I need a Pension!

Aegis

marklv wrote: »

So, basically, that formula would only generate a pension of around 40% of salary. Maybe it should be half your age + another 20% - i.e. 13.5% + 20% of that = 16.2% of salary.

40% of salary with a 25% lump sum is a pretty good starting point when coupled with state benefits. Why add another 20% and endure financial hardship early in life?

JoeCrystal

So what is good percent if you want to save for 60% of the salary (I know the salary can change over next few decades), from age of 24? I am planning to start a pension in the new year. :j Or is that is far too unrealistic?

By the way, terriblewithmoney. Congrats on having limited company and hope best of luck with it. *thumb up*

leveller2911

This is just my opinion and I'm not a FA but I don't think pensions are worth a light,especially for self employed.Annuity rates have dropped through the floor and ALL of the self employe people I know that have retired everyone of them had to work 5-8 yrs longer and these rates will NOT rise again.Secondly yes you do get tax relief on contributions but then the f eckless government claws the tax back when you retire ,which is the exact time in your life you need every penny.

I had 2 pensions running since I was 21, I chose to freeze them after paying in for 16 yrs purely and simply because 1.the fund on retirement would buy me a pittance of a pension(paied as much as I could ) 2. The pension would die with me, so If I died at say 66 after retiring at 65 the pension died and my wife would receive nothing.3. If I did want the pension to carry on for my wife after my death then the pension I would receive would be only 50%.......Just my opinion people but its a rip-off..Your far better off putting money into ISA ,s and other savings vehicles...
Lastly how INDEPENDENT are IFA,s The ones I have always had show you a table of providers for say life insurance and "suggest" which they feel is best for you,yes it does show how much their commision is ,but the list they show you will have the suggestions they want you to invest in, it doesn't mean its best for you,it could be best for them...........Or am I being cynical here?:rolleyes:

PS my accountant who is a good friend said he couldn't give me advice about pensions as he wasn't qualified ,which I understand, but went on to say he had frozen both of his pensions too for the same reasons as I did...and he is a good accountant..make up your own minds.

Aegis

leveller2911 wrote: »

This is just my opinion and I'm not a FA but I don't think pensions are worth a light,especially for self employed.Annuity rates have dropped through the floor and ALL of the self employe people I know that have retired everyone of them had to work 5-8 yrs longer and these rates will NOT rise again.

Pensions are the single best way to put aside money for income in retirement. With the loss of the state second pension it is absolutely vital for self employed individuals to plan effectively for their retirement, and failing to utilise the pension wrapper would probably be a fairly major mistake for most such individuals.

Secondly yes you do get tax relief on contributions but then the !!!!less government claws the tax back when you retire ,which is the exact time in your life you need every penny.

Well, it's not quite that simple. You pay into the pension and get tax relief at your highest level. Early in life that's likely to be 20%, later on its likely to be 40% for successful individuals. When you reach retirement age, up to 25% of that gets paid back to you tax free, the rest is taxed as with any other income. With just the basic state pension you're likely to use less than your annual allowance (£9,640 for 09/10 for the over-75s), which means that some of the income you receive from the pension will be tax free as well.

I had 2 pensions running since I was 21, I chose to freeze them after paying in for 16 yrs purely and simply because 1.the fund on retirement would buy me a pittance of a pension(paied as much as I could )

The actual fund would have been smaller if you'd made the same investments outside a pension wrapper. On top of that, pensions have changed somewhat of late and you can now more or less invest in whatever you like through a pension, making them as versatile as normal investing.

2. The pension would die with me, so If I died at say 66 after retiring at 65 the pension died and my wife would receive nothing.

Not true for modern pensions if you decide not to take an annuity. You can instead use unsecured drawdown to take money out of your pension plan at your own rate, meaning the assets pass to your estate on death instead of disappearing.

3. If I did want the pension to carry on for my wife after my death then the pension I would receive would be only 50%.......

See above. You could also have set up pension contributions in her name as well if you wanted her to have her own retirement planning sorted out independently in advance.

Just my opinion people but its a rip-off..Your far better off putting money into ISA ,s and other savings vehicles...

I don't think it's a valid point to be honest. The tax-free (ish) growth inside the pension makes up for a lot of the tax that you pay when receiving income from the pension during retirement. You would pay just as much tax on income from most other investment vehicles, with the only exceptions I can immediately think of being qualifying life assurance policies and ISAs. Qualifying life assurance policies are generally quite restrictive (even more so than pensions from what I've seen) and ISAs have a maximum contribution allowance each year along with the possible disadvantage that the money isn't forced to stay in there until retirement.

