Do I Need a Pension?

Jakaru

Thanks for that - the industry I work in is not the most stable in the world - if you stay in 1 company for more than 3 years, you are the exception to the rule. I've just moved after 3 years at my last place - but don't expect to be at my new place any longer than 6 months. I may even make the leap into self-employment soon, to try and free myself from the loop. This has always disuaded me from company pensions, as I'll admit to being uneducated as to what happens when i leave the company.

My previous place did have a company pension - and I even went as far 3 years ago of getting it quoted up and all the paperwork drawn up. But the advisers they had that set up the pension just didn't appeal to me. I can't describe it, but I have a very clear instinct when I meet people. I don't need any information, I just know to avoid dealing with them further - and these people set off alarm bells. If I'm going to trust someone with thousands of pounds out of my wages - I need to be sure.

Having read Martins article, and various other stuff - the best wisdom seems to be that I should certainly start SOME pension of some kind, even if I can't get near the recommended £200 a month, and try and increase it over time. Should more money become freed up - get it into other savings & investments to give me money from both sides in later years.

I am still a little confused as to whether I should be looking for a Personal or Stakeholder pension though. Theres places where the differences are stated, but without any real recommendation one way of the other...

cheerfulcat

Aaargh! No you do not need a pension fund. Do not be misled as Martin has ( he is after all not an investment expert but a moneysaving one...) by the illusory tax " breaks ". The effects of investing in a pension fund and in an ISA are identical unless you will be paying a lower rate of tax in retirement than you are now, or you have an employer making contributions. The money is taxed going into an ISA but comes out tax-free; the money going into a pension fund is not taxed on the way in but is taxed on the way out. As it stands, there is an option of taking 25% of your fund tax free on retirement but 1) there is no guarantee of this continuing ( indeed, some hints in the opposite direction ) and 2) for this small concession you lose control of your capital for ever.

Ian_W wrote:

in your case I would opt for a pension over an ISA. Why? Well from what you've said you're struggling to make any real contribution so where are you going to be best served by the tax relief available? IMO, on the face of it - it's now in making those contributions bearing in mind you're going to get them boosted by 22% from the off and the contributions that are in the longest work the hardest for you.

For a basic rate payer there is no difference in outcomes.

Jakaru

Ok... so NO pension - but as said before, a Maxi ISA or some other form of Share based investment?

Share based investments are not quite as Clear about possible returns in their sales speil (for obvious reasons I suppose, hard to state definite returns like it is with Cash ISAs).

So, any recommendations as to how to find a good Share based investment? (I have been working my way through the previously recommended sites trying to educate myself on what these investments actually Are, but its a huge amount of information to digest... and thats just the basics, not actually Starting an investment. )

Paul_Herring

Ian_W wrote:

There is a very balanced augment for retirement savings between pensions and ISA's. Both get tax relief but in different ways.

Neither get tax relief. ISA's are funded with net income that has already been taxed, pension funds, once vested, are taxable.

Chosing a pension over an ISA solely for the 'tax benifits' is highly misguided at best. There is very little difference between the two in this regard.

From http://www.fool.co.uk/school/2005/sch051219.htm

Motley_Fool wrote:

For example, look at the position for a higher rate taxpayer who earns £100 gross (that is, £60 after tax), saves it and gets 9% growth for three years before drawing income at a rate of 5%. Each year's income will be the same, for the ISA and the pension:

ISA: 60% x £100 x 1.09 x 1.09 x 1.09 x 0.05 = £3.89

Pension: £100 x 1.09 x 1.09 x 1.09 x 0.05 x 60% = £3.89

The only possible tax breaks you can get are

1) The tax free 25% you can (currently) get at 55. As pointed out previously, this is not guaranteed.

2) If by some chance you are a higher rate taxpayer when funding your pension, but are a lower rate tax payer in retirement. It is thought the number of people falling into this category are small - if you're a higher rate tax payer funding your pension during your career, you're likely to be putting enough away to generate a pension that takes you to the 40% tax bracket anyway.

Martin has an article on the site about pensions at:
http://www.moneysavingexpert.com/cgi...50245982,43764,
which would certainly be worth your while reading.

Has anyone tried to correct Martin over his article?

cheerfulcat

Have PM'd you, Jakaru.

Oh, and there is an excellent thread here which might interest you.