pention vs savings please help

pearl2009

im 23 in October and I went to see a financial advisor a while ago. He mentioned I should have a pention by now. I have decided agains my employer pention. I have been looking at pentions and such as the virgin pention. I wondered if i could have your advise. If i open a pention i will get charged and there is a chance my money could depretiate. why not just start a savings account?? why do people pay to put there money in pentions when they could just save?? also if i bought a private pention am i still entitled to the rubbish state pention??


Thank you

Aegis

Why have you decided against the employer's pension?

dunstonh

I have decided agains my employer pention.

As Aegis says. Why?

I have been looking at pentions and such as the virgin pention.

Which is amongst the worst stakeholder pension on the market place.

If i open a pention i will get charged and there is a chance my money could depretiate.

pensions dont make money or lose money. The investments you place inside of the pension do that. If you place an investment that is guaranteed or cash inside a pension then you will not lose money.

why not just start a savings account??

cash historically just about keeps pace with inflation. You get no real terms capital growth. You may not have investment risk to be concerned with but you will be replacing it with shortfall risk and inflation risk. In other words, you would probably have to pay two to three times more each month into savings than the pension.

why do people pay to put there money in pentions when they could just save??

tax relief on contributions. Tax free growth. Nothing else conventional beats a pension on like for like investments (or cash) when looking solely at income provision in retirement.

also if i bought a private pention am i still entitled to the rubbish state pention??

Yes.

yelf

You dont buy a pension: you invest in one.

bristol_pilot

I asked a barber whether I need a haircut and he said I did.

[Deleted User]

pearl2009 wrote: »

im 23 in October and I went to see a financial advisor a while ago. He mentioned I should have a pention by now.

Ideally yes. Many people don't but it'd be ideal to start one ASAP.

pearl2009 wrote: »

I have decided agains my employer pention.

We all want to know why. Do they offer any types of incentive i.e. you put in 5% and they match the 5% and put in, effectively, free money?

pearl2009 wrote: »

why not just start a savings account??

With the best will in the world the chances of you not dipping into this once for 40 years is pretty much 0. They'll be house deposits, weddings, kids, you name it. With a pension you put a fixed amount away every month and you're not able to withdraw this money until you reach 67 (I believe it'll be for me and you.)

pearl2009 wrote: »

also if i bought a private pention am i still entitled to the rubbish state pention

Assuming you meet the requirements of NI then yes. See here: http://www.thepensionservice.gov.uk/state-pension/home.asp

Aegis

With the best will in the world the chances of you not dipping into this once for 40 years is pretty much 0. They'll be house deposits, weddings, kids, you name it. With a pension you put a fixed amount away every month and you're not able to withdraw this money until you reach 67 (I believe it'll be for me and you.)

It's 55 for personal pensions at the moment, and I think that's unlikely to rise to 67. The state pension on the other hand will not be available until 68 for someone our age, which means that anyone looking to retire before then will be relying on pension and savings income to live on. Pensions are better at building up a large pot of income-generating money, so it makes sense to use them in preference to simple investments, especially since people should be using their ISAs for good medium term returns.

I agree with this idea. A saving may be better than pention in this point.

I don't think that was the point being made...

redpete

pearl2009 wrote: »

If i open a pention i will get charged and there is a chance my money could depretiate.

It depends on what type of investment you make for your pension. If it's cash into an interest paying account then the money would not depreciate. However, over the long term (which is what pension savings are) you are almost certainly going to get a better return on investments in shares or bonds; for these there would be charges and the value of the investment will go up and down; even allowing for these charges and fluctuations the return over the long term will (almost certainly) beat cash.

why do people pay to put there money in pentions when they could just save??

Because you get tax relief on contributions, because it forces you to save for retirement and not be tempted to dip into it for a new car, because in an employer's scheme they usually add to you contributions at no cost to you.

Did your financial advisor advise you to not join your company's scheme?

pearl2009

Thank you for the advise its very helpful.

My financial advisor did advise me to go with the company pention but i am looking for a new job atm and i dont think there is any point in me joining it right now for a few months payments..

I wanted private because i like the idea of being in control of it myself not my company. I will however ask about my next companys on when i change jobs eventually. I would also like to work for myself in the future and thought it easier if i had my own..

I just wanted to start getting into the habit of saving now, also if virgin pention is one of the worst atm, can you suggest any that are good??

Also again, I have just checked my pention forecase and it mentions if I 'contract out' my state pention could go down in value? is that not a little unfair considering I have been making ni contributions all the time I have been working.

Thank you people

seven-day-weekend

Your basic State Pension of £95 a week (at present rates) will not go down. The earnings-related part S2P (formerly known as SERPS), will. This is because it should be equalled or exceeded by your Personal Pension. You also will not pay so much in NI if you opt out..

jamesd

If you're interested in learning how to invest as well you might try the Hargreaves Lansdown SIPP pension. That has a very broad range of investments and is fairly competitively priced and popular with those who write here. It's not ideal if you just want to put the money in and forget about it, just because there are some personal pensions that have slightly lower annual charges on the investments - the AMC that you see quoted for funds.

If you contract out your entitlement to the additional state pension won't increase for the years when you're contracted out. Instead you'll get a lump sum paid into your pension pot that you can invest as you like. Investment performance determines whether that will get you more or less than you would have got. Unlike the state pension you can take an income from this from age 55 and can take 25% as a lump sum then as well.

This decision applies to each year you contract out and has no effect on the increase in state pension from past or future years. A relatively young person could take the view that it's good to have the flexibility of being able to take some income before state retirement age, to give a bit more income early on if they retire early.

One advantage of pensions that hasn't been mentioned directly yet. The pension pot isn't counted as savings for means-tested benefits. ISAs usually are. Same for bankruptcy. Those are significant risks to the value of an ISA alternative to a pension pot if you're unlucky.