Confused and fearful of pensions!!

wilroda

HI

I have read - and re read many of the posts on here with regards to advice on pensions!!.....my head is spinning now!

I would be grateful if you could help me out on a few things!!

I have read that for basic rate tax payers the ISA route may be the way to go for retirement/pension planning. What are your opinions?

I am somewhat confused about tax relief on pensions....does the government then take tax off when it matures? ( apologies if this is a stupid question!!)

We have read alot of press reports on pensions and to be honest, we are fearful of investing in them....having done so in the past and now find an old fund virtually worthless.



Thanks in advance for putting me straight!!

EdInvestor

wilroda wrote:

I have read that for basic rate tax payers the ISA route may be the way to go for retirement/pension planning. What are your opinions?

I agree with this.The ISA allowance is a use it or lose it one, whereas pension tax relief can be accessed any time up to retirement.

I am somewhat confused about tax relief on pensions....does the government then take tax off when it matures? ( apologies if this is a stupid question!!)

Very sensible one. Yes the Government takes the tax relief back when the pension pays out You do get a 25% tax free cash allowance ( hopefully that will still be the case when you retire.) This is not a bad deal for high rate taxpayers who will be on basic rate in retirement - they get 40% back and pay 22% out ( and often this 18% is cash in hand right now ).

But the advantage for the rest is not enough IMHO to compensate for loss of access to the capital and restrictions on how much income you can take.Not to mention the annuity question, which has still not gone away.

we are fearful of investing in them....having done so in the past and now find an old fund virtually worthless.

The situation here has improved a bit with the expansion of cheap SIPPs which you can control yourself, but in the absence of any employer's contribution, I would still prefer ISAs for those on basic rate.

dunstonh

We have read alot of press reports on pensions and to be honest, we are fearful of investing in them....

A pension is just a tax wrapper in the same way as ISAs, investment bonds and unit trusts. The media coverage has nothing to do with personal pensions but a small number of occupational pensions.

having done so in the past and now find an old fund virtually worthless.

Which is nothing to do with the pension but where you have chosen to invest.

It is an investment towards retirement but many people do not treat it that way. You need to think of it as an investment. If the fund you have is no good, then move it to one that is.

EdInvestor

dunstonh wrote:

The media coverage has nothing to do with personal pensions but a small number of occupational pensions.

Perhaps you missed this week's papers DH.They have all been running stories about the dire performance of personal pensions due to the stockmarket fall and the collapse in annuity rates.Here's a sample

Times

Pension payouts have plummeted by up to 57 per cent in the past decade, new research revealed yesterday.Millions of savers have invested for their retirement using personal pension schemes, but poor stock market performance and plummeting annuity rates are leaving those approaching retirement with less cash than those who made similar pension contributions before retiring in 1996.

Richard Eagling, of Moneyfacts, the financial information website, said: “Today’s pensioners are facing a longer retirement with pension pots half the size of those fortunate enough to have retired a decade ago.”

A 65-year-old man who retired in 1996 after contributing £500 a year to a with-profits pension policy for 20 years would have had a fund worth an average of £61,592, according to Moneyfacts. A 65-year-old retiring two months ago, after similar contributions, would have had only £26,168.......

dunstonh

Media hype again. Missing the point as usual.

We had the worst stockmarket crash in recent times. That doesnt make the pension bad. If you cannot handle the volatility that comes with investing in the stockmarket, it makes your choice of investment bad. Equally, those that made contributions after the stockmarket crash would have done a lot better. Its the nature of stockmarket investing. Nothing to do with the pension tax wrapper.

Annuity rates are a negative point but at age 65, the annuity rates are still higher than savings account interest rates so that information needs to be taken in context. Plus the mentality of people who think that paying £50pm for 30 years (without increasing it) is going to provide them with £500pm rising income in retirement for 30 years needs to be changed.

wilroda

Thank you very much edinvestor! I can understand it now! Your help is appreciated
We went to see an IFA for an initial "free" chat but were rather put off by his fees!!
Does anyone have any advice on Maxi ISA'S and what we should look out for?

I shall look into SIPPS too....

Thanks again

dunstonh

Reference other thread - see what I mean!

You have a investment novice, very naive to this subject who goes an thanks you for your comments and suggestions (totally ignoring me, which I find highly rude to be honest). Who then goes on to say they will look into SIPPs. The most expensive option available yet in the same thread ruling out advice from an IFA down to cost. Crazy.

EdInvestor

With any tax wrapper -ISA or pension - start with the underlying investment.

Have a wander around this site which categorises funds (and their managers) and rates them:

https://www.citywire.co.uk/Funds/Home.aspx

Get familiar with some of the best funds in the top 10 for each category.Then have a look at this site which has more on the top funds:

https://www.hargreaveslansdown.co.uk

Select a few from different categories - suggest equity income and property are worth a look for a start. When you've decided which funds you like , then you need to open your ISA with a discount broker which will rebate the charges.

HL is one such, but there are others such as

https://www.cavendishonline.,co.uk
https://www.chartwell-investment.co.uk

That's it really.

jem16

wilroda wrote:

We went to see an IFA for an initial "free" chat but were rather put off by his fees!!
Does anyone have any advice on Maxi ISA'S and what we should look out for?

If you are not sure what you are doing, as your title suggests, going it alone may cost you more in the long run than advice.

I shall look into SIPPS too....

Have a read at this thread.
http://forums.moneysavingexpert.com/showthread.html?t=269366

wilroda

Thank you all for your help and sorry if I did not thank dunstonh. I did not mean to offend.
I value all your opinions on this site and will look into all options available.

dunstonh

no problem. I had just come off another thread where someone had thanked 4 other contributers to the thread and but not me and had totally ignored what I had said. I was fearing a trend where people ignore what I say because I am an IFA and reacted to it.

Going back to the IFA thing, your PEP is paying commission to someone currently. Probably NU. An IFA could take that on board and transfer and invest without charging you anything directly as the future monthly commission would go to them and not NU. Pensions can work the same way.

There are advantages to paying fees but it can be quite expensive up front. Where you feel that paying upfront is not suitable for you then IFAs can work on commission basis where the provider pays them a commission. This is reflected within the normal charging basis. i.e. A stakeholder pension wont cost anymore because an IFA has done it. It still has to be within stakeholder rules.

I do fear that sending investment novices (which is nothing to be ashamed of) to investigate expensive investment vehicles for experienced investors, like SIPPs, is a risky course of action. Its a bit like spending large sums on a car but not having a driving licence and no intention of driving.