Help! is it too late to start a pension at 58?

EdInvestor

If you do see an advisor, be very cautious the minute the words "investment bond" are mentioned. I'll say no more here as the matter has been discussed elsewhere at length, but such a product would be especially unsuitable (and indeed possibly dangerous) for you, though it might look superficially appealing.

Be sure to come back here for more help if someone tries to sell you one of these for your lump sum.

dunstonh

If you do see an advisor, be very cautious the minute the words "investment bond" are mentioned. I'll say no more here as the matter has been discussed elsewhere at length, but such a product would be especially unsuitable (and indeed possibly dangerous) for you, though it might look superficially appealing.

Just done one for £185k this week in exactly those circumstances and it was great advice. Saved the individual a ton in tax and the reduction in yield is 1.1% over 10 years which unit trusts could not come close to on the same fund selection. Its easy for you to scoff at investment bonds Ed but when used correctly they are very beneficial investment wrappers. I will agree that they are overused by many individuals where unit trusts/Oeics would have been better but you shouldnt disregard investment bonds in the way you do just because of the actions of some.

EdInvestor

I'm specifically talking about this case DH, where the OP needs to reduce all charges and taxes to the absolute minimum.

BTW you said:

dunstonh wrote:

Ignoring growth (as that would be same on pension or ISA), the ISA would be set for around 5% tax free income.The pension would set set for 10% equivalent but taxable. Which makes it 7.8% net.

What manner of annuity is this you've found? A woman of 60 is going to be lucky to get 6% these days, and that's before tax with no inflation proofing. And for this, you're expected to give up your capital as well.

Latest annuity rate charts

margaretclare

pwakley wrote:

Yes this was the sort of thing I was thinking of but how do i work out how much I am allowed to pay in per annum

Have a look at this: http://www.halifax.co.uk/investments/stakeholder_pensionfaqs.shtml#howmuchcontribute

This is the Halifax, but all the big financial institutions do it. Mine was with Friends Provident. In a little over 3 years I built up a pot of £8400 just from contributing from my pensions income plus 22% from the nice taxman. I've recently transferred it to a SIPP with Hargreaves Lansdown.

Norwich Union do it, Prudential, all the banks. I have no opinions on which is any better - they all have to adhere to certain criteria. Whichever, they're a darned sight better than Premium bonds.

Best wishes

Margaret

pwakley

So you can count pension income as earnings for the stakeholder, is that right?

EdInvestor

Margaret

Could I just point something out

....plus 22% from the nice taxman..

In your particular case, because you get age allowance and the married couple's tax allowance and have a comparatively low income, you would probably not pay any tax on the income from your pension fund, if you took it.

But this applies to very few people.

Most people have to pay 22% tax on the income they take from their private pension (except for the 25% TFC).

Thus what the nice taxman gives you on the way in, he takes back on the way out.There's no benefit from the tax relief, other than the 25% TFC.And many of us think that getting 25% tax free is no compensation for losing control of the other 75% of the capital forever, and being subject to serious restrictions on the amount of income you can take from that 75%.

I just thought I'd mention that as the OP is in quite a different situation from you.

dunstonh

I'm specifically talking about this case DH, where the OP needs to reduce all charges and taxes to the absolute minimum.

Your comments about investment bonds had nothing to do with the OP but was just another opportunity for you to knock investment bonds . As it happens, if the OP was a higher rate tax payer now and didn't want to use pensions and ISA allowance were fully used then an investment bond would be very suitable. A RIY of 1.1% is low cost and beats unit trusts through all the discount brokers.

What manner of annuity is this you've found? A woman of 60 is going to be lucky to get 6% these days, and that's before tax with no inflation proofing. And for this, you're expected to give up your capital as well.

You are forgetting tax relief.

£3600 gross contribution requires a cheque for £2808. Totally ignoring growth. You can then take back 25% tax free which is £900. Therefore you actual contribution is £1908 in real terms. 6% annuity rate on £3600 is £216. £216/1908 as a percentage is 11.32%.

So, the effective income rate on contribution is 11.32% guaranteed for life. No ISA can come close to that.

So you can count pension income as earnings for the stakeholder, is that right?

No. Earned income from employment/self employment.

I just thought I'd mention that as the OP is in quite a different situation from you.

I actually think it quite similar. MC is post retirement but the principle is similar. An intention to boost pension income in short term period of a few years or so time.

EdInvestor

Oh I see,an IVP - sure that's Ok for a small amount.

Get one here and pay no commission

That's not what MC is doing though.

I wouldn't suggest that the OP puts much into these though because she is too young, the income DH is talking about won't be inflation-proofed, it is taxable, and she hasn't got enough spare capital for it to be really comfortable to give it up for only a tiny income stream.

If she only had the state pension, I'd be more in favour of an index linked IVP to cover basic needs - it is a way of getting a better return on capital for inflation protection. But the one area the OP is quite well off is in inflation protected basic needs coverage.

When she is older, if she wants to go this route she should also consider a Purchased Life Annuity for part of her lump sum - this also benefits from superior tax treatment, which improves as you get older.

chickencow

pwakley wrote:

So you can count pension income as earnings for the stakeholder, is that right?

No, I'm afraid pension earnings cannot be used for evidence of earnings for further pension contributions.