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

dunstonh

any advice as to which pension to start and how?

There is no one best pension. Clearly in your case transfer is better than cash. As an interim measure to get it sorted then you could use a stakeholder pension. It wont be the cheapest. It wont be the best but it wont be the most expensive or worst either. Its a simple, basic contract for people who dont know what is best to stop them from going wrong.

jamesd

xigreek, definitely not cheapest but helpful will be Hargreaves Lansdown.

Codger61

I am now 50 and have no pension. I've had a pretty chequered employment history with long periods of unemployment in my 20s and 30s, though to the best of my knowledge my NI contributions are all up to date so I should qualify for a state pension. For the last 10 years I have been self-employed and living in rented accommodation.

My income is still low (I only paid a few bob tax on last year's accounts) so I have no spare cash to speak of really. That said, I did inherit £18,000 when my parents passed away last year and was thinking of using this money to fund a pension.

If I am looking at spreading this money over 15 years (til I'm 65) it gives me £100 a month to put into a pension. I know this isn't enough for round-the-world cruises with my wrinkly pals but adding £50 a month from my meagre income is probably the best I can guarantee realistically. I was thinking of buying a stakeholder pension from one of the MSE recommended specialist pension discount brokers.

The inheritance is going into ISAs and fixed term high(er) interest bonds to squeeze as much interest out of it as possible in the short term.

I have two questions that I'd be grateful for any feedback on:

a) Is this a really stupid idea?

b) Would I be better off using the savings to increase the monthly payments and run the risk of having no money to contribute in, say, 10 years time?

dunstonh

my NI contributions are all up to date so I should qualify for a state pension. For the last 10 years I have been self-employed and living in rented accommodation.

Your employed days would qualify you for both state pensions but your self employed NI contributions only qualify you for the basic state pension. You keep your entitlement built up to that point though on the additional state pensions. However, given your short timescale employed, you probably have very little in the way of additional state pensions.

If I am looking at spreading this money over 15 years (til I'm 65) it gives me £100 a month to put into a pension. I know this isn't enough for round-the-world cruises with my wrinkly pals but adding £50 a month from my meagre income is probably the best I can guarantee realistically.

Its probably not enough to even pay you back £100pm in retirement in real terms.

b) Would I be better off using the savings to increase the monthly payments and run the risk of having no money to contribute in, say, 10 years time?

for income provision, pension beats ISA and savings accounts. So, it will be better than doing nothing or leaving it fester in a savings account. However, the amount it is likely to pay as income isnt going to be enough to make a realistic impact on your standard of living in retirement. However, the same amount in a savings account would be worse. Its not the tax wrapper thats the problem. Its the amount and timescale left.

jamesd

Codger61, first get a State Pension Forecast. That will tell you how many years of contributions you have. If it appears to be wrong the Pension Service can even tell you on the phone (make notes!) for every year how much your reported earnings were for each individual year and whether that year counted. You can use that to ask them to search for any missing information, if necessary.

You wrote about the money going into ISAs and fixed term bonds, presumably meaning term deposit accounts. I assume also that by ISAs you mean cash ISAs, not the stocks and shares ISA allowance. For long term money you should be using the S&S ISA allowance, not the cash one. The S&S ISA allows you to buy most of the same investments as in a pension, normally various unit trusts.

There's no point in waiting to invest the money and doing it at £100 a month. Just put it all in now via the S&S allowance for this year and next. You can transfer from a cash ISA to a S&S ISA. You can still withdraw money from an S&S ISA at any time if you need it, unlike a pension.

The ideal time to put the money into a pension is when you're making money and paying higher rate tax. If there's a prospect of that in the future there's more to gain by using a S&S ISA now.

The Hargreaves Lansdown pension calculator is one that will give you some idea of how much non-state pension income you could get for different contribution levels. It's fairly cautious in its assumptions and assumes that you want to buy an annuity when you retire. It projects an income of £1730 a year in today's money at age 66 if you invest £18,000 today and get £22,500 in there after tax relief. About £33 a week plus the basic state pension and any additional state pension from when you were an employee.

