ISAs v Pensions: The Official Retirement Debate

Nine_Lives

And my point is proven immediately.

I say pick apart - I mean a member latching onto any little thing said just to try & discredit another member because they haven't had their ridicule fix for that day.

So what happens - you make out I'm picking apart your post & try paint me as the hypocrite. When in actual fact I wasn't picking your post apart at all. I was simply pointing out how some people see things differently to others. If it helps them get their head round it then what's the issue.

Feel free to extract another sentence of mine to flip as you so wish. It seems to be the thing on here. I've been on many many many various forums over the years & I've never come across one that is quite so !!!!!y & petty.

Thankfully there are still people here who's main intention is to help & not ridicule, which is why I still come here.

EternallyGrateful

K_P83 wrote: »

And my point is proven immediately. /QUOTE]

I understand what you mean. I hope that when I post I don't discredit what others have said. I simply try to relate my own experiences and hope they may be helpful to somebody who is trying to make a decision regarding their own futures. Unfortunately there are some who can get quite hot under the collar in their disagreement with an opposing point of view. As soon as I see a post going that way I cease to read it so, at least in my case, it was a waste of time posting.

The "alcoholic poisoning" comment I made above was entirely in jest and would have been accompanied by a certain look had it been made in a normal conversation.

Unfortunately, in a forum such as this things can be interpretted in different ways, but I refuse to insert a "lol" (or similar acronym) to leave it beyond any doubt. After all, this isn't Facebook!

lisyloo

If it helps them get their head round it then what's the issue.

Surely is depends on whether there are any inaccuracies, consequences etc. in the way people see things.
If there are no innacuracies, consequences etc. then it's harmless, but sometimes it can be an issue.

If peopl are spekign in person, we have body language, tone of voice etc. which all contribute the the context of what they are saying.
With written words it's notoriously much much difficult.
I have heard that 70% of our communication is non-verbal, which goes some way to explaining the issue.
We have to take what people say at face value on here.

2old

I know this is stressed on the website but, NEVER take the offer from your Pension company. Although you may have saved for years with them, they will give you a low offer of annuity - even if you ask them to use the Open Market option.

Standard Life gave me an annuity offer and after I requested an Open Market offer, gave me a higher offer by a rival company. Then raised theri original offer "because I was a loyal customer". This "enhanced" offer was still below the rival company offer.

When I checked with several on-line brokers they all offer much better annuities from other pension companies AND also much better offers fron Standard Life themselves.

It seems Std Life offer low annuities to people who invest with them in order to be able to offer better deals to brokers to bring in business from other companies - I assume all the major pension companies are doing similar rip-offs.

Thus anyone who has accepted an annuity offer from Std Life , even "enhanced" has been given a deliberately low offer and not what the real Std Life annuity rate is - ie the rate the offer to brokers.

Seeing how many Std Life clients will have accepted their offers (even enhanced) and will not have had Internet access to search on-line brokers (who seem to be anyone with a website). Is this a case of mis-selling as it is not made clear that their own offer can be increased just by not getting it directly from them?

How can the goverment insist on the pension fumd savings being used to purchase an annuity when the pension companies are deliberately giving low offers in order to boost broker offers.

The offer from a pension Co should be their top offer - If another Co can beat it OK, but not rip-off their own clients with false low pitched offers.

Why is MoneySavingExpert not investigating this?

jamesd

MSE has a PDF or printed guide to annuities that explains this. It's also unnecessary to buy an annuity these days. You can simply leave the money invested, but in different investments, and take an income from them. As an added bonus the pension is 100% inheritable by a spouse without reducing the initial income. And on death of both it's still inheritable, but this time with a tax charge, still better than losing it all in an annuity.

Someone who is going to buy an annuity should visit unbiased.co.uk and find an IFA. At present it'll be done on commission basis and should almost always produce a better deal than from the original pension company. If there's anything that affects health, from smoking to being overweight to diabetes and heart trouble you can also get an enhanced or ill health annuity that pays still more, but many of those providers are only available via an IFA.

The FSA has been investigating changes to the way that annuity offers are presented by investment companies to try to increase the number of people who use the open market option and who obtain independent advice.

Thesmiths

Is it possible to determine which is best? With my very limited knowledge I would expect it largely depends on an individuals circumstances and how their life and career pan out over many years.