Lastly how INDEPENDENT are IFA,s The ones I have always had show you a table of providers for say life insurance and "suggest" which they feel is best for you,yes it does show how much their commision is ,but the list they show you will have the suggestions they want you to invest in, it doesn't mean its best for you,it could be best for them...........Or am I being cynical here?:rolleyes:

With life assurance it's fairly easy to work out which is best for you. It's usually the cheapest one that suits your purpose. Are you saying that IFAs intentionally pick the more expensive products in the circumstances you have described? That would certainly be grounds for a complaint to the Financial Ombudsman Service, but IFA complaints make up a very small minority of the complaints made each year to the FOS, and an even smaller minority of upheld complaints. It doesn't appear to be much of a problem, even with commission paid.

It sounds like you might be overly cynical on this one

Aegis

JoeCrystal wrote: »

So what is good percent if you want to save for 60% of the salary (I know the salary can change over next few decades), from age of 24? I am planning to start a pension in the new year. :j Or is that is far too unrealistic?

By the way, terriblewithmoney. Congrats on having limited company and hope best of luck with it. *thumb up*

If you're aiming for 60% with a growth rate of 7% you'd probably be looking at around 15-16% of your salary over the timescale previously mentioned.

Of course, I still feel that 7% is actually quite a low return on what should be fairly high risk investments for at least the first 15-20 years or so, so I would like to think my own pension will be significantly higher than 40%.

leveller2911

Aegis wrote: »

Pensions are the single best way to put aside money for income in retirement. With the loss of the state second pension it is absolutely vital for self employed individuals to plan effectively for their retirement, and failing to utilise the pension wrapper would probably be a fairly major mistake for most such individuals.



Well, it's not quite that simple. You pay into the pension and get tax relief at your highest level. Early in life that's likely to be 20%, later on its likely to be 40% for successful individuals. When you reach retirement age, up to 25% of that gets paid back to you tax free, the rest is taxed as with any other income. With just the basic state pension you're likely to use less than your annual allowance (£9,640 for 09/10 for the over-75s), which means that some of the income you receive from the pension will be tax free as well.



The actual fund would have been smaller if you'd made the same investments outside a pension wrapper. On top of that, pensions have changed somewhat of late and you can now more or less invest in whatever you like through a pension, making them as versatile as normal investing.



Not true for modern pensions if you decide not to take an annuity. You can instead use unsecured drawdown to take money out of your pension plan at your own rate, meaning the assets pass to your estate on death instead of disappearing.



See above. You could also have set up pension contributions in her name as well if you wanted her to have her own retirement planning sorted out independently in advance.



I don't think it's a valid point to be honest. The tax-free (ish) growth inside the pension makes up for a lot of the tax that you pay when receiving income from the pension during retirement. You would pay just as much tax on income from most other investment vehicles, with the only exceptions I can immediately think of being qualifying life assurance policies and ISAs. Qualifying life assurance policies are generally quite restrictive (even more so than pensions from what I've seen) and ISAs have a maximum contribution allowance each year along with the possible disadvantage that the money isn't forced to stay in there until retirement.



With life assurance it's fairly easy to work out which is best for you. It's usually the cheapest one that suits your purpose. Are you saying that IFAs intentionally pick the more expensive products in the circumstances you have described? That would certainly be grounds for a complaint to the Financial Ombudsman Service, but IFA complaints make up a very small minority of the complaints made each year to the FOS, and an even smaller minority of upheld complaints. It doesn't appear to be much of a problem, even with commission paid.

It sounds like you might be overly cynical on this one

Aegis I understand what your saying buy WHY should someone who works and pays tax for 50 years then pay tax on the pension, its morally wrong,none can justify that.With regard to annity rates then which have been falling through the floor, can you in all honesty say they are good for self employed?, you say the fund would be smaller if invested outside a pension wrapper but how long for? annuity rates in my opinion are not going up.
Why would anyone who does an manual job and basically knackers there body up decide not to take an annuity,most people find it tough enough paying into a pension full stop let alone having something to leave in their estate, im sorry but your not talking about the vast majority of the population here, middle class pen pushers maybe.

With regard to IFA I could turn the argument on its head and say "Why wouldn't IFA,s give someone a list of the best products for them with regard to comission rates rather than the best product for the client.We see on here IFA,s constantly promoting their own club, its always "see an IFA and to be honest the ones I know personaly don't have any formal qualifications as such, most come from being car salesmen,ex plumbers and general sales,im suggesting all are the same but I think people should be wary of IFA.s ...Im a joiner by the way, no financial background, just got my degree from the school of hard knocks......But as you say I may be cynical...:D.....

