ISA, Company Pension or Property

unionjack81

Hi guys,

I know I could ask an so-called 'expert', and I'm not saying I won't, but I thought it might be best to get feedback from people who are actually retired to close to retiring.

I'm 30 and have been paying into a private pension now for about 7 years. So far, I have amassed the sum of £10,000k, which I am growing concerned about given how poor the annuity rates are. I'm not sure how much of a difference to my lifestyle this would make when I retire.

I also note that, if I put all my money into the pension, I'm at the mercy of future governments who could destroy the value of the pension pot and also the irresponsible city slickers who could squander much of it on fees.

My question is this: do I continue with pension payments or seek an alternative such as simply saving in an ISA or investing in property where, I could would expect to have rental income on retirement.

My head is pickled with this one which is why I would love some feedback from those who have employed these different strategies.

Thanks,

UJ

Andy7856

I'm no expert in pensions either, but when you say company pension I take it you refer to the one offered by your employer? If so what type is it? and more importantly do they put anything into it (FREE money!!!). There are loads of ISA v pension pros and cons on this site. If it was not for my employer putting in money I would stick to ISA only for a pension - but that is my own opinion.

In my case, albeit 30 years to go to retirement I have a company scheme (final salary + AVC) and also feeding into an ISA to give me a bit of flexiblity and a tax free income. The company scheme is pretty much UK investments, whilst the ISA is more high risk so I have a nice balance.

My only concern for investing in property for retirement is how quick could you get the money if it was all tied up? you dont want all your eggs in one basket. Do you want to be chasing rent when you are in your 70's?? or handing over management fees to an agency for doing that

I am sure other posters will critise my own pension arrangements, but I think at the end of the day YOU have to be happy with what YOU have picked for YOUR future... Oh if you do need any advice forget about going to your bank to see a Salesman, sorry I mean Financial Planning Manager...

dunstonh

I am growing concerned about given how poor the annuity rates are.

As are many. They are now only around 50-100% of the typical savings account. However, that is why the secured income option is not the only option available.

I also note that, if I put all my money into the pension, I'm at the mercy of future governments who could destroy the value of the pension pot and also the irresponsible city slickers who could squander much of it on fees.

The Govt has never taken any action which has directly reduced the value of money purchase pensions. It would be difficult for them to do so. Fees are charged explicitly. So, if you dont like the fees you are paying then change your investments.

do I continue with pension payments or seek an alternative such as simply saving in an ISA or investing in property where, I could would expect to have rental income on retirement.

ISAs have identical charges to pensions (indeed, many pensions can be cheaper). So, changing the tax wrapper will have no impact at all as far as charges goes. Rental properties will have significantly higher charges and you will face much larger tax bills. If you think the charges on a small pot of £10k is a lot, just wait to you see what you will be paying on a rental property.

unionjack81

Andy7856 wrote: »

Oh if you do need any advice forget about going to your bank to see a Salesman, sorry I mean Financial Planning Manager...

lol! :rotfl:

I apologise for my lack of understanding of the different types of pensions but I am learning. Hopefully, with the help of this forum, I'll have a much better undertstanding of my options over the next few of years.

My pension isn't a final salary. My employer was matching my 5% contribution up until a couple of years ago and then stopped :eek:. I think I might have heard that you can't do this with a stakeholder pension? So it mustn't be one of those? So now it's just my contributions

Point taken on the Property investment. It just scares me that I would need to save 15% of my income to have anything half-resembling a decent lifestyle in retirement. Then I read about everyone who invested in ISAs getting now interest and property values going down.

Thanks for clarification on the government not being able to affect my pension pot. However, with respect, who knows what the government can/will do over the next 30-35 years. I'm sure NHS employees thought their pensions were bullet proof 10 years ago? Who knows what damage another Labour government will do when they next get an opportunity to reek havoc! lol (It was a joke before anyone goes off on one!!)

Loughton_Monkey

Investments need time. The power of compounding is great.

First of all, concerning the 'city slicker' angle, then pension or ISA is exactly the same. No difference whatsoever. They are basically the same funds with the same charges.

Although many claim ISA's are better because of the flexibility, you must remember that when retired, it is essential to have a steady stream of income. Hence the 'inflexibility' of the pension is in fact a virtue, and there's tax relief too. So it's a 'no brainer' to use pension for most of retirement investing. Although it's perfectly legitimate and wise to supplement good pensions with a bit of cash as well.

As to property investment as a retirement vehicle, then that's an entirely different risk profile. Personally, I don't think I'd welcome my 'retirement' fund consisting of a fixed asset (house) together with an 'income' which tends to be 'black or white' - [could be tenants who pay. Or could be untenanted or have tenants who don't pay].

