ISAs v Pensions: The Official Retirement Debate

Simonsays_2

Thanks and I look for any other advice available here?

Rainmaker_uk

ManAtHome wrote: »

But you can take 25% out tax free (from the pension) which would put you back in front...

25% tax free lump sum is the current rule however how likely is it that this will continue?

If you consider it there is no reason why this anomoly will continue for the next 3 decades (in my case).

Not factoring this in may catch a few people out...

My retirement investment is employers contributory pension (no AVCs) with a mixture of ISAs and investment bonds to give flexibility and spreading the risk.

dunstonh

25% tax free lump sum is the current rule however how likely is it that this will continue?

If you consider it there is no reason why this anomoly will continue for the next 3 decades (in my case).

Its been in place for nearly 3 decades and for many the tax free cash amount was increased in the last set of rule changes (i.e. allowed on protected rights, AVCs and FSAVCs). There has never been an indication that it will be removed.

Anything is possible of course.

grotty

I have two small pensions about £30.000.do i consolidate them into one (the stakeholder)pension,which isn't performing great, Clerical medical. Or I have recieved advice from an online FA to move to skandia with the promise of better returns.but higher charges 7% reducing grotwth to 4.6%.
Or would I be better off putting the £200 per month into a cash or shares i s a.
I am due to retire in 2015 at the latest,possibly before if i have my way.

dunstonh

I have two small pensions about £30.000.do i consolidate them into one (the stakeholder)pension,which isn't performing great, Clerical medical

Clerical Medical stakeholder is fine and its funds perform generally in line with the sector averages. Some a tad lower but the lower risk funds tend to be where CM are better. When you say they are not performing great, how do you quantify that? i.e. is it the investment sector you are in that is not performing great (so the same sector in Skandia wouldnt have performed either) or the fund itself is performing badly compared to its investment sector?

Or I have recieved advice from an online FA to move to skandia with the promise of better returns.but higher charges 7% reducing grotwth to 4.6%.

There is no promise of higher returns. Ask the IFA to put that in writing and watch him/her decline. The idea is that it can offer greater potential for growth but it doesnt mean it will.

Personally, I am in the Skandia Investment Solutions pension (Collective retirement account version). The old Skandia Life pensions are obsolete. Once they were good but they are dated now. I like the CRA otherwise i wouldnt be in it. However, its impossible to say whether its right for you or not. That said, the reduction in yield seems heavy. Ideally, even with externally managed funds, it shouldnt drop below 5%. If it is, then its just too expensive. So, this would suggest the IFA is taking a lot a high fee from it.

Or would I be better off putting the £200 per month into a cash or shares i s a.

Cash ISA is unlikely to be suitable for retirement planning unless you are in the last few years or its part of your cash allocation in your overall portfolio. The S&S ISA has identical funds available and identical charges. Its just the tax and maturity process that differs. Its impossible for us to say which is right for you. However, for most people,a combination is often the best.

I am due to retire in 2015 at the latest,possibly before if i have my way.

How do you intend to take the retirement income? unsecured pension would favour Skandia. Secured pension option would favour the CM stakeholder (short term, good low risk funds, low cost stakeholder).

richard.swallow

My wife and i froze our stakeholder pensions at the start of the recession 20 months ago. We changed to ISA's and this year will receive 4.25% return plus a 0.5% bonus if untouched for 15 months.
As a self employed person i pay myself through dividends and don't pay income tax at source and have not exceeded my dividend limit in the last 7 years.
Am i right to think therefore that i am better investing in ISA's than private pension on which my returns will be taxed?

dunstonh

My wife and i froze our stakeholder pensions at the start of the recession 20 months ago.

You didnt freeze them. That term doesnt apply to personal pensions. You made them paid up.

We changed to ISA's and this year will receive 4.25% return plus a 0.5% bonus if untouched for 15 months.

Thats a shame. The pension investments would almost certainly have wiped the floor with that low level of return in that period. It was a great period to be paying into investments.

As a self employed person i pay myself through dividends and don't pay income tax at source and have not exceeded my dividend limit in the last 7 years.

You are not self employed.