To sum up though, for most working class people earning the average wage or less and especially self employed pensions are not worth it, but we must all invest for our retirement,I just don't do the pension thing.
GREAT GOLDEN RULES AEGIS...totally agree with you..

dunstonh

I don't think pensions are worth a light,especially for self employed.

Acutally, they are probably better for the self employed as you get lower state pensions and the income from the pension in retirement can eat up more personal allowance.

.Annuity rates have dropped through the floor

They have been generally fairly stable for the last 6 or 7 years with slight increase in the last 3. Although slightly down more recently as interest rates fell back. Although if you dont want annuity until last minute then dont buy one.

ALL of the self employe people I know that have retired everyone of them had to work 5-8 yrs longer and these rates will NOT rise again.

So, in other words they didnt pay enough in. Good job they didnt use savings accounts then as it may have been 10-12 years longer.

Secondly yes you do get tax relief on contributions but then the f eckless government claws the tax back when you retire ,which is the exact time in your life you need every penny.

No they dont. You get tax relief when you pay in, you can take 25% back tax free and the rest is paid as taxable income. However, you can earn £10k a year without paying tax. A self employed person will get £5k basic state pension meaning the other £5k they earn is tax free.

1.the fund on retirement would buy me a pittance of a pension(paied as much as I could )

it would be pittance whether it was ISA , savings account or anything else.

2. The pension would die with me, so If I died at say 66 after retiring at 65 the pension died and my wife would receive nothing.

That is incorrect. You could buy a joint income or add a guarantee period or add value protect or dont buy an annuity until age 75.

If I did want the pension to carry on for my wife after my death then the pension I would receive would be only 50%.....

Also incorrect. Only if you bought a 50% annuity would that be the case. If it was in income drawdown your spouse can take it over 100%. Or you can buy a 100% annuity.

Your far better off putting money into ISA ,s and other savings vehicles...

No you are not. You are better off using a combination. However, as far as income provision goes, nothing else beats a pension.

Lastly how INDEPENDENT are IFA,s The ones I have always had show you a table of providers for say life insurance and "suggest" which they feel is best for you,yes it does show how much their commision is ,but the list they show you will have the suggestions they want you to invest in, it doesn't mean its best for you,it could be best for them...........Or am I being cynical here?:rolleyes:

Why are you mixing up life assurance and investments? The investment selection doesnt dictate the remuneration to the IFA.

PS my accountant who is a good friend said he couldn't give me advice about pensions as he wasn't qualified ,which I understand, but went on to say he had frozen both of his pensions too for the same reasons as I did...and he is a good accountant..make up your own minds.

I have a good accountant too. He also told a client of mine that advice I gave was wrong and gave him his unofficial opinion. After I showed him where he was wrong and how his solution would create over £10k of tax liability compared to mine he backed down and wrote a letter of apology. Most accountants used to give financial advice. Their knowledge is often old and obsolete. Most realise that but you still get a few that think that they know whats best in that area.

Pensions are not a perfect tax wrapper but then there is no one best solution. However, you should at least try to learn about them and understand the pros and cons before you start slagging the wrapper off with a load of misinformation.

Aegis I understand what your saying buy WHY should someone who works and pays tax for 50 years then pay tax on the pension, its morally wrong,none can justify that.

It dosnt matter how you earn the money. In a pension, in a savings account, from rent etc. Its all taxable.

We see on here IFA,s constantly promoting their own club, its always "see an IFA and to be honest the ones I know personaly don't have any formal qualifications as such, most come from being car salesmen,ex plumbers and general sales,im suggesting all are the same but I think people should be wary of IFA.s ...Im a joiner by the way, no financial background, just got my degree from the school of hard knocks......But as you say I may be cynical...:D.....

An IFA has to sit 3 exams for mortgages, 5 for investment level qualifications, increasing to 9 from 2010 (for new entrants and 2012 for existing). So, after sitting 12 exams, why do you think there are no qualifications.

Also, most the IFAs I know have been advisers for years. Some have moved in to the role later but I am wondering whether you are referring to tied agents rather than IFAs. Tied agents were notorious for employing ex sales people.

Aegis

leveller2911 wrote: »

Aegis I understand what your saying buy WHY should someone who works and pays tax for 50 years then pay tax on the pension, its morally wrong,none can justify that.

Why is it morally wrong? Everyone pays tax on what they earn over a certain threshold no matter what their age. Older members of society then get an increased personal tax free allowance and don't have to pay National Insurance contributions any more, so they save a lot of money that someone younger with the same gross income would lose to taxes.

