ISAs v Pensions: The Official Retirement Debate

jamesd

isobelle, the main flaw is that it's unnecessary to lose the pension a few years after retiring. Just use income drawdown instead of buying an annuity and anything from 65% (taking a lump sum outside a pension) to 100% of it (taking it as pension money) gets inherited.

isobelle

Thank you jamesd. I did not know that. I will have a rethink!! Maybe I will do both now !! xx

stphnstevey

dunstonh wrote: »

Yes it will. The B&CE scheme has something like a 0.3% AMC. Using someone like HL will see the AMC rise to typically 1.5%. That is five times more than the B&CE. That is a massive increase.

Some of the older B&CE schemes also allow full 100% payout on fund value at scheme retirement age (but not earlier). We dont know what type of scheme this one is.

But would the fund choice not increase with H&L SIPP and if so, the potential gains outweigh the cost?
(Devils Advocate )

stphnstevey

If my salary is £5720, can I make a pyment of £5720 to a personal pension and the goverment will add tax reelief or is it £4461 and the goverment makes it upto £5720 with tax relief?

Paul_Herring

stphnstevey wrote: »

If my salary is £5720, can I make a pyment of £5720 to a personal pension and the goverment will add tax reelief or is it £4461 and the goverment makes it upto £5720 with tax relief?

http://forums.moneysavingexpert.com/showthread.html?p=25731055#post25731055

LongTermLurker

jamesd wrote: »

isobelle, the main flaw is that it's unnecessary to lose the pension a few years after retiring. Just use income drawdown instead of buying an annuity and anything from 65% (taking a lump sum outside a pension) to 100% of it (taking it as pension money) gets inherited.

You also have to remember it's not a one-way bet - you could live to 120. The thing is the only contributor to your ISA is you, and your earnings have been taxed before you made the contributions.

Compare that with a pension where your employer may double your contribution (say 3% or 5% match) and you're not taxed on the money you contribute - if you're really lucky, your employer will run a salary sacrifice scheme and you'll not pay national insurance on the contributions either. Then when you retire, you can have 25% of the fund value (which remember was either paid for by someone else or was tax free in the first place) tax free. Finally, you can put pretty much exactly the same things in your pension as in your ISA.

I think there's a use for both ways - use the pension to reap the benefits of free money and get a guaranteed income, plus an ISA to protect your dependants against loss of inheritance.

The only warning I'd add about Jamesd's suggestion (I believe - I'm a long way from looking at pension options yet!) is that your pension pot could run dry (or down to a trickle) before you pop it - hence the benefit of having the ISA to fall back on...

EdInvestor

LongTermLurker wrote: »

The only warning I'd add about Jamesd's suggestion (I believe - I'm a long way from looking at pension options yet!) is that your pension pot could run dry (or down to a trickle) before you pop it - hence the benefit of having the ISA to fall back on...

There are quite strict rules on how much you can take out and regular reviews to adjust limits if necessary, so it's highly unlikely that anyone would actually run out of money by using income drawdown, even if they were away with the birdies and failing to pay any attention to their fund.

jamesd

LongTermLurker wrote: »

The only warning I'd add about Jamesd's suggestion ... is that your pension pot could run dry (or down to a trickle) before you pop it - hence the benefit of having the ISA to fall back on...

The main risk is poor investment management. Something like investing 100% in emerging markets, withdrawing it all at a market bottom and sticking it in bonds so it never recovers. A quick route to a much poorer retirement than anticipated. The ISA won't protect against that because the same mistake can be made there.

Someone using a more sensible mix of investments wouldn't be likely to end up without an income even at the highest permitted drawdown rate.

Anyone who is inexperienced with investing should seek professional advice and a second opinion here or elsewhere on that advice, to ensure they aren't taking on more risk than is prudent or acceptable to them. Living on drawdown income with no way to replace lost capital is not the time to be learning about investing.

You can protect against the really bad results by buying an annuity with part of the pension pot. Buy enough annuity income to cover your core needs and the risk is far lower.

isobelle

Thanks for all your replies, I am starting to rethink my position on pensions which I should be able to start contributing to if I decide to go for it. I earn a decent salary I guess, well i'm self employed I earn about £85,000 p.a. which I know will perhaps be peanuts compared to some people on here (from what I have read on here many people seem very intelligent and I imagine they perhaps earn lots of money!!) but which unless I get struck off and barring flood fire famine and illness should continue so I should be able to afford to contribute to a pension, I just always imagined I would fund my retirement in other ways. Am also possibly just about to start a new business which I have been working on because it seems to have a lot of potential, I have been working on and researching the potential for over a year now and it needs no capital investment to speak of I will just have to see how it goes, lack of time being the problem because i am quite busy with my normal work so I may have to take on staff if it gets out of hand, so that might help out if I do decide to go for a pension.

I have ISAs and and savings and I have always refused to speak point blank about pensions with my accountant and financial advisors and refused to read up on them although I know things about other types of investments, and refused to read up on pensions I think after my dad's death I was frustrated not for me as but for my father that he had paid all that money into his pension and not got much out of it. I am not blinkered on most things but I have been on this. So I will stay on this forum and do a lot of reading here and research in other places and take it from there.

Thanks to all xx

Zebra

david78 wrote: »

Here are my thoughts to add to the debate.........
(c) If you are a basic rate tax payer, consider saving outside of a pension wrapper until you are a higher rate tax payer. Then transfer the investments to a pension to get the maximum tax relief.

I appreciate that this quote is going back abit (Feb 2007 to be exact) but is it still relevant and how do you transfer investments into a pension in this way?