performance hasnt been less than 10% a year after charges since i took it out.

nh

So which provider is that with? 10% a year after fees sounds like pretty good growth especially for the past few years.

And anyway, you never answered my question - how much do you pay in and what do you expect to get from it?

Pal

The provider he used is probably rather irrelevant. It is the asset class he invested in which is of more importance.

Off the top of my head dare I suggest that it was probably a property or corporate bond fund?

dunstonh

The provider he used is probably rather irrelevant. It is the asset class he invested in which is of more importance.

Spot on. Its a spread of 10 funds over a range of areas. I use Skandia as the provider but thats only due to them having over 300 funds available and free switching.

Off the top of my head dare I suggest that it was probably a property or corporate bond fund?

Property and corp bond make up part of the mix. Be foolish not to include those in any portfolio. The rest include US small cos, Euro, China and UK equity income and small cos. I rebalance annually as well (sometimes twice a year if a good period happens).

lipidicman

deemy2004 wrote:

Yep

As far as I am concerned the BEST long-term investment is index linked govenment stock in an ISA !

by this, Deemy, do you mean gilts?

Pal

Yes, he means index-linked Gilts. Deemy believes they are a great investment. I am not so keen as I believe he has done his numbers wrong, but I have never plucked up the emphusiasm to figure out the details and argue with him.

By all means look into investing in them, but remember to do your own research and learn what you are investing in before parting with any money.