Shall I cancel my pension???

russppt

I am confused and need some help and clarification on pensions and whether it is worth continuing. I have been always suspicious of pensions as there are so many variables that can effect it when you consider you will be relying on this income during your old age. These concerns being:

1. Pension company going bankrupt ad dissappearing with your money.
2. Poor performance of the pension funds.
3. I may only live to be 65 and not 105
4. Having no control over the money
5. Would I be better saving the same money in a separate fun where I can see it and control it?
6. Would I be better to pay off my morgage with this money?
7. Fees the organisation charge for having your pension with!
8. Tax benifits are out weighed as they will get you in the end!

There seems to be more cons than pros with pensions. Surley the best fund you can pay into is debt clearing and getting rid or your morgage?

I am self employed which has its benifits and I only pay about £100 into a pension a month (am now 34 years of age). I cant help thinking this money could be better used. There is alot of suggestion in the media this is a good plan of action especially with the increase in population and projected short falls.

Please help

Regards

Russell

ariba10

It depends on if you think you can do better than the experts.

Also if you have the time and inclination to keep up with all the information that you will need.

I finished paid employment twenty years ago and by company pension has served me well.

Troubleatmill_2

Do some digging on this forum and you will see the discussions on when an ISA is preferrable, when a pension is better etc etc.

You will learn quite a lot for free :-)


One thing is for sure though - you will need money when you retire.
It's just about - what's the best way for you to achieve it.

Best
Troubleatmill

ReportInvestor

Hi russppt & welcome to the site .

Although I'm keen to keep control of my own money and don't like the idea of giving it up to an insurance company for an annuity, can I play devil's advocate with you for a moment.

russppt wrote:

I may only live to be 65 and not 105

But you may live to be 105 rather than 80!

EdInvestor

Paying into the state pension is a very good idea for the self employed as it's very cheap:)

Otherwise ISA is best for the basic rate taxpayer: as to paying off the mortgage, I always feel it's best to have a balance rather than having all assets in one basket ( a house) or another (a pension/ISA/savings and investment pot).

What pension are you paying into?What funds is the money invested in?What are the charges? These are the questions you need to ask if your are investing in a pension. It's the pensions that are ignored which tend to do the worst.

dunstonh

1. Pension company going bankrupt ad dissappearing with your money.

Depends on the type of pension.

2. Poor performance of the pension funds.

Or good performance of the pension funds.

3. I may only live to be 65 and not 105

You will be dead and wont care.

4. Having no control over the money

Yes you do.

5. Would I be better saving the same money in a separate fun where I can see it and control it?

Possibly. It may be better with ISA but ISAs and pensions can invest in exactly the same places. If you pick XYZ fund with the pension it will perform the same with the ISA.

6. Would I be better to pay off my morgage with this money?

We have to budget for many things in this life. Pick on one area only and the other areas lose out. Paying off the mortgage early means you have less time to build up £250k (or whatever you need).

7. Fees the organisation charge for having your pension with!

Charges have never been lower and the UK is amongst the cheapest in the world as far as charges go. Expect to pay charges whatever you (whether explict or implicit).

8. Tax benifits are out weighed as they will get you in the end!

In some cases yes. In some cases no. At age 65, you can earn £7280 with no tax liability. If you have the state pension of £4381 then you can earn another £2899 with no tax paid and a further £2150 at 10% tax.

A pension with 22% tax relief that has enough in it to fully utilise yours (and your spouses) personal allowances and 10% band after tax free cash will still easily beat any alternative investment option.

There seems to be more cons than pros with pensions. Surley the best fund you can pay into is debt clearing and getting rid or your morgage?

That isnt the case.

I am self employed which has its benifits

and its negatives. For example, you only get the basic state pension of £4381 (in todays terms). You wont get the second state pension which can be as much as that again.

There is alot of suggestion in the media this is a good plan of action especially with the increase in population and projected short falls.

Pension covers an area involving many different types of plans/investments. The media focus on some of the weaker areas and totally ignore the better areas giving the impression that its all bad. You should never rely on the media when planning for the future. Only bad news is news. The good stuff doesnt sell papers.

russppt

Thanks for all the help. I think I need to do a bit of research on what I have got already as it is clealry not as black and white as I thought it would be!

Thanks again all.

Regards

Russel

dunstonh

A very rough way to look at these things noting that there are exceptions is that any pre 2001 pension needs to be reviewed. Chances are its invested in an old fashioned way and in an obsolete fund. That doesnt make pensions bad, just the investment part.

If its pre 1995 (but generally closer to pre 1988) then these plans often had guarantees built into them which can make them quite valuable, even if the investment side is quite poor.

A pension is just a tax wrapper. Nowadays you can invest in the exact same investment funds in a unit trust, ISA, Investment bond or pension. The only difference will be the charges, tax and maturity method. Its a case of balancing the right tax wrapper (or more commonly the right tax wrappers as most are better off with some pension and some ISA).

ReportInvestor

dunstonh wrote:

A pension is just a tax wrapper.

That's maybe true in the sense that you can manage it like any other investment.

But if your pension fund is going to be used to buy an annuity, then it's clearly different to any other investment since you are going to relinquish your capital to an insurer at some stage.

dunstonh

But if your pension fund is going to be used to buy an annuity, then it's clearly different to any other investment since you are going to relinquish your capital to an insurer at some stage.

So, under current rules, at age 75, you have to switch to annuity. The annuity rate at that time is going to be higher than any guaranteed income rate you can get and at that point do you really want to be worrying about investment returns on your income?

EdInvestor

So, under current rules, at age 75, you have to switch to annuity.

Err, no.The rules changed in April.Compulsory annuities no longer required.

Mind you, there are now rumblings that they will be changed back again because rich people and their accountants/IFAs are 'abusing' the system to avoid inheritance tax.

However the latest idea seems to be to impose a tax charge on the second death, rather than to return to compulsory annuitisation, which would be an improvement IMHO.