Pensions - Arrrghhh!!!

Paul_Herring

CCStar wrote:

All I want to know is whether pensions are the way to go these days.

The answer is "it depends."

Some examples:

If your employer is willing to match/contribute depending on your own contributions, generally yes. e.g. if your employer is willing to match 5% (if you pay 5%, they will then pay 5%) then yes. It's an equivilant 5% pay rise. Free money.

If you don't pay tax, you can contribute £2808 per year to a pension, and the government will rebate £792. Even if you haven't paid tax.

If you're in the 40% tax band, and you can sacrifice the money 'today' to draw you back down to below the 40% tax band, then sometimes yes. You won't pay 40% tax on it now, and may only pay lower rate when it comes to take the pension.


In between all these extremes is where people are sometimes hesitant, since while you may get a 22% rebate on contributions going into the pension, you're likely to be paying basic rate (currently 22%) coming out of the pension when you claim it (state pension takes up most of your allowance, any extra pension will be taxed.)

This is currently no better, nor worse, than (say) sticking it into a stocks and shares ISA in the same funds it would have been in, in the pension.

That said there are some other things to consider:
1) Can you trust yourself not to start spending the ISA before retirement? If not, you may be better off with a pension.

2) Do you want to retain control of the capital rather than being forced to buy an annuity? (Though various drawdown, alternative secured pensions etc. appear to be making this less of an issue) You may be better off with the ISA route.

3) Don't forget the 25% tax free withdrawl you can make when you reach retirement. One route I've seen mentioned will allow you to use both routes - save in ISAs now, then lump sum contribution to your pension later - leaves your options open.

4) Do you trust future governments not to mess with the pension schemes again before you retire? As an example when I started my pension I opted out because the government were offering an incentive - for an increased rebate of NI, I'd lose my second state pension, and retain some measure of control of the contributions. In later years this incentive was reduced to the point where people were no better off and some were even worse off by being contracted out. By the time I retire I expect there to be no second pension for anyone, and I appear to have received even more free money from the government.

5) How will you think you will use any ISA money in your retirement to generate an income? Buy an annuity? Stick it in a bank account and live off the interest? Cash it in slowly? How long will the money last?

Now - given all that (largely, I hope, correct) information, do you have some specific questions?

seven-day-weekend

Hi there,, I'm no pensions expert, so would not try to give you expert advice.


However, there are people on this forum who are, but they will need more information on what pension provision you have at the moment before they can help you , as EdInvestor has asked:

eg
Provider
Transfer value
Fund(s) the money is invested in
Annual charges payable
Maturity projection

If you can supply this information I'm sure someone will be able to help you.

Horasio

Paul_Herring wrote:

The answer is "it depends."

Some examples:

If your employer is willing to match/contribute depending on your own contributions, generally yes. e.g. if your employer is willing to match 5% (if you pay 5%, they will then pay 5%) then yes. It's an equivilant 5% pay rise. Free money.

If you don't pay tax, you can contribute £2808 per year to a pension, and the government will rebate £792. Even if you haven't paid tax.

If you're in the 40% tax band, and you can sacrifice the money 'today' to draw you back down to below the 40% tax band, then sometimes yes. You won't pay 40% tax on it now, and may only pay lower rate when it comes to take the pension.


In between all these extremes is where people are sometimes hesitant, since while you may get a 22% rebate on contributions going into the pension, you're likely to be paying basic rate (currently 22%) coming out of the pension when you claim it (state pension takes up most of your allowance, any extra pension will be taxed.)

This is currently no better, nor worse, than (say) sticking it into a stocks and shares ISA in the same funds it would have been in, in the pension.

That said there are some other things to consider:
1) Can you trust yourself not to start spending the ISA before retirement? If not, you may be better off with a pension.

2) Do you want to retain control of the capital rather than being forced to buy an annuity? (Though various drawdown, alternative secured pensions etc. appear to be making this less of an issue) You may be better off with the ISA route.

3) Don't forget the 25% tax free withdrawl you can make when you reach retirement. One route I've seen mentioned will allow you to use both routes - save in ISAs now, then lump sum contribution to your pension later - leaves your options open.

4) Do you trust future governments not to mess with the pension schemes again before you retire? As an example when I started my pension I opted out because the government were offering an incentive - for an increased rebate of NI, I'd lose my second state pension, and retain some measure of control of the contributions. In later years this incentive was reduced to the point where people were no better off and some were even worse off by being contracted out. By the time I retire I expect there to be no second pension for anyone, and I appear to have received even more free money from the government.

5) How will you think you will use any ISA money in your retirement to generate an income? Buy an annuity? Stick it in a bank account and live off the interest? Cash it in slowly? How long will the money last?

Now - given all that (largely, I hope, correct) information, do you have some specific questions?

Thank you:)

As far as I know, the new employer isn't giving him a pension and will be straying into the 40% tax bracket.

My husband is officially due to retire in just over 10 years time.

We have contributed to a pension for 14 years and has a very poor projection, due to the change in interest rates etc.

I shall get the info asked from me, in due course.

Like I said, I am fairly clueless about this and worried we are paying into something that isn't going to give a good return. We were caught out by the endowment and managed to salvage something from that, so very worried about pensions.