Pension MoneySaving: Buy a different way to boost returns Article Discussion Area

EdInvestor

Could you replace the life cover in the endowment at reasonable cost?If not, that might be a reason for keeping it.

liam_2-2

Thanks.

Yes,I had a quote for life cover via a MSE link for £17 per month.For both me and wife.So that is the least i am likely to do once i have exhausted any other avenues.

EdInvestor

In that case go over to the endowment forum and post the usual info about the policy for a view on what to do.

koru

Question for Martin:

I can see why you recommended the HL SIPP as having lower charges than the Fidelity SIPP, but does this comparison change if the Fidelity SIPP is through Cavendish, who rebate the commission, so you could be getting an extra 0.5% rebated into your fund each year? Would this fully offset the extra charges made by Fidelity, or would HL still be cheaper?

Statto

Some time ago the Times had a suggestion to boost a spouse's pension and I am seriously thinking of doing it.

I am 56 and already taking my final salary pension. My wife is 58 does not work and has minimal income.

The article says the husband can pay £2,880 per year into a stakeholder pension in his wife's name. Tax relief tops that up to £3600 (the max for people with earnings of less than that).

He makes 4 contributions over a minimum of 2 years and a day; this can be achieved if he invests at the end of three tax years (5/4/09, 5/4/10 & 5/4/11 ) and the first day of the next tax year (6/4/11). If the fund returned just 3% a year after charges it would be worth £14,727 - 27.8% more than the sum invested, largely thanks to tax relief.

As this is below the 'trivial commutation limit' of 1% of the lifetime allowance for pensions (£1.65m), all this money can be paid as a lump sum. Normally, only 25% can be taken as a lump sum from age 50, rising to 55 from April 2010. The triviality rules apply only fom age 60, though.

In this case the wife would have achieved a post-tax annual return of 8.67% if the pension was encashed over one tax year or 13.65% if over two, if she was a non-earner. If she had earnings of 2,000 per year, returns would be 7.06% over one year or 10,55% over two.

Is there a catch in this and is there anybody I can take this out with to give me half decent rates of return?

Statto

dunstonh

The article says the husband can pay £2,880 per year into a stakeholder pension in his wife's name. Tax relief tops that up to £3600 (the max for people with earnings of less than that).

That must be an out of date article. The amount is £2800 (grossed up to £3600) and can include personal pensions, SIPPs and stakeholder.

As this is below the 'trivial commutation limit' of 1% of the lifetime allowance for pensions (£1.65m), all this money can be paid as a lump sum. Normally, only 25% can be taken as a lump sum from age 50, rising to 55 from April 2010. The triviality rules apply only fom age 60, though.

The money is paid minus a tax deduction which effectively is there to reclaim the tax relief.

is there anybody I can take this out with to give me half decent rates of return?

pensions are a tax wrapper for investments. Investment returns are an unknown. No-one can tell you who or where the best returns will be or even what will be decent.

Whilst my response sounds like its is knocking the idea, I do have a lot of retired people who pay the £3600 each year to build up a tax free pot for the spouse to make sure they have an income later in life when the main pension provider dies. I wouldnt be doing it to plan on triviality though. I would be more concerned with the spouse's income dropping 50% on your death and making sure they have enough in their own name to make up for it.

cjjohnson

The examples are shown for those paying tax. If you don't work can you still pay in to a pension and get the governments contribution?

I stopped working 3 years ago to have my son. I will return to different employment when he is at full time school but am concerned that time is ticking away without me putting anything by so wanted to start a pension now.

Many thanks

dunstonh

The examples are shown for those paying tax. If you don't work can you still pay in to a pension and get the governments contribution?

The figures above are for those that are not working or already retired as well. You get tax relief upto £3600 a year as a minimum.

alanwk43

HELP: I have a Friends Provident new generation group company pension scheme which had about 50000 in it as of Jan 08 last year. I left the company and have made no new contributions since April 08 owing to being a struggling writer for my sins. My pension is now down to £32000 dropping considerably. I have been caught up in the credit crunch but also the fact that a 'star' fund manager left and many people dropped out and the funds dipped. I am in Artemis UK special Situations Baillie Gifford International and Lazard european - all of which are not doing well. So my pension pot is falling and I am also paying quite high charges to Friends Provident - which is making it even less. FP were no help when I asked for advice and said legally they cannot give any - they simply said that to move out of the funds will mean that they cannot regrow. Is this true? As of today I am 43 and earning less than £2000 a year... until I get my writing career up and running again. Two week old New baby doesn't help matters - but she is cute. Any advice please??? Al

dunstonh

My pension is now down to £32000 dropping considerably.

Thats about 36% which suggests you are fully exposed to the stockmarkets. Your fund choice (which I read after typing that confirms it)

all of which are not doing well.

It is pretty much a high risk spread and its not a case of them not doing well but doing as expected in a downturn of this nature. The higher the risk you take, the greater the volatility you will see and the size of the fluctuations will be more.

So my pension pot is falling and I am also paying quite high charges to Friends Provident

I doubt you are paying high charges. The FP NGP personal pension is actually very well priced normally. The choice of internal funds at stakeholder cost and external funds at pretty much close to unit trust price is not bad going.

FP were no help when I asked for advice and said legally they cannot give any

Which is correct. They are product providers not financial advisers. They do not hold the licence to give you advice.

they simply said that to move out of the funds will mean that they cannot regrow. Is this true?

Correct but in a misread sort of way. You have to be in a fund to get the performance of the fund. If you move into a cautious fund, when the recovery comes you will not get the growth that a higher risk fund would be expected to give. If it drops more, a cautious fund will be expected to drop less.