What are the cardinal rules of pensions?

homersimpson_3

I admit to being totally nieve when it comes to pensions and think they are a minefield. Is there anywhere you can get a simple guide? The responses on the thread responding to Martin's article has totally changed my perceptions and I want to find out more.
Some of cardinal rules seem to be:

Retirement planning is about providing enough money for you to live on in retirement. That is the number one issue. Too many people jump in with "i must have a pension" as the number one priority and that is not the way to do things.

Personal allowances should be considered in any retirement planning situation. If used up already with other income (including state pension) then there is little point utilising the pension unless its for higher rate relief and/or childrens/working tax credit increases.


This idea that 22% is available "free off the Government" is just plain WRONG.
A pension is taxed at your full rate on retirement, which for the individual describe above with a final salary pension (and a state pension) is going to be 22%.. Only the 25% tax free cash sum is tax free. THE REST IS TAXED.

Gorgeous_George

1. Calculate when you will die. (Rule 1 - It's just as bad to oversave as undersave).

2. Decide when you want to retire.

3. Make provision for answer 2. minus answer 1.

4. If you seek a pension, decide which company you'd like to be let down by. Or find an Independent Financial Advisor so that he can take a %age of your money as well. (Rule 2. Independent means they only look after themselves).

A lilttle tongue in cheek - but not completely!



GG

EdInvestor

Rule 1 is to find out the basics: How much will you get from the two state pensions - click here for forecast

That index linked money should be your basis for planning.Keep an eye on it, get a forecast regularly.

If you're a basic rate taxpayer, and the above state pensions will take up your tax allowance at retirment. then forget about saving in personal pensions, go for an ISA - or a BTL - instead.

Rule 2: always avail yourself of any free money from your employer in the form of a contribution to a company pension plan ( regardless of which level of tax you pay)

Rule 3:Unless you are in a "final salary" company pension or only contribute to the state pension through NI, then pensions are primarily all about investment.So take some time to learn the basic principles of investment - how to find the best performing funds, how to invest in shares, how to cut costs (a 1% annual charge will in the end take 25% of your total retirement pot!)Check on your investments reasonably regularly. It's amazing how people file pension information unread in a drawer for years, would you do that with your bank statement? Pensions are real money and should be treated as such.

That's probably enough for young people, who are probably best concentrating on acquiring a home and a manageable mortgage these days rather than worrying too much about pensions. [Exception: the self employed are not covered automatically for state pensions and need to think about pension savings and investments much earlier.]

More complicated pensions issues are of more interest to higher rate taxpayers who should probably acquire a (new model) advisor to lead them through the maze.;)

ard123en

Gorgeous_George wrote:

1. Calculate when you will die. (Rule 1 - It's just as bad to oversave as undersave).

2. Decide when you want to retire.

3. Make provision for answer 2. minus answer 1.

4. If you seek a pension, decide which company you'd like to be let down by. Or find an Independent Financial Advisor so that he can take a %age of your money as well. (Rule 2. Independent means they only look after themselves).

A lilttle tongue in cheek - but not completely!



GG

lol thats the best advice ive seen on here in ages

cheerfulcat

Hi, homersimpson,

I think that the single most important rule is: Don't think of retirement planning in isolation. It should be part of your general savings plan. A pension is just one kind of tax wrapper; it may not even be the most suitable for your individual circumstances. It is best to consider all of your assets as a whole; shares,UTs and ITs inside and outside of an ISA, even your house if you own one, can all provide an income either now or in the future. Think of it this way; you are aiming at being in the position of not having to work if you don't want to.

Forget the vehicle; just ask yourself when you would like to retire and how much of an income you will need. Don't forget to allow for inflation. Work out how much capital you will need to provide this income ( use current interest rates, this will give you a fairly accurate figure ). Then start saving hard, and investing...

There is a lot of good discussion on the MF's retirement investing board; I have sorted the link by recs so that you can see all of the most interesting posts in one go . There's some stuff here about pensions in general ( you have to scroll down past the ads, I'm afraid ). I've just found this article as well, which may be of interest. There's a book, too, the Old Fool's Retirement Guide, which is very good. And you might find this calculator handy.

HTH

Cheerfulcat