ISAs v Pensions: The Official Retirement Debate

dunstonh

I am self employed and i took a private pension out with legal and general in 1985

That would probably make it a section 226 retirement annuity contract as personal pensions didnt exist then.

Would i be better off freezing this pension and putting the £130.00 in an isa, the reason i ask if you look at the figures since 2003 my yearly projected pension hardly moves.

We cant answer that as we dont know the terms of your contract. Retirement annuity contracts often have guaranteed annuity rates and/or guaranteed minimum fund values. These can be highly valuable. So, much so that the providers often stop adding bonuses or add very little as there is no point as the bonus is never going meet the guarantees.

Some contracts also only project from the base sum assured plus annual bonuses and not any terminal bonus accrued to date. As the bulk of the return on that type of plan is usually in the terminal bonus, the projections will often not move much. Its a limitation in the method.

Another reason could be that the projection method has changed. You are now seeing projections using different rates and terms to those used years ago. So, that can hide returns that are there but being presented in a different way.

As you can see by the figures im looking at an average of £40.00 a week and im only on £360.00 per year more than i was in 2007.

Thats quite good then when you consider the economic events of the last 3 years.

Please help if you can as i just dont know what to do for the best.

Only way anyone can give you advice is to see a local IFA and ask them to do a pension review.

EternallyGrateful

cagney123 wrote: »

Can somebody please advise,I am self employed and i took a private pension out with legal and general in 1985.I am 53 years old and the pension retiremant year is when i reach 60,i currently pay in £130 per month.I have just been reviewing my statement which reads as follows.

Fund value including bonus £27,188

Projected benefits at selected retirement age,

Lower rate higher rate
at age 60 your fund would be £52,200 £66,500
This could buy you a yearly pension of £2,390 £4,800
tax free cash sum £13,000 £16,600
Reduced yearly pension of £1,790 £3,600
From age 60 your pension in todays prices £1,580

Would i be better off freezing this pension and putting the £130.00 in an isa, the reason i ask if you look at the figures since 2003 my yearly projected pension hardly moves.

2003 £2,030
2004 £2,140
2005 £2,180
2006 £2,070
2007 £2,720
2008 £2,520
2009 £2,200
2010 £2,390

As you can see by the figures im looking at an average of £40.00 a week and im only on £360.00 per year more than i was in 2007.

Please help if you can as i just dont know what to do for the best.

Kind regards...David

I have recently reviewed my financials and discovered that the whole area is a bit of a mine field. There are so many options on pension funds, not just from the investment point of view but also (particularly) in regard to taking benefit/income.

Things to consider are transferring your fund to another (hopefully better performing) provider. You could stay with the same provider but choose different funds. If you think you want more involvement then you have the option of a SIPP. Of course with a pension investment you get the tax advantages that you don't get with ISA's. The best cash ISA's are around 3% at the moment so that would be 6 years or so (taking into account compounding) before you begin to recover the 20% tax advantage of putting the same amount into a pension fund. There are stocks and shares ISA's to achieve a potentially better return, but there are equivilent funds available for pension investments so there's little advantage - especially given your age.

What you choose to do is a very big decision and I would suggest you seek professional help. Ask trusted friends and work acquaintances for recommendations for a good, local IFA and go and have a chat. It won't cost you anything initially and, if you don't like what you hear, speak to another IFA!

cagney123

dunstonh wrote: »

That would probably make it a section 226 retirement annuity contract as personal pensions didnt exist then.



We cant answer that as we dont know the terms of your contract. Retirement annuity contracts often have guaranteed annuity rates and/or guaranteed minimum fund values. These can be highly valuable. So, much so that the providers often stop adding bonuses or add very little as there is no point as the bonus is never going meet the guarantees.

Some contracts also only project from the base sum assured plus annual bonuses and not any terminal bonus accrued to date. As the bulk of the return on that type of plan is usually in the terminal bonus, the projections will often not move much. Its a limitation in the method.

Another reason could be that the projection method has changed. You are now seeing projections using different rates and terms to those used years ago. So, that can hide returns that are there but being presented in a different way.




Thats quite good then when you consider the economic events of the last 3 years.