Am i right to think therefore that i am better investing in ISA's than private pension on which my returns will be taxed?

Almost certainly no. You dont get tax relief going in and dont pay tax at the other end. With the pension, you get to take money out of the company without paying tax or NI on it. In retirement, 25% is tax free with the other 75% providing an income but the first 10k of your income will be tax free.

Cash ISAs are rarely a sensible option for retirement planning other than for those close to retirement or using it as part of the cash element of their portfolio. You may not have investment risk but you are replacing it with shortfall risk and inflation risk. Effectively you are guaranteeing a low return and a lower income in retirement whereas the investment option may get a low return but may get a higher one.

grotty

dunstonh wrote: »

Clerical Medical stakeholder is fine and its funds perform generally in line with the sector averages. Some a tad lower but the lower risk funds tend to be where CM are better. When you say they are not performing great, how do you quantify that? i.e. is it the investment sector you are in that is not performing great (so the same sector in Skandia wouldnt have performed either) or the fund itself is performing badly compared to its investment sector?

There is no promise of higher returns. Ask the IFA to put that in writing and watch him/her decline. The idea is that it can offer greater potential for growth but it doesnt mean it will.

Personally, I am in the Skandia Investment Solutions pension (Collective retirement account version). The old Skandia Life pensions are obsolete. Once they were good but they are dated now. I like the CRA otherwise i wouldnt be in it. However, its impossible to say whether its right for you or not. That said, the reduction in yield seems heavy. Ideally, even with externally managed funds, it shouldnt drop below 5%. If it is, then its just too expensive. So, this would suggest the IFA is taking a lot a high fee from it.

Cash ISA is unlikely to be suitable for retirement planning unless you are in the last few years or its part of your cash allocation in your overall portfolio. The S&S ISA has identical funds available and identical charges. Its just the tax and maturity process that differs. Its impossible for us to say which is right for you. However, for most people,a combination is often the best.
How do you intend to take the retirement income? unsecured pension would favour Skandia. Secured pension option would favour the CM stakeholder (short term, good low risk funds, low cost stakeholder).

Thanks for the info, the amount i'm expecting to get per month is hardly worth bothering with,so i'm really looking at a higher risk investment probably in the c r a . just have to live with the costs unless i can get it cheaper elsewhere ,but where do you start without going through every f a.
The cash i s a idea is a way I can save without the money being tied up in a pension when i retire in 2015

jampot7us

Is there a thread here discussing pension commision rates? Having started a a stakeholder pension 3 years ago with sw I am alarmed to see how much is eaten away but the commision rate over the years (I am 37) I see a dainsh co has opened an office wanting to break into the market at much better rates atp.dk I believe...

dunstonh

Is there a thread here discussing pension commision rates?

No but you can create one if you like.

Having started a a stakeholder pension 3 years ago with sw I am alarmed to see how much is eaten away but the commision rate over the years (I am 37)

You dont pay the commission on a stakeholder pension. Commission is not charged explicitly. You have to look to personal pensions for that which have moved to explicit fee basis. This is why most personal pensions now are cheaper than stakeholder.

I see a dainsh co has opened an office wanting to break into the market at much better rates atp.dk I believe...

You are not on about that highly flawed article about Danish charges are you? That has been totally discredited for using flawed data and analysis. i.e. in Denmark they have fund charges, platform charges and advice charges (much like the way the UK is currently heading. Ironically, a stakeholder pension is not compliant with those changes). The article only made reference to the fund charges. Nothing else. And the fund they referred to was the cheapest institutional fund in Denmark. Not a retail fund.

They then went on to compare charges against a hypothetical pension in the UK using rates 50% higher than the current UK benchmark that included charges for funds, platform/provider and advice (the figures were 50% higher than the benchmark but nearly 10 times higher than the cost of similar funds available in the UK). They used 1.5% but the benchmark for charges has been 1% since 2001 but modern UK pensions can get much lower than that. You can get 0.1% in the UK if you compare denmark on a like for like basis.

Some media outlets withdrew the article because of the number of flaws. Others left them in place as facts often dont matter to the media.