ISAs v Pensions: The Official Retirement Debate

dunstonh

I pay in around 8% and my company pay in around 17% - brilliant!

Actually, that is quite poor as final salary schemes go. Although 8% contribution into a final salary scheme is almost certainly better than 8% into money purchase. The employer contribution doesnt matter. Although an employer contribution of 17% into a money purchase scheme would have to make you think about switching over (not that it is applicable here).

I have been advised that I would be best to freeze the company pension and then take out another pension which obviously would not be final salary.

On what basis is that recommendation? I would think that there is a 99% chance of that being bad advice. If I was you, I would seriously think about changing your adviser unless they can come up with some really sound reasons as to why you would be better off doing that.

ISAs in this thread relate to stocks and shares ISAs and not cash ISAs. Cash ISAs are not very good for retirement planning

ceejayblue

I think the advice was given to me because my salary will drop by about £3K in 2 years and the final salary pension would be based on that lower salary and not my salary as it is now. I will certainly try and find alternative financial advice nearer the time but I am really just wondering whether to move my ISAs to my pension or to another higher paying ISA.

Thanks for your advice it has given me something to think about.

dunstonh

I think the advice was given to me because my salary will drop by about £3K in 2 years and the final salary pension would be based on that lower salary and not my salary as it is now.

Have you checked the scheme booklet? Its often the average of the best three in the last 10 or the best three consecutive years in the last 10 years or something similar to that.

The rest of it is really too specific for the forum and to be honest, you would almost certainly find that no pensions provider will take you on as a non-joiner of the occ scheme (that is what you would be classed as) without an IFA signing off on it.

clevereply

every time you will look for the pension related benefits that will seem you bit tough task. however, here the process is less tricky.

Self Managed Super

moneymouth77

I've always thought going with ISAs was better, the interest rate is higher and, if you've made a pretty penny, you can work off that for a long, long time. However, I'm no where near this position in life so don't know what its actually like "in the trenches", just my opinion.

dunstonh

I've always thought going with ISAs was better, the interest rate is higher

The interest rate isnt higher. ISA is a tax wrapper. Pension is a tax wrapper. Put the same investment in both and you get the same rate of return.

If you are talking about cash ISA then you are replacing investment risk with shortfall risk and inflation risk as the long term rate of return is unlikely to beat inflation and will almost certainly underperform a diverse portfolio.

moneymouth77

My mistake, thanks for that! When you say 'diverse portfolio', how diverse would you make it to minimise risk? Obviously, without knowing my financial history, that's a tough call, but what would you recommend?

dunstonh

moneymouth77 wrote: »

My mistake, thanks for that! When you say 'diverse portfolio', how diverse would you make it to minimise risk? Obviously, without knowing my financial history, that's a tough call, but what would you recommend?

Risk is diluted by time. So someone with 3 years to go should be mostly cash or protected investments. Someone with 30 years to go should be mostly equities. Fixed interest securities and property would be factored in there as well.

By spreading it around the sectors (Uk, Europe, N America, Emerg Mkts, asia etc) as well as the asset classes (equities, cash, property and fixed interest) then you ensure you dont have all your eggs in one basket.

moneymouth77

Ah thanks! Does that still apply with the current slump in money from homes (see below), or are we not talking property? http://money.sky.com/mp/features/news/2009/07/08/Pensioners-home-cash-dives-40.html

dunstonh

moneymouth77 wrote: »

Ah thanks! Does that still apply with the current slump in money from homes (see below), or are we not talking property? http://money.sky.com/mp/features/news/2009/07/08/Pensioners-home-cash-dives-40.html

Property in investment fund terms tends to be either property shares but more commonly commercial property. Not residential.

Also, now could be a very good time to be investing in property funds. Only time will tell but many property funds bottomed out in March after nearly 2 years of continuous drops and have either remained stable since then or shown slight gains.

Like any area, you dont know what is best until time passes. This is why you never should go 100% into any one area.