Pension Vs Other retirement funding??

boysmum3

Just wondering what to do for our long term planning:
OH has a Friends Provident personal pension which he has had for 15 (approx) years he still pays in around £40 a month.
I pay into the NHS scheme - on and off for years and at the moment I work VERY part time.
Now we realise OH pension is going to provide us with nearly b****r all on retirement and need to start thinking what we are going to do to provide us with an ok standard of living on retirement. (had a statement recently which predicts fund will buy pension of £1400 pa:eek: :eek: :eek: )

My ideas are:
a) freeze the Friends Provident and pay the £40 a month into an ISA - to provide a lump sum on retirement (we may be able to afford more in a few years).
b) transfer funds into a stakeholder pension.
c) freeze and start a stakeholder.

Our main mortgage will be paid in 5years and then we plan to buy a flat to rent out. By then I should hopefully be working more than the 6 hours I currently do. This will obviously be an asset for our retirement.

I should point out we have a young family so we can't put much more into a pension fund but would really appreciate anyone's comments on my ideas or other peoples ideas too!!!
TIA

EdInvestor

The first thing in pension planning is to get a forecast for both of your state retirement pensions - the basic plus the S2P (formerly SERPS).Make sure you are getting any Home responsibilities credits counted if looking after kids at home.Remember that soon the rules will change and only 30 years contributions will be required to get the full basic pension.

https://www.thepensionservice.gov.uk


Next get a forecast of the likely value of your own NHS pension.

How much is OH's FP pension scheme actually worth? What fund(s) is the money invested in? Is it a contracted out personal pension, or is he contracted in to the state second pension (SERPS)?

Is there a pension scheme at his work which his employer would contribute into? And finally, I assume he pays basic rate tax?

Let us know all this and we can give a view.

dunstonh

a) freeze the Friends Provident and pay the £40 a month into an ISA - to provide a lump sum on retirement (we may be able to afford more in a few years).

Why? Pensions and ISAs have exactly the same tax treatment on growth and income. They also have access to exactly the same funds. So, an ISA wont grow any faster than the same fund in the pension.

b) transfer funds into a stakeholder pension.

Why? Stakeholders are budget options and your very low premium suggests stakeholder could be a good option but your existing pension could be better. FP did offer guaranteed annuity rates on old pensions and that could be very desirable.

c) freeze and start a stakeholder.

Why? (mostly answered in b)

Our main mortgage will be paid in 5years and then we plan to buy a flat to rent out. By then I should hopefully be working more than the 6 hours I currently do. This will obviously be an asset for our retirement.

Dont rely on it. Rental yields are less than savings accounts at the moment and if you go with a mortgaged buy to let, then that is a high risk transaction. It may be an asset but it will be one that wont be providing much income for you.

I should point out we have a young family so we can't put much more into a pension fund but would really appreciate anyone's comments on my ideas or other peoples ideas too!!!

If you cant afford much into the pension then considering a buy to let (especially a mortgaged buy to let) is a dangerous move.

boysmum3

dunstonh wrote:

Why? Pensions and ISAs have exactly the same tax treatment on growth and income. They also have access to exactly the same funds. So, an ISA wont grow any faster than the same fund in the pension.



Why? Stakeholders are budget options and your very low premium suggests stakeholder could be a good option but your existing pension could be better. FP did offer guaranteed annuity rates on old pensions and that could be very desirable.


Why? (mostly answered in b)



Dont rely on it. Rental yields are less than savings accounts at the moment and if you go with a mortgaged buy to let, then that is a high risk transaction. It may be an asset but it will be one that wont be providing much income for you.



If you cant afford much into the pension then considering a buy to let (especially a mortgaged buy to let) is a dangerous move.

Why?? Well they were just ideas - not heavily researched - more just thinking aloud.

As for the ISA idea - it was just a thought that came to me when FP told us that there is no lump sum option on the fund OH has, the stakeholder idea came when FP said OH should change to stakeholder if he wanted a lump sum.

And perhaps I should have been clearer in that we can't afford much more into the pension at present.....in 5 years our financial situation will alter on payment of our mortgage (currently being heavily overpaid). So we would be in a position to purchase a property and probably increase pension/ISA payments.

Will look into getting a NHS forecast, we both got state pension forecasts last year ...mine was £114 pw...and OH was £85 pw.
Obviously this needs a lot more thought and info before we do anything.

Thanks to both poster's for the advice

dunstonh

As for the ISA idea - it was just a thought that came to me when FP told us that there is no lump sum option on the fund OH has, the stakeholder idea came when FP said OH should change to stakeholder if he wanted a lump sum.

All pensions quality for 25% lump sum regardless of type unless there is GMP involved. You wouldnt want to transfer a plan with GMP liability into a personal or stakeholder pension without full advice because that can be worth an awful lot of money.

ISAs (not cash but investments) can be a lot better than a personal pension (or stakeholder) where no employer contributions exist. So, dont rule out that idea. I just wanted to make sure you were "thinking out loud" with the right reasons.