Time I got myself a Pension

puppychick79

Hi All,

Just after a little bit advice on a subject I know very little about.

Im 31 and dont have a pension, I keep getting nagged from various people that I should be sorting one out, but i have no clue where to start. Ive recently become self employed so obviously none through work. So my questions are;

If I go for a private pension whos the best? And how does it all work?

Many Thanks

JoeCrystal

Lokolo wrote: »

Do you work...? If so, what about the company pension scheme?

He is self-employed soo..., I guess company pension would be out of question.

In my case, my company do not offer good pension scheme so I was forced to get my own. And I did that by searching through Unbiased website to find few IFAs: Link

Went to see to a local IFA and spoken to him about wanting to save up for retirement and want him to arrange and recommend the personal pension and funds within. And we went over the fees, commission and risk assessments as well. The second meeting was about filling in the application form to the pension provider, discussed over some elements of the scheme and lastly wrote two cheques out.

The end result was a personal pension and the onus is on me however to keep an eye on my personal pension.

dunstonh

Ive recently become self employed so obviously none through work.

Even more reason to look at your retirement planning as the self employed dont get as much in the way of state pensions.

Im 31 and dont have a pension

You are late but nowhere near the too late stage.

If I go for a private pension whos the best?

There is no one best provider. It depends on amounts, how you want to invest, where you buy it from and features you want etc.

If you dont know then you should use a local IFA to sort it out for you.

puppychick79

Ok this might add to my 'stupidness' when it comes to pensions and how they work but, I have to pay to get one?? Would it not be better to maybe save a regular amount into an ISA for example instead?? I suppose to take some finacial advice is the way forward but i find them intimidating so would like a little clue as to what im on about before I do.

Lokolo

puppychick79 wrote: »

Ok this might add to my 'stupidness' when it comes to pensions and how they work but, I have to pay to get one?? Would it not be better to maybe save a regular amount into an ISA for example instead?? I suppose to take some finacial advice is the way forward but i find them intimidating so would like a little clue as to what im on about before I do.

An ISA. I assume you mean Cash? Cash ISAs have low interest rates which hardly keep up with inflation over long term. That is why investments are used with pensions.

However, unless you know what to invest in then you should see someone who will know what to invest in.

JoeCrystal

A personal pension scheme like my own and many others are essentially invested in many different funds, across various different assets like bonds and equities. You contribute to a scheme monthly which get invested into these different funds which hopefully will grow over next few decades.

DiggerUK

puppychick79 wrote: »

If I go for a private pension whos the best? And how does it all work?

I normally start by saying that private pensions are the highest risk way to put by for retirement, and best avoided. Instead I'll explain how they work.

You hand over money for 20/30/40 years, and hope it will keep you in retirement. You can't touch this money until you are at least 55.

You don't know if you will end up with enough in retirement funds. You will be told that there is a lot of "free money" for you along the way.
Now if you believe that "free money" exists, go along with it.

My advice is to get your own savings regime together that gives you total control, and not to pass on control of your retirement to someone who will not pick up the pieces if it goes wrong.

Best of fortune.

Aegis

DiggerUK wrote: »

I normally start by saying that private pensions are the highest risk way to put by for retirement, and best avoided.

Load of rubbish. Risk is defined by what you invest into, not the wrapper. The only risk with pensions is that legislation might change, but given that pensions will continue to be something the government wants to promote in order to encourage people to save for their retirement, chances are they won't make extreme changes to the rules.

Instead I'll explain how they work.

You don't actually deliver on this.

You hand over money for 20/30/40 years, and hope it will keep you in retirement. You can't touch this money until you are at least 55.

It's a retirement pot to fund your retirement. As such, it makes perfect sense to not touch the money until you hit retirement age. This is the price you pay for the favourable tax treatment (which you failed to mention).

You don't know if you will end up with enough in retirement funds.

You don't know this figure if you invest outside a pension either. That's why it's a good idea to look at how much you need so that you can estimate how much you will need to contribute and for how long, usually based on very conservative growth rates.

You will be told that there is a lot of "free money" for you along the way.
Now if you believe that "free money" exists, go along with it.

"Free money" refers to employer contributions. Why would you bring this up for a private pension?

In this case the benefits are purely tax related. You get full tax relief at the highest marginal rate on the way in to the pension, tax free growth (i.e. no income tax on interest, no higher rate tax on dividends, no capital gains tax) and up to 25% of the pension pot tax free on retirement. On top of that, assets held in a pension will be subject to no inheritance tax if anything happens to the policyholder prior to crystallisation, and after crystallisation the total tax rate will range from 0% (if used to provide another pension for someone else) to 35% (if passed to someone else as a direct lump sum). The remaining 75% is then used to provide an income, at least some of which is likely to be within the personal allowance and therefore tax free (after all, someone self employed is not going to be building up an entitlement to the state second pension, which is a major drawback when it comes to retirement planning - something you neglected to mention).

In short, the tax relief on the way in will be 20% for a basic rate taxpayer, 40% for higher rate and 50% for top rate, while the proceeds coming out (after tax free growth) will be subject to an effective rate of 15% or less. All in all, it's very much worthwhile as a retirement provision.

My advice is to get your own savings regime together that gives you total control, and not to pass on control of your retirement to someone who will not pick up the pieces if it goes wrong.

Which you can do within a pension. With more favourable tax treatment than the same strategy done outside a wrapper.