Personally, I have retired early but couldn't be 4rsed to deal with day-to-day issues of tenancies. I want to enjoy life.

dunstonh

My employer was matching my 5% contribution up until a couple of years ago and then stopped .

The employer will have to restart it by 2017 (date based on size of company).

I think I might have heard that you can't do this with a stakeholder pension? So it mustn't be one of those? So now it's just my contributions

Employers dont have to pay anything in to a pension until they hit the mandatory years coming up where they have to.

Point taken on the Property investment. It just scares me that I would need to save 15% of my income to have anything half-resembling a decent lifestyle in retirement. Then I read about everyone who invested in ISAs getting now interest and property values going down.

Dont be worried about short term trends. This is not the first recession. It will not be the last. There have been 8 financial crisis since 1956 and they occur on average every 7 years. We just had a longer gap than normal between them. These are opportunities for the long term and not something to be concerned with until you get within 10 years of retirement. Then you start to adjust your investments depending on risk profile and how you want to have your income.

Interest rates historically do not give real terms growth. Typically you are lucky if you break even over the long term but usually you end up losing money in real terms with savings. This is why long term it is recommended that you use investments.

However, with respect, who knows what the government can/will do over the next 30-35 years.

There are certain things the Govt cannot do without primary legislation or European legislation. They can kill off tax wrappers and make tweaks but to suggest that they would take your money off you would be on par with aliens landing. Possible but highly unlikely.

I'm sure NHS employees thought their pensions were bullet proof 10 years ago?

They still are and will remain so. The indexation change is not that significant for the level of contribution they make. Any other changes will not impact on past pension benefits built up but will impact on future pension benefits built up. You also have to remember that there is barely any similarity between the NHS pension and a personal pension. It is like comparing a bike with a helicopter.

unionjack81

Loughton_Monkey wrote: »

Investments need time. The power of compounding is great.

First of all, concerning the 'city slicker' angle, then pension or ISA is exactly the same. No difference whatsoever. They are basically the same funds with the same charges.

Although many claim ISA's are better because of the flexibility, you must remember that when retired, it is essential to have a steady stream of income. Hence the 'inflexibility' of the pension is in fact a virtue, and there's tax relief too. So it's a 'no brainer' to use pension for most of retirement investing. Although it's perfectly legitimate and wise to supplement good pensions with a bit of cash as well.

As to property investment as a retirement vehicle, then that's an entirely different risk profile. Personally, I don't think I'd welcome my 'retirement' fund consisting of a fixed asset (house) together with an 'income' which tends to be 'black or white' - [could be tenants who pay. Or could be untenanted or have tenants who don't pay].

Personally, I have retired early but couldn't be 4rsed to deal with day-to-day issues of tenancies. I want to enjoy life.

Ok, you've made too many good points for someone as unsophisticated as myself to do individual quotes! :rotfl:

On the pension side, I like your thinking. Get it set in stone at the start and know exactly what I'm getting supplemented with other income streams.

As far as property goes, perhaps I could buy one, rent it, hopefully see the value rise and then sell it before retiring/on retirement. Don't expect I could be 4rsed with the day-to-day either! lol

unionjack81

Thanks dunstonh

dunstonh wrote: »

Dont be worried about short term trends.

I suppose I just need to be patient then but I'm sure you can appreciate it's a difficult concept for someone to grasp for the first time.

dunstonh wrote: »

They can kill off tax wrappers and make tweaks but to suggest that they would take your money off you would be on par with aliens landing

Noted

dunstonh wrote: »

You also have to remember that there is barely any similarity between the NHS pension and a personal pension. It is like comparing a bike with a helicopter

Again, noted.

I think the points everyone have made have backed up pensions well. Tax efficiency and employer contributions do seem to make it a no brainer. Plus, I can't touch it til I retire so no urges to go on that 'emergency holiday' can erode my fund!

If I am paying 40% tax, does that automatically get paid into pension too or is it just 20%? (Sorry, I'm really stupid when it comes to pensions and this sort of thing)

Thanks

jem16

unionjack81 wrote: »

If I am paying 40% tax, does that automatically get paid into pension too or is it just 20%? (Sorry, I'm really stupid when it comes to pensions and this sort of thing)

Thanks

20% is added to your pension. The other 20% can be reclaimed via your tax return or by phoning HMRC and getting your tax code adjusted.

Also remember that you only get 40% tax relief on the amount that you actually pay 40% tax on.