Only way anyone can give you advice is to see a local IFA and ask them to do a pension review.

Thank you for your swift answer,i actually got the start year wrong
it was 1989 and it is a personal pension scheme,i dont know if this changes anything
Thank you again David

dunstonh

cagney123 wrote: »

Thank you for your swift answer,i actually got the start year wrong
it was 1989 and it is a personal pension scheme,i dont know if this changes anything
Thank you again David

It makes the odds of a guaranteed annuity rate lower but they didnt totally disappear until 1995. So, it may still have one.

You should still get a pension review done. If it turns out a modern plan is better, then you save money. If it turns out that the plan you have does have guarantees etc then you also save money as you keep it running and benefit from it.

A lot of old plans are obsolete by todays standards but you do get some real gems every now and then.

orient_express

i am 63 years of age due to retire in june 2012 i have some savings in an isa in my wifes name, her age is 53 she plans to carry on working in a part time job, i plan to save £500.00 per month until i retire, would it be better to put that money in my wifes existing isa. or to open a new one in my name, which would give me about £9,000, if so would that effect my pension, i appreciate any advice.

jem16

orient_express wrote: »

would it be better to put that money in my wifes existing isa.

That would make the money technically hers.

or to open a new one in my name, which would give me about £9,000, if so would that effect my pension, i appreciate any advice.

It would have no effect on your pension.

nojoe

Sometimes people can't see the wood for the trees. But surely this is a simple choice. Either I save for decades with a firm that makes no guarantee about returns but that will do very nicely from my investment - come what may - or I save into something where I have control - where the money all belongs to me - and where I can have access when I need it. Forget all the complications.
Anyone who puts a penny into a pension fund before they have maxed out their ISAs is barking.

dunstonh

But surely this is a simple choice. Either I save for decades with a firm that makes no guarantee about returns but that will do very nicely from my investment - come what may - or I save into something where I have control

Wrong. You have virtually the same investment choice in an ISA as you do in a pension. The same charges too. The only difference is the maturity process.

or I save into something where I have control - where the money all belongs to me - and where I can have access when I need it. Forget all the complications.

And that option provides a lower income in retirement. Yes you get flexibility. However, you also get lower income. A pension is designed for retirement income. So, if that is your objective, then it still does a better job than the ISA in that respect.

Anyone who puts a penny into a pension fund before they have maxed out their ISAs is barking.

Far too simplistic I'm afraid. In some cases you would be right. In some you would be wrong.

nojoe

I think you are complicating things again.
I can save for decades and have no idea how much income i will have in retirement because that will depend entirely on inflation in the meantime and on the rates available when you take all my cash and hand me back a pittance. Have you seen how much you need to save in order to be just £50 a week better off? Meanwhile the fund managers are laughing all the way to the bank.
Far better to spend the money while I am still able to enjoy it. If I can put some by for a rainy day it will be somewhere where I can have the cash when I want it and can spend as quickly or as slowly as i choose. :beer:

EternallyGrateful

nojoe wrote: »

I think you are complicating things again.
I can save for decades and have no idea how much income i will have in retirement because that will depend entirely on inflation in the meantime and on the rates available when you take all my cash and hand me back a pittance. Have you seen how much you need to save in order to be just £50 a week better off? Meanwhile the fund managers are laughing all the way to the bank.
Far better to spend the money while I am still able to enjoy it. If I can put some by for a rainy day it will be somewhere where I can have the cash when I want it and can spend as quickly or as slowly as i choose. :beer:

I had a liver transplant 4 weeks ago today and have had to claim benefits for the first time in over 40 years since I left school, so I can speak from experience.

God forbid, but should you fall ill, or lose your job, and have to claim a benefit to survive, your ISA savings count as just that - savings - and will preclude you from claiming certain benefits eg Council Tax Benefit and Earnings related Job Seekers Allowance. To the best of my knowlege a pension fund doesn't effect your benefit rights. So, the money you put away for your retirement could have all but disappeared well before you reach 65 or 66 or 67 ............

Apart from that I think you're allowing your very cynical view of the finanical sector to prevent you thinking sensibly.