Is it worth me continuing my pension payments..

ferry

Hi all
Its just a thought as I'm at work and thinking out loud..
I pay a minimal amount into a private pension-about £40 per month and have done so for about 10 years.

I'm in the process of looking at my finances to see if I can manage a short term loan.
In view of the amount invoved would it be best to cancel my pension payments and put the monthly payments towards paying off the loan earlier ..or is something toward a pension fund better than nothing in my case??.

T

EdInvestor

Are you contracted in or out of the state second pension and do you know how much you can expect from the state pensions when you retire ?

Check here

ferry

Hi Ed
If you mean SERPS then I beleive I am contracted out,but I dont have the benefit of any paperwork as i'm at work at the mo.

I'm looking at it from the point of view that I may consider leaving what I have paid in invested,starting an ISA that I could pay in varying amounts each month-more when I can afford to,less when I cant...???

or am I barking up the wrong tree?

EdInvestor

No, that's a good idea. Assuming you want to stay contracted out, your rebates will still go into the old pension, while your money goes towards the loan/into the ISA.

Under the new rules now coming in, pensions can be topped up later and still get tax relief, whereas with ISAs you either use your annual allowance or lose it.

You do need to check on the old pension though, to make sure it's doing OK. What company is it with and what fund(s) is it invested in?

ferry

Cheers Ed for the advice.
I know its with the Pru,but i'll check on the fund particulars when I get home and post back.
Thanks for the usual helpful ongoing advice....

ferry

I've got some more details..
According to my plan summary (period 7/04-7/05) my estimated yearly pension I might get when I retire will be a massive £693!

Taken from the Fund Value breakdown:
With profits excluding final bonus £5059.03
Final Bonus £320.64
Current with profits plan value £5379.67
Current with profits transfer value £5379.67

So based on these figures,and going back to my original question,on a monthly contribution of only £40 would I be better putting that toward an ISA?

Many thanks for the ongoing help

T

dunstonh

So based on these figures,and going back to my original question,on a monthly contribution of only £40 would I be better putting that toward an ISA?

If you put the £40pm into an ISA into the same fund as the pension, then the end result will be more or less the same (with the exception of tax relief on pension and charges differences).

The tax wrapper is one thing, the investment inside it is another. The pension doesnt make or lose money. The investment inside it does. The ISA doesnt make or lose money either. The investment inside that does.

So, you have to stop thinking that an ISA is better than a pension or vice versa with regards to investment performance. Its where it is invested that matters. As it happens, your pension fund wouldnt be on my list to keep but alternative options do exist and there are no current charges or MVR on that to stop you switching to alternative funds or looking at alternative providers (some Pru plans can be worth keeping but switching funds, others can be worth switching provider. We wont be able to tell without a TVAS taking place).

EdInvestor

I would suggest you proceed as mentioned, with new money now going into loan/ISA.

I would write to the Pru and ask them what charges you are paying and can they be reduced to stakeholder levels if they are higher. Also ask what other funds are available to switch the money to (with many insurers, the property fund can be a good bet). Check if there are any penalties for stopping payments in and check if there are any guarantees attached to the pension. :rolleyes:

They may write back suggesting you should contract back in, if so ask again here. That won't affect the need to tidy up the pension.

dunstonh

Pru will make no recommendations regarding contracting in or out. They put that decision in the hands of an IFA and will only recommend IFA promotions as the way to find out. I know that as it seems to be one of the most common sources for people ringing me up over the last year. Pru may not word it clearly either as many of these people ringing up do not seem to realise that you are speaking with an IFA but assume it is a Pru representative.

Knowing more about the Pru charging basis than ed, I wouldnt worry about it too much at this stage as unless it is a pre 1988 contract, it will almost certainly be a stakeholder equiv charge. Fund availability will depend on which distribution channel you purchased it from (i.e. direct/pru rep or IFA).