ISAs v Pensions: The Official Retirement Debate

HarryD

EdInvestor wrote: »

The specialist retirement IFAs probably have the best info:

www.williamburrows.co.uk
www.annuitybureau.co.uk
www.annuitydirect.co.uk

Many thanks. Good stuff. I also came across this one:

http://www.pensionsadvisoryservice.org.uk/Personal_and_Stakeholder_Pensions/Income_Drawdown/

which has a good overview of what drawdown actually is.

Before today I'd heard the term income drawdown but that was about it. I now realise it could be just right for me, so many thanks for contributing to this forum and thus bringing it to my attention.

HarryD

It seems Income Drawdown is only recommended for a pension fund over £100K. My main pension is a company defined benefits scheme I don't want to change. I'm trying to work out what's best for another, smaller fund.

For smaller pension pots it looks like a With Profits Annuity could be a middle way between a straightforward annuity and an income drawdown. A With Profits Annuity also looks quite simple to organise.

I'd be interested in any observations on these two plans I've found from the Pru and Legal and General:

http://www.pru.co.uk/retire/annuities_04/with_profits/

http://www.legalandgeneral.com/pensions/annuities/with-profit-annuity/

Are these plans as good as any With Profits Annuity? And is a With Profits Annuity inherently a good or bad idea...?

dunstonh

It seems Income Drawdown is only recommended for a pension fund over £100K.

Thats a pre 2006 generalisation. Things have moved on since then. You can get personal pension drawdown as little as £3000 now.

For smaller pension pots it looks like a With Profits Annuity could be a middle way between a straightforward annuity and an income drawdown.

Limited choice available and timing is key as well as the anticipated bonus rate but I do have a few highly successful versions of these running but there is the potential to make a pigs ear of it if you get it wrong.

EdInvestor

dunstonh wrote: »

there is the potential to make a pigs ear of it if you get it wrong.

eg at Equitable Life, what a disastrous retirement those WP annuitants have had

I've never seen the logic behind investment annuities vs drawdown.With the former you take the risk but sacrifice the capital.With the latter you take the risk but keep the capital.

IMHO no contest.

dunstonh

eg at Equitable Life, what a disastrous retirement those WP annuitants have had

Yet Pru WP annuities have been very successful.

I've never seen the logic behind investment annuities vs drawdown.With the former you take the risk but sacrifice the capital.With the latter you take the risk but keep the capital.

It depends on the ABR you use in the calculation. Investment annuities have a degree of security. Not as tight as a lifetime annuity but more than income drawdown.

IMHO no contest.

Thats because you always assume drawdown is best and the investments the individual will do is best. There are plenty of failed drawdown cases out there where people invested it, suffered a market crash and couldnt wait until it recovered as they were coming up to 75. Every option has pros and cons.

HarryD

dunstonh wrote: »

Thats because you always assume drawdown is best and the investments the individual will do is best. There are plenty of failed drawdown cases out there where people invested it, suffered a market crash and couldnt wait until it recovered as they were coming up to 75. Every option has pros and cons.

Good point. And more generally some ISAs will do better than some pension investments, and some pension investments will do better than some ISAs. And some ISAs will be disasters and some pension investments will be disasters.

Which brings one back to the old investment adage of spreading ones eggs around many baskets.

Paul_Herring

HarryD wrote: »

And more generally some ISAs will do better than some pension investments, and some pension investments will do better than some ISAs. And some ISAs will be disasters and some pension investments will be disasters.

ISAs and pensions are merely wrappers, not investments in, and of, themselves.

If an investment does better or worse, it will do so regardless of whether it's in an ISA or a pension, not because it's in an an ISA or pension.

Put another way, if an investment goes 'bad' in an ISA, it would have done exactly the same had it been in a pension fund.

HarryD

Paul_Herring wrote: »

ISAs and pensions are merely wrappers, not investments in, and of, themselves.

If an investment does better or worse, it will do so regardless of whether it's in an ISA or a pension, not because it's in an an ISA or pension.

Put another way, if an investment goes 'bad' in an ISA, it would have done exactly the same had it been in a pension fund.

Very true. Maybe posts on the relative tax merits of pensions and ISAs should all carry that health warning: the underlying thing your money is invested in is a more important decision than whether you invest via an ISA or via a Pension.

LongTermLurker

Also, as I understand it, when you start to draw a stakeholder pension, 25% of it can be withdrawn in cash with no tax penalty. This seems like a good idea particularly as you can invest £3,600 gross in another stakeholder pension and get tax relief on this contribution, even if you are retired and have no "earned" income. Have I got this right?

Isn't that what I've seen termed "recycling", and something that's against the rules? i.e. put money into a pension, get tax relief on it, take out 25% of the proceeds tax free, put that into another pension and get tax relief a second time?

dunstonh

recycling wouldnt be an issue on contributions upto £3600 a year. Above that amount it could be if you dont have another source of income that could be used (on paper) to justify the contribution.