ISAs v Pensions: The Official Retirement Debate

wensleydale

Hi all,

Been reading this thread with interest, as I'm currently looking at taking out a stakeholder pension with the thinking that a lump sum will pay of what remains of my mortgage when I retire.

I'm 32, in a final salary pension at work, fully subscribe to cash isas each year.

The appeal of the stakeholder pension rather than overpaying my mortgage are the tax benefits (currently a higher rate taxpayer).
I'd look at medium to high risk funds initially and then move to less risk over time.

Am I being to simplistic or missing something?
Any thoughts appreciated.

dunstonh

Am I being to simplistic or missing something?
Any thoughts appreciated.

Not really. Although a personal pension may be better if you plan to be more active on the fund choice. Plus, a PPP could be cheaper than an SHP depending on your contriubtion level.

You also need to consider the impact on the income on your age allowance in todays terms. So, whilst getting a higher rate relief now, you need to make sure that it wont create a higher tax liability in retirement (where using your spouse/partner for the pension may be more tax efficient).

wensleydale

dunstonh wrote: »

Not really. Although a personal pension may be better if you plan to be more active on the fund choice. Plus, a PPP could be cheaper than an SHP depending on your contriubtion level.

You also need to consider the impact on the income on your age allowance in todays terms. So, whilst getting a higher rate relief now, you need to make sure that it wont create a higher tax liability in retirement (where using your spouse/partner for the pension may be more tax efficient).

Thanks.
I chose stakeholder because of the simplicity and liked the Aviva range of funds through Cavendish.

The tax liability on retirement wasnt something that I had given much thought to, but given that I am likely to be taking a lump sum from one or both pension funds I imagine this will keep it relatively low.

Using my wife is not likely to be helpful I wouldnt have thought as she earns more than me. She does have a non-contributory Final Salary pension through her employer that allows AVCs whereas mine doesnt.
Any benefit into using that rather than me setting up a SHP myself?

Dave1537

Hi,
I have a pension with Standard Life through my emloyer, to which they contribute x% of my salary regardless of whether I contribute anything/how much I contribute.

The annual charge from the pension fund is 0.4% as a result of a negotiated discount.

I am also in a salary sacrifice/pension exchange scheme at work which provides an additional small benefit.


I have £y of my salary that I will put into my pension each month.

What I am wondering is whether to invest in the Standard Life pension (on the basis of the low charges) or in a different one. I appreciate the answer is probably "see an IFA", but what I think I am looking for here please is views on whether the situation is ambiguous enough to warrant me seeing an IFA or whether there is a simple answer. I imagine 0.4% charges are quite low in terms of the rest of the market?

Finally - if I saw an IFA and paid on a fee basis rather than commission (which I assume is preferable?), can someone give me an idea of what I should expect to be paying simply to advise on pension (as opposed to other finances)?
Would it be normal to be able to find a fixed feee for that as oposed to hourly rate?

I'm in the South East/London.

Thanks

john_kane_2

I've read through the last few pages, is there a general consensus?

Say I want to save £10k a year (am aged 26) till I retire, should I put it in my ISA?

I don't like the thought of not being able to touch my money till I'm at least 55 given you never know what may happen.

I'm financially sensible enough I hope not to ever touch it unless for emergencies.

Many thanks for your thoughts,

Chris

dunstonh

Say I want to save £10k a year (am aged 26) till I retire, should I put it in my ISA?

If its the best option for you then yes. If it is not then no.

I don't like the thought of not being able to touch my money till I'm at least 55 given you never know what may happen.

Which is a negative of pensions but then they pay a higher income in retirement than an ISA, which is the point of a pension.

For most people, doing both will usually end up being the optimal way.

EternallyGrateful

john_kane wrote: »

Say I want to save £10k a year (am aged 26) till I retire, should I put it in my ISA?

I don't like the thought of not being able to touch my money till I'm at least 55 given you never know what may happen.

Chris

Let's pretend that the markets went flat and didn't move for the next 30 years but you still decided to save £10k a year.

If you put it into ISA's you would have £300k. If you put it into a pension fund you would have £375k. The difference being tax and equivilent to 25% simple interest on the sum invested.

We could all be dead tomorrow of course and the savings we had will be much appreciated by our relatives! The chances are though you will live well beyond 55. I remember as a 26 year old looking ahead and thinking "Well, when I'm that old this will be different and that will be different" but now I'm there it's not. Nothing has hardly changed, especially my attitude to life, my hopes and my expectations.

As a 57 year old I have now got about £50k in ISA's (my 'emergency' money) and a nice pension fund that, under current legislation, is very flexible in how I choose to use it.

Personally, if I had £10k a year to invest I would but 2500 into cash ISA's, 2500 into stocks and shares ISA's and 5000 into a pension fund. At any point if you have an emergency then you have the ISA money to deal with it. In addition you can take a break from investing you surplus funds and use that for the emergency.

It's worth remember though that you can invest up to 100% of your salary into your pension fund - remembering there is an upper limit - so you can 'catch up' at some point.

That is - say you earned £50k pa and invested £10k pa into ISA's. If after 10 years your investment strategy changed you can invest up to £50k into your pension fund and suspend your ISA investment for a spell.

Variety is the spice of life I guess!

charleyhellfire

Hi all me again,

Can a protected rights pension be placed into a normal GPP with the same pension company when it is closed next april by gov't legislation?

Cheers in advance.

dunstonh

Can a protected rights pension be placed into a normal GPP with the same pension company when it is closed next april by gov't legislation?

It can now and it can next year. GPPPs have no restriction on protected rights. Although they wont take on board any GMP that may be associated.

charleyhellfire

Thanks.

:beer: