Pensions

Harry_Powell

chucky wrote: »

couldn't you not pay the ISA amounts into a pension if and when you become 40% tax payer - that way it's better than just getting the 20% tax relief. is that still around?

the reason i like the ISA's is that they don't attract any charges like pensions do.

Yes, you could (upto a maximum of your annual gross salary). The only real disadvantage of this is if you were made unemployed. If you have more than £6k of savings, you have to fund yourself rather than receive state benefits. If you shove all your ISA into a pension when you become unemployed you are deliberately depriving yourself of assets and the benefit office will proceed as if you still had the money in your bank account. Also, you have no protection against bankruptcy with an ISA.

I know that these two scenarios are unlikely (esp. the second), but !!!!!! happens and it's best to shelter yourself as much as possible.

My S&S ISA with Hargreaves Lansdown has a 0.5% annual charge, plus there are charges for any shares I buy (but no charge for the majority of funds). Who is your ISA with?

Harry_Powell

chucknorris wrote: »

A few weeks ago I modelled paying into a pension sipps and compared it to a non pension investment, even with 40% tax contribution, after 10 years investment then taking out an annuity it still took a further 26 years for the pension to catch up with the non pension investment (by catch up I mean become worth more than the capital of the non pension investment). So 36 years in total!

So although I anticipate to live over 36 years (I'm 51, if I don't live that long then it's irrelevent anyway) I decided not to invest in a pension, I just do not think it's worth it from an investment point of view.

It is probably worth it for someone who might be concerned about having an income, but for me the pension would just be an additional investment, on top of my original retirement plan. The reason I am posting this is here is to see if someone can flaw my logic, if they did then I would look at pensions again.

You can invest in exactly the same funds and shares in a SIPP as you can via an ISA or other investment, so I can't understand how you've got your figures. What was the pension investment and what was the non-pension investment?

You also don't need to buy an annuity until age 75, you can leave your pension in 'draw down' and still invested in the stockmarket. I suspect that the 'age 75 annuity' rule will be wiped eventually soon.

IveSeenTheLight

chucknorris wrote: »

The reason I am posting this is here is to see if someone can flaw my logic, if they did then I would look at pensions again.

I don't think your logic is flawed and it is why more and more people are choosing to invest elsewhere.

chucky

Harry_Powell wrote: »

Yes, you could (upto a maximum of your annual gross salary). The only real disadvantage of this is if you were made unemployed. If you have more than £6k of savings, you have to fund yourself rather than receive state benefits. If you shove all your ISA into a pension when you become unemployed you are deliberately depriving yourself of assets and the benefit office will proceed as if you still had the money in your bank account. Also, you have no protection against bankruptcy with an ISA.

I know that these two scenarios are unlikely (esp. the second), but !!!!!! happens and it's best to shelter yourself as much as possible.

My S&S ISA with Hargreaves Lansdown has a 0.5% annual charge, plus there are charges for any shares I buy (but no charge for the majority of funds). Who is your ISA with?

yes - i agree with the bankruptcy and unemployment scenario.

i run my ISA in conjunction with my SIPP as an alternative of not having to lock my money into a pension and only getting at it when i retire. hence the investment in property too - i plan to retire in 3 stages using property first then ISA then pension - however i can't see the 40% pension relief continuing for much longer.

my ISA is with iii - no service charge and £10 a trade for FTSE shares and £15 for NYSE shares.

lemonjelly

I do not wish to come across as uncaring. However...

Working within the advice field, the majority of the changes to the benefits system for the over 60's have been of significant financial benefit.

I really don't like seeing these "heat or eat" programmes, as they are generally flawed & misleading. The whole purpose of a welfare state is to help those who genuinly need it. I have seen pensioners with £85000 in the bank (only the other day) who argued it was unfair his rent wasn't paid, whereas his neighbours was. When I advised him that he has £85k, & therefore doesn't need state help to pay the rent, he advised me that he'd worked for that money, it was his. What in blazes did he accumulate that money for? What is he going to do with it? It is for spending, & supporting yourself. If you have £85k, you don't need state help!

The over 60's have seen significant improvements to their welfare in recent years. Lest we forget, in addition to the state pension and pension credit, they are likely to qualify for winter fule payments, cold weather payments (if it is cold enough), attendance allowance (& if they get this - numerous additions to their pension credit which can increase their weekly income by £100+), free sight tests/prescriptions etc, free tv licence at 75, free nationwide travel and so on. Plus it is nigh on impossible for a person over 60 to commit benefit fraud, due to the laxity & changes in the laws.

Prior to 2004, the largest (by number of cases) proportion of the population who were caught committing benefit fraud was the 60+ age range.

Harry_Powell

chucky wrote: »

yes - i agree with the bankruptcy and unemployment scenario.

i run my ISA in conjunction with my SIPP as an alternative of not having to lock my money into a pension and only getting at it when i retire. hence the investment in property too - i plan to retire in 3 stages using property first then ISA then pension - however i can't see the 40% pension relief continuing for much longer.

my ISA is with iii - no service charge and £10 a trade for FTSE shares and £15 for NYSE shares.

I read up o the iii ISA and it looks a good deal, I might move my fledgling ISA there. Thanks for bringing it to my attention . There are still the usual 1% to 1.5% AMC on funds, and as you say, the dealing charge on shares (though not until 2010).

http://www.iii.co.uk/isas/?type=isa_charges

StevieJ

treliac wrote: »

Coping on a basic pension alone - it's an appalling thought, even with the additional pension credit and council tax benefit.

Perhaps that's why the rules change in 2012 .... http://news.bbc.co.uk/1/hi/business/7414108.stm

Wonder how much difference it will make?

I think the 2012 legislation is designed to save the govt money, i.e. take more people out of the MIG.

chucknorris

Harry_Powell wrote: »

You can invest in exactly the same funds and shares in a SIPP as you can via an ISA or other investment, so I can't understand how you've got your figures. What was the pension investment and what was the non-pension investment?

They would most likley be FTSE trackers, the only difference would be that for the 10 year period the pension tracker would not have dividend income taxed at 40% and of course also get a 40% contribution from the Gov.

But even with both those 40% advantages it takes 26 years for the income form the pension to match the capital (and income generated from same) from the non pension investment.

You also don't need to buy an annuity until age 75, you can leave your pension in 'draw down' and still invested in the stockmarket.

Yes I know but it still doesn't significantly change things, if the penson had performed better I would have re-visted my spreadsheet to analyse income drawdown.

I suspect that the 'age 75 annuity' rule will be wiped eventually soon.

Problem is that it would not be a valid analysis to assume this and also if anything I think the Gov will be firmer on pensions as they worry about the growing older population. It is not in their interests to allow people to avoid buying annuities

StevieJ

lemonjelly wrote: »

Plus it is nigh on impossible for a person over 60 to commit benefit fraud, due to the laxity & changes in the laws.

Prior to 2004, the largest (by number of cases) proportion of the population who were caught committing benefit fraud was the 60+ age range.

Why is that ?

chucky

Harry_Powell wrote: »

I read up o the iii ISA and it looks a good deal, I might move my fledgling ISA there. Thanks for bringing it to my attention . There are still the usual 1% to 1.5% AMC on funds, and as you say, the dealing charge on shares (though not until 2010).

http://www.iii.co.uk/isas/?type=isa_charges

no problem - it's a pleasure to be of help.
the cheaper dealing charges are interesting but be careful as they charge only if you trade at certain times each month - i prefer to pick out my buying prices on shares as otherwise you're restricted to the price set on that particular day.

i've not invested in any funds yet so not seen the charges.
i will get into funds once the markets have stabilised a bit.