high rate tax = pension?

ccblinds

I have just been informed that high rate tax level is looming and accountant suggested putting some in pension fund, but as pensions are not performing that well is it a good idea?? I suppose better in mine than Mr Brown's but hard to get my head round as pension looks quite poor even though i have paid in for 16 years...

any suggestions???



:beer:

dave

dunstonh

but as pensions are not performing that well is it a good idea??

That is a misconception. Its a view that many have due to very poor media reporting on pensions.

Pensions are just a tax wrapper. They dont make or lose money. You can invest into tens of thousands of areas with a pension. It is the investments within the pension that grow or lose money. You can invest in exactly the same areas with a pension as you can ISAs, unit trusts, ITS, investment bonds etc. A half decent portfolio would see you running around at 10% a year minimum (including the stockmarket crash period).

but hard to get my head round as pension looks quite poor even though i have paid in for 16 years.

Where are you investing within your pension? If you dont believe it is performing, why havent you amended your portfolio? What part of the portfolio is suffering?

ccblinds

thanks its in with abbey life, if i move it its worth less of coarse than it currently stands, so am in a quandry as to what to do!!

dunstonh

ccblinds wrote:

thanks its in with abbey life, if i move it its worth less of coarse than it currently stands, so am in a quandry as to what to do!!

Abbey Life have a range of investment funds available and I seem to recall that there is no charge on switching on at least the first occassion each policy year.

You could get the policy reviewed by an IFA. Nearly all the Abbey Life ones I have reviewed, I have transferred out despite penalty due to lower charges ongoing which have more than offset the initial transfer penalty. i.e. do you want to pay £1000 now and move it to something cheaper ongoing which will save you £3000 over the remaining term?

Abbey are closed for new business so its unlikely they will allow you to top this up anyway. You would need a new pension to do this.

You have concerns over your pension. It isnt performing in line with your expectations. Therefore you should get it reviewed and invested in line with your expectations. Of course, it could be that your expectations are not possible (i.e. 20% a year every year ) but 20% a year average has been possible but you would expect significant ups and downs. Do you understand investment volatility? Do you know we had a stockmarket crash in 2001/2 which hit values? A 20% a year portfolio could have seen around a 40% loss in 2002. Would you panic at that sort of loss in a single year? a 10% a year portfolio would have seen virtually no loss in 2001/2. Does the lower volatility but more stable, but lower return appeal to you more? ... just throwing a couple of questions that you need to think about when investing.

The pension is an investment. It needs to be treated as an investment but far too many people (including low quality, inexperienced advisers) do not treat it that way.

ccblinds

well its one of those things where the guy who advised me at the time did so in good faith, then later when they stopped trading lost his job and became an ifa and he has since apologised for the product, but as he say's it was what they had at the time!!

problem is who do you talk to who really does give impartial advise, as everyone has there favourites and obviously steer you towards them??

I do understand that the markets change, and it is a long term investment, and my payments have been increasing by 10% each year, but the figures just don't look as impressive as they were first led to believe.

when you are 21 and they get you when you are green, the telephone figure numbers that you are given look really impresive, but you get older you realise that 10 pound today is not worth what is was when i was 21 and when i retire it will be lucky if its worth a quid, you get that sudden realisation!!!

what to do???

dave

dunstonh

well its one of those things where the guy who advised me at the time did so in good faith, then later when they stopped trading lost his job and became an ifa and he has since apologised for the product, but as he say's it was what they had at the time!!

Most IFAs started as tied agents and soon realise the limitations of tied advice. I look back at my tied days and think how I would have done things differently. Tied agents aren't allowed to recommend investment portfolios or funds (unless only one fund exists in that risk profile). That is a big limitation.

problem is who do you talk to who really does give impartial advise, as everyone has there favourites and obviously steer you towards them??

Any IFA who focuses on investment class business (ie. not one that does mostly mortgages). If you ever have a doubt on why the company is chosen, ask to see the research. Many IFAs will show you the research anyway.

I do understand that the markets change, and it is a long term investment, and my payments have been increasing by 10% each year, but the figures just don't look as impressive as they were first led to believe.

We had a stockmarket crash in 2001/2 which still hasnt fully recovered. If you had a portfolio of funds you would have seen good growth but I would be surprised if you said you are only in one or two funds and that just isnt good enough.

The other thing to note is that projection rates in the past were higher. Too high with hindsight. Now they tend to be lower than is likely. Which is always the best way.

what to do???

Get a new IFA on board. The old one should have fixed this as soon as he realised the Abbey Life one was poor.

The IFA should write to Abbey Life asking a range of specific questions and get projections with and without continuing premiums. These should be compared with modern alternatives to see what is most cost effective. Then a portfolio of funds (8-10 funds usually) should be utilised for your pension going forward. Which funds and how much into each would depend on your risk profile which the IFA would ascertain.

You can do these things yourself but you do need to know what to ask and what the information means.

ccblinds

will look into it, many thanks

dave