Is it worth taking out a pension... 18 August 2004 at 11:17AM edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning 7 replies 2.7K views

Boohbah

...in these uncertain times?.

My daughter took out a pension with Equitable Life 3 weeks before the big upset.

Should she dump it and take a chance with the future or, move it to another provider.

Pal

A pension is just an investment wrapper that gives certain tax concessions. It is always worth saving something for your retirement, and pensions are the obvious way to do it.

The alternative is that your daughter lives off very poor state benefits when she retires, which won't be a lot of fun.

By "uncertain times" what exactly do you mean? Investment markets are a bit odd at the moment, but given that you would be contributing rather than taking money out, you might see this as a reasonable time to be investing in the stock market, given that retirement might be 20+ years away.

Pal

Re Equitable Life: How old is your daughter? If she is close to retiring then probably she should stay where she is.

If she is fairly young then she should bite the bullet and move the policy elsewhere.

dunstonh

I did an Equitable life pension switch recently on a unit linked fund and the penalties werent too bad. The stakeholder pension offered the lower charges over the remaining term so it was easy to justify. However, I do recall seeing a with profits one earlier in the year which had massive penalties which couldnt be recouped.

Uncertain times are great for those paying in monthly. You get to buy your units nice and cheap. Say you have 20 years to retirement, the ideal scenario is having 19 bad years of stockmarket performance and having a boom in the final year. Its all very cosy when it goes up every year but you end up buying less and less units for your money. Having these periodic declines is a good thing unless you happen to be retiring in the decline period. Although with a bit of sensible planning, you would have moved your portfolio out of the higher risk funds in the years before.

Milarky

Uncertain times are great for those paying in monthly.  You get to buy your units nice and cheap.  Say you have 20 years to retirement, the ideal scenario is having 19 bad years of stockmarket performance and having a boom in the final year.  Its all very cosy when it goes up every year but you end up buying less and less units for your money.  Having these periodic declines is a good thing unless you happen to be retiring in the decline period.  Although with a bit of sensible planning, you would have moved your portfolio out of the higher risk funds in the years before.

This is 'pound-cost-averaging', of course? [Or should that be 'year-cost-averaging' or 'decade-cost-averaging': "It might be down for the about the next ten years, but think how cheap it will look in 30 "]

DD, are you aware of any general 'dip in the month' on unit prices? I pay in on the 1st, and it's 'uncanny' how the markets rally in the run to such dates, only to subside again. Would you suggest I alter my direct debit to mid-month instead?

Pal

That would be advising on past performance. Even if DD responsed, you would be wise to ignore him.

DiggingOut

If past performance is telling us something about investing habits (large numbers of pension contributions coming in 1st of the month) then it might be worth acting, not on the past performance, but on the underlying fact that is causing it.

But I'm certainly not aware of any such general pattern, and lots of pension fund (and other) investments are not at the end/beginning of the month.

dunstonh

That would be advising on past performance.  Even if DD responsed, you would be wise to ignore him.  

:-X bah :-X

I know not of a pattern as to the best time of the month.

That sort of micro management would be a little pointless on a long term plan like a pension as well.