ISAs v Pensions: The Official Retirement Debate

dunstonh

Not many companies provide care fee annuities. I seem to recall one of the big ones pulling out before Christmas. The issue is often that they are also quite expensive and when you stack them up against conventional investments, they dont always look like good value.

Whilst on subject of annuities, a number of companies are starting to add in a protection option on pension annuities where you can protect your capital in the event of not getting back when you paid in. For example, if your annuity purchase (after lump sum taken) was £200,000 and you die only after £50k has been paid, they will return £150k as a lump sum.

Wendy_Sorrell

nrsql wrote:

I would go for an isa because I don't trust pensions.
That' not a view due to the recent troubles but because money is locked in and there's not a lot you can do if the rules change.
At least currently with an isa you can take the money out so I feel there's less chance of an unavoidable loss.
But then I wouldn't keep everything in an isa wrapper either, just in case.

I agree, but would go a bit further and say I dont trust pensions! Locally ASW Sheerness Steel had difficulties paying up retired former employess because the pension fund had just disappeared. Very scarey and not fair after years of planning and dependance on behalf of the employees.

dunstonh

I dont trust pensions! Locally ASW Sheerness Steel had difficulties paying up retired former employess because the pension fund had just disappeared. Very scarey and not fair after years of planning and dependance on behalf of the employees.

This is the problem with the media coverage. It gives people an incorrectly jaded view of all pensions because one type of scheme fails.

Sapphire

competitionscafe wrote:

I don't see how cash ISA returns will beat equities over the long term - and saving for retirement is a long-term investment (whether via a personal pension or equity ISA wrapper).

As this chart shows, equities have far outperformed cash over the last 3 years, throughout the 90's and over the very long term (since 1900):
http://uk.standardlifeinvestments.com/content/data/press/press_articles/financial_adviser_06_2006.html

"It is worthwhile therefore to examine the very long term, which can smooth out the effects of cycles in business activity or inflation rates. We can compare market returns since 1900; the average annual nominal return for equities, gilts and cash, was 11.5%, 6.0% and 5.1%, respectively."

It surely depends on how old you are. Above a certain age it is surely too risky to invest in stocks and shares and better to stick to cash ISAs (and pensions if you can afford it or if your employer contributes to them).

competitionscafe

Yes, indeed and some pension providers will automatically switch your investments from equities into lower risk assets like bonds as you approach retirement. By long term I meant 10 years+ and with a timespan of that length or longer I would personally not use cash ISAs or any cash holdings.

jamesd

Sapphire, too old for stocks and shares ISA contents is shortly after death. The mixture of investments may change prior to that. Remember that those investments are what a big chunk of annuity money is coming from: government bonds (gilts) purchased by insurance companies and maturing when the annuity obligations become due. You can do the same in an ISA or pension. To keep ahead of inflation you'd want some of the money in more risky equities, though.

EdInvestor

It surely depends on how old you are. Above a certain age it is surely too risky to invest in stocks and shares and better to stick to cash....

....Yes, indeed and some pension providers will automatically switch your investments from equities into lower risk assets like bonds as you approach retirement.

This thinking is way out of date. It was suitable years ago when people only survived for a few years after they retired.But now life expectancy has rocketed, and most people can expect to spend 25-30 years in retirement.

This means that the old system of buying a level annuity won't work, as inflation cuts the value in half over 20 years, by 30 it's almost worthless.

People have got to start thinking about taking a moderate amount of risk in retirement with at least part of their money, so as to get a long-term income which keeps up with inflation.

Fortunately many people now retiring will get much better inflation-linked state pensions than before, so their basic needs will be covered, and taking a risk is not so scary.

Running_man

Only on a personal level>Probaly sensible to invest in pension scheme But will no longer be doing this.
WHY

Quite simple really I dont trust them.
If money in bank its mine know I have got it.
How many pension schemes been wound up people got nothing.

How can anybody trust Goverment now or in future>Remember the Maxwell era told No way this would happen again peoples money would be safe etc etc
Since then how many people lost money.
People payed into pension funds all their lives to end up with nothing.
Companies took pension holidays when times good then oh dear weve got no money you people who trusted us have got nothing.
Well if people had payed into a saving fund they might not have much money but they would at least have something.

Remember financial experts also responsible for the endowment fiasco.You will have a nice pot of money at the end blah blah blah.


Rant over

dunstonh

Quite simple really I dont trust them.
If money in bank its mine know I have got it.
How many pension schemes been wound up people got nothing.

Incorrect logic.

Money in a personal pension (inc stakeholder and SIPP) is just the same as money in the bank.

How can anybody trust Goverment now or in future>Remember the Maxwell era told No way this would happen again peoples money would be safe etc etc

Which has nothing to do with personal pensions.

Well if people had payed into a saving fund they might not have much money but they would at least have something.

Or, if they had paid into money purchase pensions (which most occupational schemes are moving over to).

Remember financial experts also responsible for the endowment fiasco.You will have a nice pot of money at the end blah blah blah.

Yes, it's a damned shame the economy moved from boom bust, high inflation suited to endowments to low inflation stability making us all much better off.



As for final salary occupational schemes with lost money, its about 75,000 people affected. Population of UK is around 60 million now.

Running_man

So in a pension you can access your money at all times?

Point being legislation promised that meant no one would lose their pension ever again

Pension funds/endowment providers had it good for over 20 years couple bad years no money left.
Over time financial markets always been boom and bust so therefore would it not have been sensible to put some money aside during the good years.
People trusted providers paid every month of their working lives to see nothing left.THATS WRONG.

think you will find with all the pension schemes folded altered etc it is alot more than 75000 people affected BUt using your figure

75000 who have dependants say partner and one child.Know some will have more some less.But already up to 225000 people affected makes a mockery of your original total

Do you think its right for people who have worked all their lives to lose money ?
One person losing money is too many.This has destroyed peoples lives.