Is your pension pot going to be large enough?

chucknorris

chewmylegoff wrote: »

yeah, but you don't get tax relief on contributions into an ISA and matched contributions amplify the difference.

so, as a higher rate taxpayer you get paid £100. you receive £60 and invest it in an ISA.

or you get paid £100, you invest it in your employer's pension scheme, they also pay in £100.

i can't be bothered to retype the above with 1% NIC contributions included. they don't make any material difference.

so, whilst you may like buying shares in the ISA, your pension fund is going to have to charge A LOT of expenses for the ISA to do any better. sure, your children can't get at it, but that's not a reason to chuck £140 down the drain right at the start.

I did quite a comlpex series of calculations on a spreadsheet last year to decide whether it was worth taking out a pension (as an investment NOT simply because I need pension income because I do not). It was touch and go whether it was worth it or not which of course depended on all important thing 'life expectancy' which you have to take an educated guess at.

So I decided not to invest additional money into a pension, although it was a very close call. However I could only make this decision because I do not need any aditional pension income. I was merely looking at value in isolation. When you add income need it becomes a 'no brainer' a pension is a must.

chucknorris

RenovationMan wrote: »

I cant understand how anyone could berate the costs associated with investing in shares/funds and yet never consider the considerably higher costs and hassles of being a BTL landlord? Just off the top of my head, you have to pay stamp duty, legal fees, valuation fees, mortgage arrangementfees, mortgage payments during void periods, gas and electricity checks, refurbishments/repairs, ground rent (if not freehold), agency fees and or advertising costs, the list goes on. You are also taxed on any profits and have to fill in extra paperwork in a tax return. If you sell the property you have to pay estate agent fees, legal fees and capital gains tax. Let's also not forget any legal costs if you get bad tenants who trash the place, dont pay the rent for months and you have to go to court to evict them.

Any calculations on pensions have to include the fact that as a high-rate tax payer you get 40% tax relief on the way in and yet will pay only 20% tax when you receive the pension. You also get a much more generous tax free annual allowance in retirement than you receive during your working life, which also has to be factored into the calcs, especially when comparing against ISAs.

But what you are missing is that the tenants pay the mortgage, whereas you have to pay the pension contributions yourself (or usually at least a substantial part).

As good as my public sector pension is it's no match to how my investment property has performed for me over the last 20 years (of course the next 20 years is unlikely to be as fantastic, although I will be selling up at some point less than 20 years from now)

ninky_2

chewmylegoff wrote: »

yeah, but you don't get tax relief on contributions into an ISA and matched contributions amplify the difference.

so, as a higher rate taxpayer you get paid £100. you receive £60 and invest it in an ISA.

or you get paid £100, you invest it in your employer's pension scheme, they also pay in £100.

.

yes but what if you are self employed - you don't have an employer matching your payments. plus i'm not going to get taxed on my isas when i want to use the money. if you are going to stay with an employer longterm and they do a good pension deal then it may be worth considering. personally i'm a bit too fickle and independent and have always been self employed.

nicko33

ninky wrote: »

i don't think i'd want a fixed annuity as there might be some years i'd like to spend big and others where i was happy tinkering on the allotment.

It doesn't have to be either/or.
You can buy a smaller annuity and still keep back a lump sum to do with as you will. What proportion you put in each is up to you.

N1AK

chucknorris wrote: »

In a DC (defined contribution) pension that would mean a pension pot of about 285k. That's quite a sizable pension pot to have accrued.

It all depends on when you start. Building up a good pension, if you didn't start before ~40 is going to require sacrifice (if you're not earning a high wage). I started at 21, and with a (pretty stingy) work scheme I would still have a decent pension pot if I continue paying 5% in.

chucknorris

N1AK wrote: »

It all depends on when you start. Building up a good pension, if you didn't start before ~40 is going to require sacrifice (if you're not earning a high wage). I started at 21, and with a (pretty stingy) work scheme I would still have a decent pension pot if I continue paying 5% in.

I didn't put in much at all and still won't because my property has performed so well that it has dwarfed any pension that I would have built up.

The problem is I think there are large numbers of people not paying enough attention to their pension requirements.

dtsazza

chucknorris wrote: »

conrad wrote:

Pensions are a terrible investment. My wifes freinds sole remaining parent died shortly after retirment and the annuity provider kept the lot. At least with REAL assets you pass on your lifes work to your next of kin.

Although I agree with you (I can afford to as my wife and I have based our pensions on a property portfolio) that pensions are not a great investment (if you have more than enough elsewhere).

Pensions are merely a tax wrapper, and as such they're a decent place to hold assets for retirement. They're a great place if you're a higher rate taxpayer and/or if your employer matches contributions.

True, many high street pension products charge relatively high fees for relatively low performance. Don't use them then - get a self-invest pension, or hold the money as cash instead.

And you may lose money on equity investments, but it's not the pension's fault if the price of a company or the FTSE goes down; all equity-based investments would lose value equivalently in this case. If you don't want your pension to be invested in equities it needn't be, either.

I think there's a lot of harm caused by the often too prevalent view that the behaviour of some specific underperforming pension products, is representative of the whole class of pensions (and to a more extreme degree, the whole concept of saving for retirement :eek:).

chucknorris

dtsazza wrote: »

Pensions are merely a tax wrapper, and as such they're a decent place to hold assets for retirement. They're a great place if you're a higher rate taxpayer and/or if your employer matches contributions.

True, many high street pension products charge relatively high fees for relatively low performance. Don't use them then - get a self-invest pension, or hold the money as cash instead.

And you may lose money on equity investments, but it's not the pension's fault if the price of a company or the FTSE goes down; all equity-based investments would lose value equivalently in this case. If you don't want your pension to be invested in equities it needn't be, either.

I think there's a lot of harm caused by the often too prevalent view that the behaviour of some specific underperforming pension products, is representative of the whole class of pensions (and to a more extreme degree, the whole concept of saving for retirement :eek:).

They area a wrapper than can can never get lose from that was the point, you do not have free choice of what to do with the money.

Thrugelmir

chucknorris wrote: »

But what you are missing is that the tenants pay the mortgage,

They may pay yours. But many recent investors are relying on capital growth alone. Its not possible to be tax efficient by offsetting mortgage interest against rental income , and repay the capital owing in the mortgage. As capital is repaid from after tax income. Many investors would be taxed at 40% if rental income wasn't offset by the interest.

chewmylegoff

ninky wrote: »

yes but what if you are self employed - you don't have an employer matching your payments. plus i'm not going to get taxed on my isas when i want to use the money. if you are going to stay with an employer longterm and they do a good pension deal then it may be worth considering. personally i'm a bit too fickle and independent and have always been self employed.

admittedly not having employer's contributions makes a pension scheme less attractive (although of course a self-employed person who is paid through a limited company can make employer's contributions into a pension scheme and receive corporation tax relief thereon), but you still get the personal taxation effect, and compounding gains thereon.

£100 in a pension growing at 5%pa would be worth £278 after 20 years and £432 after 30.

£60 in an ISA growing at 5%pa would be £159 and £259 respectively.

yes anything you draw from an ISA is tax-free, but that isn't going to rebalance that sort of disparity.