Pension - why?

Andy_L

maximise wrote: »

Would it not be better to save the 12% in an ISA?

Much appreciated.

There's a big sticky ISA vs Pension thread at the top of this board. The edited highlights are:

1. If you don't save for your retirement you are dependant on the generosity of future taxpayers &

2. The correct way to do this is a mix of pension & ISA, the exact mix being very dependant on your personal circumstances

dunstonh

BoGoF wrote: »

Thing is, everything is up in the air at the moment. Who knows what will be 'tax free' in 3 weeks time.

Historically, when tax rules change on tax free products the legislation is usually not retrospective. So, for example, those that have section 226 retirement annuity contracts (the product before personal pensions) can still keep them running. They cant start new ones or increase the contributions but they can keep paying what they were paying at the point they were discontinued. Same with pension term assurance.

Actually my point was that ISA's may not have a tax free status in future

And Men from Mars may visit us. You can only plan for forseeable changes. There is not any indication that tax free status of pensions and ISAs will be removed. Indeed, there is every likelihood that the ISA allowance will increase.

Ginger_Red

The single most important thing is to start, and as early as possible.

For what it's worth, I'd put the money into a S&S ISA now, and then switch to a pension as and when your employer starts to contribute.

But like others have said, make sure you've got a safety net of 3 months salary as a priority first.

jamesd

maximise, see ISA v Pensions and in particular summary posts one, two and three.

As a relatively young person your main risk is that ISA money counts towards benefit means tests, while pension money doesn't. That means you could be forced to live on your ISA money and lose much of it, while in the same situation the pension money would be safe.

BoGoF

dunstonh wrote: »

Historically, when tax rules change on tax free products the legislation is usually not retrospective. So, for example, those that have section 226 retirement annuity contracts (the product before personal pensions) can still keep them running. They cant start new ones or increase the contributions but they can keep paying what they were paying at the point they were discontinued. Same with pension term assurance.



And Men from Mars may visit us. You can only plan for forseeable changes. There is not any indication that tax free status of pensions and ISAs will be removed. Indeed, there is every likelihood that the ISA allowance will increase.

I agree with what your saying dunstonh, the government still needs to provide incentives for people to save. I just feel that with a budget less than 3 weeks away the OP is best to wait and see what our coaltion does.

Tammer

maximise wrote: »

Hello,

I am 24 and advised to save 12% (24/2) of my wage in a pension fund.

What are the benefits of a pension?

Starting with Tax-relief of 20%....
Possibility of employer contributions in 2012...

Would it not be better to save the 12% in an ISA?

Much appreciated.

Does your employer pay anything into the pension plan?

exil

That's the clincher. If the employer contributes nothing it may be a close call between ISAs and pension. If they do - they're giving you free money.

If the employer is not offering a scheme they will be obliged to do so in 2012 when the new Personal Accounts come into being. This is something the Coalition has stated they intend to implement so it's not been ditched. The idea is the employee chips in 4%, the employer 3% and the government 1%. This in effect will replace the existing earnings-related element of the State Second Pension which will be phased out over the next couple of decades.

Some caveats

- if it's final salary - these are under pressure now both in private and public sectors and so you may not get the pension promised at the time you join. However you should get something!
- defined contribution - basically the same as any other investment other than (1) the employer chips in (2) tax relief
- private pension - ditto except (1) doesn't apply though the employer MAY elect to do so in lieu of having their own scheme
- ISA - income/capital gains are tax free - which could become more important if CGT is increased.

The weakness of using ISAs is also their strength - that is, you are not obliged to keep them till retirement. You could end up raiding your pension savings for other purposes, or have the benefits agency count them as assets and force you to cash them in if you end up jobless through unemployment or disability

MiLady

I'm 23 and am paying into an NHS pension around £150 a month, which the NHS supposedly contribute an extra 12% before government contributions. Is it not worth me paying into this? Would I be better off with an ISA?

hugheskevi

I'm 23 and am paying into an NHS pension around £150 a month, which the NHS supposedly contribute an extra 12% before government contributions. Is it not worth me paying into this?

It is definately worth paying into it, public sector pensions are pretty much without exception worth paying into aside from under some very specific circumstances.

Would I be better off with an ISA?

Consider an ISA as well as the pension, not instead of.

exil

Not wishing to rain on our parade here but the NHS pension is "unfunded" that is, contributions are not invested but current pensioners are paid by contributions from the employer (in effect, the government) and employee. As such it is vulnerable to the employer reducing their contribution, and thus the benefits payable, through reduced government funding - think of the £160 billion deficit. We have been told "accrued rights will be preserved".... we shall see.