Pension plan vs Savings

first78

Can some kind person please tell me if there is any difference between paying into a personal pension plan or whether it would be the same as paying into a regular savings account?

CLAPTON

the pension gives you tax relief at your highest rate of tax on your contributution so if you pay in net 100 then the pension fund gets 125 or 166 depending upon you tax rate

the pension however can't be touched until 55year (amybe good maybe bad) and the income is then taxed in the normal way (although you can take 25% tax free limp sum)

savings into ISAs whilst gives no uplift in your contribution but can be withdrawn at any time and any interest / dividend / capital gain ) is tax free

savings in 'ordinary' savings a/cs aren't tax free

also bear in mind that pensions usually invest in stocks shares bonds etc.

dunstonh

in addition to above.

Savings indicates cash deposits. That is an asset class. Pension is not an asset class. It doesnt make or lose money. It is a tax wrapper that contains your investments (in the same way a Stocks and Shares ISA does).

Cash savings are designed for shorter term requirements and are typically inefficient for long term. For retirement planning, cash tends to suffer shortfall risk and is subject to inflation risk. i.e. if you want to use savings for your retirement planning then you would typically have to pay in 2 to 3 times more per month than you would in a pension in a balanced risk spread to get the same over the long term.

first78

So is my money at any sort of financial risk if I pay into a pension scheme of some sort?

Rainmaker_uk

first78 wrote: »

Can some kind person please tell me if there is any difference between paying into a personal pension plan or whether it would be the same as paying into a regular savings account?

Good advice so far but one thing I would add is that you can get simliar tax advantages by investing in either an ISA (taxes you on the way in but not the way out - either stocks and shares or cash) or by creating a pension wrapper through SIPPS.

You need to consider whether you will need access to the money or you want to have it locked away until you are 55. You also need to consider your attitude to risk/reward. Many people would also suggest that a balanced portfolio is sensible ie mixture of pension, ISA and assets.

I would suggest that you consider speaking to an IFA.

dunstonh

So is my money at any sort of financial risk if I pay into a pension scheme of some sort?

The pension itself has no risk. The investments you use inside of the pension carry investment risk. That risk is a wide sliding scale from very low risk to high risk.

Remember cash has risk as well. Just a different type of risk. There is no risk free option.

Rainmaker_uk

first78 wrote: »

So is my money at any sort of financial risk if I pay into a pension scheme of some sort?

There is risk in anything in finance and life generally!

It is important to note that the money you have sitting in the bank at the momnet is 'at risk' in so far that inflation is outstripping your interest and so every day that it is in your bank its true value is declining...

Pensions tend to invest in stocks and shares and over time these have performed very well - far outstripping most other investment vehicles.

They tend to spread the risk across a number of indices or companies so that the general trend is mirrored (plus or minus a bit) whilst massive rises or drops in individual companies are minimised.

The pensions themselves are now more protected than they were due to new regulations however I do not know the details so another MSE will need to assist with details.

moonrakerz

CLAPTON wrote: »

(although you can take 25% tax free limp sum)

..............blame Gordon Brown for that !:D