ISA v PENSION

tightasafish

Having been disillusioned by the performance of my already modest Personal Pension Plan back in the 90's (I vividly remember the utter dismay I felt when I received my 96/97 statement which informed me that despite having invested £100 per month for 12 months, my plan was worth less than it was the previous year!). I was also frustrated by the associated restrictions/inflexibilities of a ppp, so I decided instead to just put a small amount to one side each month in an isa. Maybe ill advised, or just stupid, I chose a L&G UK Index Trust ISA, which is obviously similarly subject to the whims of the stock market and this too has recently been on a bumpy ride, although it appears to have turned a corner and is in a much better position than it was a year ago.
Turning 50 tends to focus the mind and a number of questions spring to mind:
i). Is this a good place to continue to invest my massive £125 per month?
ii). Should I monitor the markets with a view to pulling the money out at what I may percieve to be a 'peak'?
iii). If so, where would I put the withdrawn cash in order to continue to benefit from the tax free advantages?

We are not talking mega sums here - but around £20k is a lot to me!!!!

All advice most gratefully received.

guitarman001

Keep in mind, if you lose your job and have over approx £16k's worth of savings (or is it £6k?), you will have to eat into that before being allowed benefits - this is the peril with savings over a pension - though everybody does it! You'd be mad not to have an alternative.

Question for the forum - If you DO have £16k+ worth of savings... do yuo have to eat into ALL of it, or only down to the £16k mark?

dunstonh

I was also frustrated by the associated restrictions/inflexibilities of a ppp, so I decided instead to just put a small amount to one side each month in an isa.

So, in other words, you changed tax wrappers despite the same investment options being available for both.

Maybe ill advised, or just stupid,

I wouldnt say stupid but you did so on a misconception that the returns on an ISA will be better than a pension. That is not the case. Pensions and ISAs are just tax wrappers. Containers for you investments. The same investments can be held in both. So, if you hold L&G UK Index trust in the pension or the ISA the return will be the same. The only difference will be the tax relief and the maturity process.

i). Is this a good place to continue to invest my massive £125 per month?

No. Single fund, single sector investing is a bad idea.

ii). Should I monitor the markets with a view to pulling the money out at what I may percieve to be a 'peak'?

Are you able to do that? Most people cant and trying to time the market usually ends up being futile and costing you more than had you left alone.

iii). If so, where would I put the withdrawn cash in order to continue to benefit from the tax free advantages?

Why would you want to withdraw the cash?

(I vividly remember the utter dismay I felt when I received my 96/97 statement which informed me that despite having invested £100 per month for 12 months, my plan was worth less than it was the previous year!).

So what are you going to do when the ISA you have invested in a medium/high risk area loses 40% of its value in a crash? Are you then going to slag off the ISA?

I think you need to do the following:
1 - work out if ISA or pension is best for you. ISA gives more flexibility to withdraw the capital. However, for income in retirement, the pension will beat the ISA. (there are other differences and there is a sticky in the pensions forum on this). You made a choice to move to ISA but the reasons you used were flawed.

2 - diversify more as 100% in one fund in one sector is not a good way to invest. You are obviously happy with mid table consistency with that fund choice but the problem is that you have no diversification.

3 - learn about investing if you intend to manage it more closely. Otherwise you could end up making a right pigs ear of it.

4 - there is a good chance that you are going to have to rely on pension credit. ISAs will reduce the amount of pension credit more than an income from a pension will.

tightasafish

Many thanks dunstonh.
I guess my naivity and ignorance is there for all to see - but in my defence I would say I am in good company as my best mate Joe Public would testify.
I must confess that I am seduced by the flexibility of being able to get at the money should I decide to jump off the tread mill and go 'find myself' in the Australian outback! However, if I managed to resist this temptation and did indeed use the money for it's original intention (ie to subsidise little luxuries like upgrading from Asda's 'Basics' baked beans) would I be able to invest the cash as a lump sum in a PPP nearer the dreaded date, and thus avoid the reduced Pension Credit problem?

Sam37

Joe Public check...
Same motivation!


Will be a good girl and read the thread Dunstonh refers to..

pem2

The only mistake you've made is putting your money it into a pension or a stocks & shares ISA and perhaps listening to the 'financial experts'. I am not being smug as I am in a similar position to you - putting £6k in 1998 into a L&G tracker ISA and today its' value is £7900. Although not below the original 6k and in fairness in 2007 was worth more, it is still not very good for 12years.
My suggestion, assuming you haven't used up your allocation is to put any further money into a cash ISA and despite the belief that most are paying low rates, that is not the case if you do a little bit of research, see the following http://forums.moneysavingexpert.com/showthread.html?t=401374

dunstonh

putting £6k in 1998 into a L&G tracker ISA and today its' value is £7900. Although not below the original 6k and in fairness in 2007 was worth more, it is still not very good for 12years.

Your problem was putting it all in one fund which covered a single area and gave you no diversification. That are turned out to be quite poor over that period.