ISA's versus Personal Pension

gadgetmind

gadgetmind wrote: »

the !!!!less

Dear MSE forum peeps. f e c k l e s s is a word, and not even a rude one. I wonder what you do with S!!!!horpe and manuscript?

atush

Since when is MSE an irish forum?

Why single out Irish swear words? That many english speaking places like america won't even reconize but do recognize Fec*lass as a word in the standard english dictionary and not slang?

Beggars belief really.

gadgetmind

atush wrote: »

Fec*lass

Ooo, less of the "lass" bit with your f e ck, as that doesn't recognise gay, lesbian and transgender rights to that swearword. Or something.

atush

I just tried it out on the econo board. fecless works ;-)

fairleads

IFA_to_be wrote: »

HI :wave:

I have heard some individuals say that ISA's would be a preferred way for non-taxpayers to fund for there retirement over personal pensions.

Can someone give some reasons why this could be the the case?

I'm not saying this is or should be the case but what would be the advantages for doing it this way?

When comparing the pension Vs Isas, and particularly in the case of the non, or 20%, taxpayer, the following facts/ benefits of the Isa are often overlooked . The self invested and controlled Isa fund can be a lower cost option than the pension fund. Even allowing for the possibility of more trading costs for this year our fund costs for the twelve months ending 31 Dec 11 will not exceed .5% . And it is this lower cost that gives the Isa the advantage, or rather it is the higher cost of the pension fund that reduces the value of the pot to an amount that can be close to or even lower than the Isa pot on retirement.
However, the main advantage for the Isa retiree is the option to retire early with more nett income than would be the case of the pensioner. And this is down to the twin benefits of the tax free dividend income and full control of the capital pot. You see, the Isa retiree can draw a greater % of the pot in the earlier years, when we need it, and reduce the % later on when our income needs diminish. This is in complete contrast to the pensioner whose income at the age of 55 is limited by law to a drawdown of 5.3%, increasing every three years in graduated increments to 15.2% at the age of 75. Even taking the 25% tax free portion, and using that to supplement the annuity income for the 10 or more years until state pension age will still not beat the Isa option, and this is regardless of which annuity option we choose. Further, the Isa retiree has the option to both make and take, in their tax-free entirety - up to the annual tax free allowance - a capital gain or two along the way. Whereas, although the drawdown pensioner can make tax-free gains within the pension fund wrapper, they cannot take it out of the fund in it’s entirety because it is also limited to the prevailing % drawdown and, to add insult to injury, they pay tax on it.
Now I understand that pension income under the personal allowance is essentially tax-free. However, I have to say that presentations that use such small values as examples of the superiority of the pension over the Isa are so unrealistic - and unrepresentative of true life situations - as to be of little or no value in the greater retirement debate.

dunstonh

I dont buy the argument that pensions are more expensive than ISAs as there is no reason for that to be the case. Sure, there are some pensions that are more expensive (and some ISAs too). However, there are providers out there that charge no difference for the ISA, unwrapped or pension.

A couple in retirement can earn £20k tax free between them. Utilising the personal allowances between them is not of no value. Still, if you feel that £20k tax free income p.a. is nothing for a pensioner, then I guess you are entitled to that view.

gadgetmind

dunstonh wrote: »

I dont buy the argument that pensions are more expensive than ISAs.

Agreed in principle, but in practice, most people are happy going DIY and low fee with ISAs but tend to use IFAs for pensions, and so suffer a varying degree of fee drag. 5% up front and 1% pa for the IFA route isn't uncommon and we've seen people quoted fees close to this for simple pensions within the last week.

dunstonh

gadgetmind wrote: »

Agreed in principle, but in practice, most people are happy going DIY and low fee with ISAs but tend to use IFAs for pensions, and so suffer a varying degree of fee drag. 5% up front and 1% pa for the IFA route isn't uncommon and we've seen people quoted fees close to this for simple pensions within the last week.

That's by choice if it is the case. Personally, I tend to find that if I client uses a servicing IFA then its for all wrappers. That said, when I have new clients who have had transactional advisers in the past, then things have tended to be all over the place and less or the IFA only deals with certain things.

The point is that there is no need for it to be that way. It can if you want. But it doesnt need to be if you dont want to.

Increasingly, IFAs don't charge differently for different wrappers (trust work maybe). If they do then you should question it. Commission advisers will take what they can get and that is where you tend to see the 5% figures (however, small cases will often see those sorts of figures on fee basis as well)

If you DIY, then you can get the different wrappers at the same price as well. So, it can be the case regardless of the distribution channel you use.

One thing to note is that on pensions, if you are novice investor and use a portfolio fund, then these actually tend to be cheaper on pensions than unit trusts/OEIC versions. So, there will always be examples where one may be better than the other. However, if we stick to say Invesco perpetual high income UT version, then the cost of that is the same irrespective of wrapper.

gadgetmind

dunstonh wrote: »

That's by choice if it is the case.

In much the same way that people choose to pay £100 per hour for main dealer car servicing and for their MP to have his moat cleaned.

Not all choices are easy to exercise.

fairleads

dunstonh wrote: »

A couple in retirement can earn £20k tax free between them. Utilising the personal allowances between them is not of no value. Still, if you feel that £20k tax free income p.a. is nothing for a pensioner, then I guess you are entitled to that view.

Not at 55 they don't. Also Dh, You have in the past mentioned costs of a SIPP as being 50 to 100% greater than a stakeholder of 1% amc.