One thing you could do is try comparing renting to buying to see whether it's cheaper long term to rent in your area or to buy. If you're in a council or housing association place renting may well be cheaper. If buying frees up some money that would help your budget and using the inheritance for a deposit might be the best idea.

artyal

Hi there,

I am a 28 year old, self-employed artist ( uh oh...I hear you say!). I am trying to set up a pension but have been left a little confused after reading some of these posts, that I have been ill advised. I received some advice from an IFA who suggested I set up a Stakeholder Pension with Legal and General. I can't stretch to putting more than £100 a month into a pension fund.

I am now concerned that I should not be looking into a stakeholder pension as it was mentioned (if I understood it correctly) in an earlier post that they are likely to become obsolete...? If I did set up a Stakeholder Pension, how would this affect me and I wonder, should I look into a Personal Pension instead?

Also, is Legal and General a good choice of Provider as I was also told that most providers of Stakeholder Pensions offer much the same? As I am out of my depth I have taken my IFA's word as gospel but some more opinions would be much appreciated!

Thank you and I look forward to hearing your thoughts.

dunstonh

I am now concerned that I should not be looking into a stakeholder pension as it was mentioned (if I understood it correctly) in an earlier post that they are likely to become obsolete...?

They are not obsolete as such. Just that if you pay £100pm or more you can access the cheaper personal pensions.

Also, is Legal and General a good choice of Provider as I was also told that most providers of Stakeholder Pensions offer much the same?

I havent used L&G in years. Their stakeholder is fine as stakeholders go but its nothing special.

As I am out of my depth I have taken my IFA's word as gospel but some more opinions would be much appreciated!

Why has your IFA not recommended a Personal Pension? Personal Pensions require payment consistency to get the best out of them. If you have said you want payment flexibility then that could be why the stakeholder has been chosen as they allow stop/start at no cost. Something you said must have caused the IFA to think that a SHP is better than a PPP for you.

Craig_W_2

Another with no pension to speak of here. For years I've taken the ostrich approach to retirement planning and now I've finally decided to get my head out of the sand. The problem is I really know very little about pensions and don't know where to start.

I'm 40-years-old and could afford a max of £100/mth. I know it's not ideal but it's better than nothing. What are the best options?

"james" above mentions S+S ISA's, would I be better off loading up with these - I have some cash ISA's I could trasfer (if that is allowed). Or should I stck with a more conventional pension? If so what sort of deal should I be looking at?

One thing I will do is ask my two employers whether they have schemes that they would contribute to.

dunstonh

I'm 40-years-old and could afford a max of £100/mth. I know it's not ideal but it's better than nothing. What are the best options?

Best option is being to prepare to live at or below the breadline in retirement. Luckily you are not self employed as it gets worse with less state pensions.

I know that is harsh but if you are going to pay lip service with a monthly premium that is below the minimum of many providers and start 20 years after you should have then you are asking for trouble. That sort of figure will pay you an income of around £200pm in retirement.

One thing I will do is my two employers whether they have schemes that they would contribute to.

First point of call in case there is any free money.

Craig_W_2

dunstonh wrote: »

Best option is being to prepare to live at or below the breadline in retirement. Luckily you are not self employed as it gets worse with less state pensions.

I know that is harsh but if you are going to pay lip service with a monthly premium that is below the minimum of many providers and start 20 years after you should have then you are asking for trouble. That sort of figure will pay you an income of around £200pm in retirement.



First point of call in case there is any free money.

It's easy to be wise with hindsight, dunstonh. If I had my time again I would change a lot. But we can only start where we are and, while it is not ideal, this is where I am.

For all you know, I could have several rental properties. Unfortunately, I don't. But, even if any steps I take are belated and modest, I'm trying to do my best with what means I have. Better late than never, as they say.

What do yu think of the S+S ISA idea? Is it worth transferring some ISA cash over?

Any help is appreciated. :T