With regard to annity rates then which have been falling through the floor, can you in all honesty say they are good for self employed?,

I actually said that a pension fund could be used in ways other than purchasing an annuity. Unsecured drawdown is one option, and this is an option almost identical to the idea of building up a lump sum using both ISA and non-ISA investments, the difference being that the growth inside a pension is as tax free as these things get and the initial investment is topped up with tax relief. You don't need to take an annuity if you don't want one.

you say the fund would be smaller if invested outside a pension wrapper but how long for?

For the entire growth phase of the pension fund. If I have two post and start one of them growing tax free at 10% per annum and the other growing at the same tax-free rate but increased in value by 25% to begin with, the second pot will always be bigger than the first. The growth rate is determined by the underlying investments, the initial size of the contribution factors in the tax relief.

annuity rates in my opinion are not going up.

I'd be surprised if they didn't go up at some point. Annuity rates tend to be linked to long-term gilt rates if I remember correctly, so when interest rates go back up again and gilts need to be issued with higher coupons again, we should see annuity rates rise.

Why would anyone who does an manual job and basically knackers there body up decide not to take an annuity,most people find it tough enough paying into a pension full stop let alone having something to leave in their estate, im sorry but your not talking about the vast majority of the population here, middle class pen pushers maybe.

Someone starting at age 27 and contributing £50 per month (that's £40 grossed up) could feasibly have amassed a pension pot of over £110k by the time they retire at 65. In real terms that could add the equivalent of £2k a year to their retirement income using current annuity rates. The amount saved up could feasibly be a lot higher, this assumes a 7% annualised return while people have mentioned getting regular double digit returns in long-term somewhat riskier portfolios.

With regard to IFA I could turn the argument on its head and say "Why wouldn't IFA,s give someone a list of the best products for them with regard to comission rates rather than the best product for the client.We see on here IFA,s constantly promoting their own club, its always "see an IFA and to be honest the ones I know personaly don't have any formal qualifications as such, most come from being car salesmen,ex plumbers and general sales,im suggesting all are the same but I think people should be wary of IFA.s ...Im a joiner by the way, no financial background, just got my degree from the school of hard knocks......But as you say I may be cynical...:D.....

Why wouldn't they? Agreed fees. Most IFAs now seem to offer to agree a fee in advance for their services and will rebate additional commission to the customer. Alternatively a flat fee can be paid for advice with all commission rebated to the customer. Another alternative is to charge a percentage of the amount transacted for investments. Any of these fee models will remove any possible commission bias because the IFA would get paid the exact same amount regardless of the product choice.

All IFAs have to offer a fee-based service, so that would be the way to ensure that your IFA isn't showing you just what's good for him.

To sum up though, for most working class people earning the average wage or less and especially self employed pensions are not worth it, but we must all invest for our retirement,I just don't do the pension thing.

The biggest problems with investing outside a pension are that it is too readily accessible and may end up costing more in tax than the pension would in the long run. However, as long as you are diligently saving for retirement in a vehicle that you are not going to touch until you cease work, then it's much the same arrangement, only more flexible and with less tax relief. As long as you're happy with it, I wish you all the best

GREAT GOLDEN RULES AEGIS...totally agree with you..

Thanks, I may have "borrowed" one or two of them from elsewhere, but they seemed appropriate when I set up my signature a while back.

whiteflag_3

Why is it morally wrong? Everyone pays tax on what they earn over a certain threshold no matter what their age.

You sure Aegis ?- I think youll find many self employed trades people, do the odd casher that might not go through the books!;)

leveller2911

I'm off to bed Dunston, but I will reply to the above tomorrow, wish I knew how to qoute sections as it will look like an essay.The people I know who had to work a further 5-8 years the reason was annuity rates dropped through the floor, fact, not fiction and to say "They didn't pay enough in" to be frank is crap, they paid in the maximun they could afford, sorry but I must say that is a radiculous comment to say, they are manual working class, not middle or high income people.Bit out of touch with real life that comment ....very flippant.but hay you are an IFA after all..All of what I have written above is from my experience and also my opinion.With regard to the moral question of taxing pensions ,yes you would still be taxed if it were invested in savings or a pension but that doens't make it morally right, if you or the government think it will get the everyday Jo putting money into pensions you are sadly wrong ....The IFA,s I know are not tied agents they are IFA,s ..im not knocking all IFA,s im saying people should be wary of all financial advisers ...Think Aegis sig says it about right...