Pensions

Old_Slaphead

chucky wrote: »

says me

my iii stock and shares ISA attacts no maintenance or fund charges like a pension would.

i work on a percentage profit from each stock minus any transaction charges.

AMCs on UTs at 1.5-2.5%pa are usually much higher than their pension equivalents. (Otherwise how would HL, iii etc be able to make a living?)

Harry_Powell

chucknorris wrote: »

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.

Oops, it didn't copy your other text in the quote, but anyway...

I'm afraid I still don't understand why the pension would take so long to match the value of the non-pension investment. ISA's and Pensions are just tax wrappers placed around investments, the investment makes the same amount of money regardless of whether they're in an ISA or Pension, the only difference is the tax treatment.

So with your FTSE tracker, if you held in within a SIPP you would gain from 20% or 40% increase in your invested money due to the tax rebate.

With your same FTSE tracker held in an ISA, you would not receive the tax rebate, but it would be tax free when you retire.

The growth is higher in a SIPP because more money is being invested due to the tax rebate.

chucknorris

Harry_Powell wrote: »

Oops, it didn't copy your other text in the quote, but anyway...

I'm afraid I still don't understand why the pension would take so long to match the value of the non-pension investment. ISA's and Pensions are just tax wrappers placed around investments, the investment makes the same amount of money regardless of whether they're in an ISA or Pension, the only difference is the tax treatment.

So with your FTSE tracker, if you held in within a SIPP you would gain from 20% or 40% increase in your invested money due to the tax rebate.

With your same FTSE tracker held in an ISA, you would not receive the tax rebate, but it would be tax free when you retire.

The growth is higher in a SIPP because more money is being invested due to the tax rebate.

Forget ISA's you can only invest a limted amount, which I would always do anyway. I am comparing to non ISA's. I fully understand how the pool of money builds up to more in the pension investment, but once you get an annuity the capital has gone forever. However the non pension investment capital remains intact. Even after 10 years growth, it still takes 26 years of pension income to catch up and compensate for losing the capital. Therefore it is not for me.

Harry_Powell

chucknorris wrote: »

Forget ISA's you can only invest a limted amount, which I would always do anyway. I am comparing to non ISA's. I fully understand how the pool of money builds up to more in the pension investment, but once you get an annuity the capital has gone forever. However the non pension investment capital remains intact. Even after 10 years growth, it still takes 26 years of pension income to catch up and compensate for losing the capital. Therefore it is not for me.

If you invest outside of the ISA or pension wrapper, you will be taxed heavily on your gains, so you'll be way behind either of the two wrappers.

If you defer buying an annuity and keep your pension in drawdown you can gain from the same growth as any other investment. When you reach 75, you have to buy an annuity but by that age you will probably not be interested in monitoring the markets to get the best returns, indeed you'll probably be glad to receive the guaranteed return from an annuity.

You also get to keep 25% of the capital in your pension completely tax free.

chucknorris

Harry_Powell wrote: »

If you invest outside of the ISA or pension wrapper, you will be taxed heavily on your gains, so you'll be way behind either of the two wrappers.



If you defer buying an annuity and keep your pension in drawdown you can gain from the same growth as any other investment. When you reach 75, you have to buy an annuity but by that age you will probably not be interested in monitoring the markets to get the best returns, indeed you'll probably be glad to receive the guaranteed return from an annuity.


You also get to keep 25% of the capital in your pension completely tax free.

I know, I understand, the spreadsheet takes into account the Gov contribution, tax free growth and the 25% lump sum. It just is not a good investment, it might be ok if you need a reliable source of income but I do not. Different story of course if an employer is also adding contributions but that is not the case for me, my wife has a good deal where they add 7% to her 3% of salary.

My wife is an actuary and she has gone over the figures with me and agrees too.

Harry_Powell

chucknorris wrote: »

I know, I understand, the spreadsheet takes into account the Gov contribution, tax free growth and the 25% lump sum. It just is not a good investment, it might be ok if you need a reliable source of income but I do not.

My wife is an actuary and she has gone over the figures with me and agrees too.

I'd love to see the figures. I think your main assertion is that the pension will make more money up until retirement age (let's say 65) but then the non-pension investment will make more money because the pension has been used to buy an annuity.

Have you considered that when you retire, you will have to fund the retirement with part of your non-pension investment. If you have, have you ensured that the income from the non-pension investment matches what you'd get from the annuity?

I'm afraid that I find it difficult to believe you can invest in a non-tax shielded investment that will net a much lower investment yield, then finance retirement with it and also get sufficient returns to keep increasing the non-tax shielded investment so that it grows beyond that which the pension has already attained.

I just can't see it, actuary or not.

zygurat789

An annuity is like a life insurance policy in reverse.
With insurance you pay a little every year and if you die the ins co pays out a large lump sump to whom you chose.
With an annuity you pay the ins co a large lump sum and they pay you a little every year till you die. Its really insurance.
If you don't need a reliable source of income, good for you, bur why did you ever think about a pension in the first place? You've been wasting you're time.

chucknorris

Harry_Powell wrote: »

I'd love to see the figures. I think your main assertion is that the pension will make more money up until retirement age (let's say 65) but then the non-pension investment will make more money because the pension has been used to buy an annuity.

Have you considered that when you retire, you will have to fund the retirement with part of your non-pension investment.

I am reasonable comfortable and any pension will just be 'additional' money to have, not money to spend to live, it's a pure additional investment.


If you have, have you ensured that the income from the non-pension investment matches what you'd get from the annuity?

I'm afraid that I find it difficult to believe you can invest in a non-tax shielded investment that will net a much lower investment yield, then finance retirement with it

I am not financing retiremnet with it, my retirement plan is already in place this would just be an additional investment

and also get sufficient returns to keep increasing the non-tax shielded investment so that it grows beyond that which the pension has already attained.

It does not grow beyond the pension pool of money, the point is the pool of money from the non pension investment is sufficiently large enough for the pension income to take 26 years to catch it up.

I just can't see it, actuary or not.

Model it yourself it's not diffucult to do, it only took me about an hour including getting the annuity quotes.

chucknorris

zygurat789 wrote: »

An annuity is like a life insurance policy in reverse.
With insurance you pay a little every year and if you die the ins co pays out a large lump sump to whom you chose.
With an annuity you pay the ins co a large lump sum and they pay you a little every year till you die. Its really insurance.
If you don't need a reliable source of income, good for you, bur why did you ever think about a pension in the first place? You've been wasting you're time.

I think this is responding to me? I thought about it because I wanted to see if it was worthy as a stand alone investement due to the tax advantages rather than just merely an income source, I didn't know that it wasn't until I analysed it.

I don't consider it a waste of time because I now understand the value (or lack of it) better. Before I analysed it I had no idea if the tax advantages to the pension pool would be significant to enable it to grow and produce a decent enough income in addition to the 25% tax free lump sum to compare to a non pension investment.

worldtraveller

For anyone interested, the following Fidelity 'Retirement Calculator' is pretty good at giving at least some idea of what is required in terms of investment for retirement, according to your own retirement plans/wishes.

Please note that I don't work for them, but I do invest with them and naturally there is some marketing involved. However, it's a generally useful tool, but, at the same time, some people may be shocked as to what may be needed for a comfortable retirement in future years!

https://www.fidelity.co.uk/investor/pensions-retirement/approaching-retirement/myPlan-Retirement-Snapshot.page?smid=ftm2m26d