Pensions offer tax benifits for workers and an excellent long term investment

I really like ISAs due to their flexibility and tax free income.

My view is start a pension as soon as you possibly can and then follow it with an S&S ISA even if its only small. Increase the ISA if and when you can and try to avoid dipping into it.

EternallyGrateful

Thesmiths wrote: »

Is it possible to determine which is best? With my very limited knowledge I would expect it largely depends on an individuals circumstances and how their life and career pan out over many years.

Pensions offer tax benifits for workers and an excellent long term investment

I really like ISAs due to their flexibility and tax free income.

My view is start a pension as soon as you possibly can and then follow it with an S&S ISA even if its only small. Increase the ISA if and when you can and try to avoid dipping into it.

That sounds very reasonable to me. The only other thing I would add is Cash ISA's - just a little something for that rainy day.

dmliverpool

dunstonh wrote: »

Most people you are speaking to then are clueless.

The pension hasnt lost money. Where you invest loses money and investments do go down as well as up all the time. You dont stop paying when it goes down. Indeed, that is the time you want to be paying as when it goes back up again, all those units that you bought during the low prices are the ones that will make the most money.



I would hope so. That wouldnt make them very nice human beings if they didnt.



Correct. Changing the tax wrapper makes no difference. The same investment held in different tax wrappers will give you an identical return. The difference is the tax and maturity process.



You are 29. So, chances are that means you will have to pay around 3 times per month more (equivalent) than you would have to pay into a pension or S&S ISA as you are replacing investment risk with shortfall risk and inflation risk. Whereas investment risk means you may not get a much as you want in retirement, a cash ISA guarantees you wont get as much as you want in retirement.

If you take the ING Direct savings account as benchmark, this was launched in 2003 and would see your savings 30.4% higher now. If you used a bog standard average balanced managed fund and got sector average performance, it would be 75.22% higher (ignoring tax relief)

Lets use the same info but turn it into monthly payments. At £200pm from 30th May 2003, ING would be £22464. The pension (assuming gross contribution of £200) would be £25,620.

What tends to happen is that people that dont understand investments and make no effort to learn only focus on the negatives and never the positives. You have to average out the ups and downs and not just look at one. In the short term there WILL be periods when its lower. However, this is why you are always told that investing is for the long term and why you shouldnt invest if its short term.

There have been 8 financial crisis since 1956 (or 9 if you class the current eurozone crisis as a new one or 8 if you class it as continuation of 2008). Thats an average of every 7 years. Stockmarkets tend to suffer a crash at least once in every 5-7 year period. An economic cycle typically takes close to 10 years. So, unless you are invested for a whole economic cycle, you are never really going to see a realistic average on the returns. You may get lucky and only see the growth years or you may be unlucky and see the bad first. You never know what is coming and in what order. However, you dont worry about it. You know there will be bad years. So, why should it worry you when they come? It can be uncomfortable but it does get easier with each crash you go through.

I agree with the isa theory as well as splitting ones assets. There is so much that could go wrong with a pension and if a pension was a bet the odds of gaining a profit for me in say 30 years would be so long I'd rather take my chances on a lottery win.

The wrapping of pensions is so complicated they could have only been concieved by a banker, the same bankers who when you strip away all the jargon place your money in a fruit machine isn't a wise investment. Yeah there will be boom years but in the long run pensions are meaningless.

The true way to do it is to save your money, yes its taxed but it is also less volitile. It would take an rbs style balance sheet to disrupt an isa. Of course if your clever you wouldn't trust bankers and pension guys as they are <ankers piggy backing their pension onto yours.

If I saved the same amount now until I retire I will have a far more flexible package to play with and a more comfortable life. That combined with a realistic life expectancy and I would have won. Those with a pension will rely on living to 100 in england to make such optimism a reality.

Can I mention that there has been many stock market crashes both in recent times and in the past that effectively right off the hope of drawing a pension that you won't live to see.

http://en.m.wikipedia.org/wiki/List_of_stock_market_crashes

This is only thickens when you think of the economic policies we are faced with in addition to failing economy which is about to be declared to be in recession, although many conservatives will show you a graph from a guy they've spun that will tell you different. Again they rely on the delays and hold ups our financial system can provide that hid the real fact that they (bankers) will or more likely have spent and partied on your pension.

Sorry to rant its just that I must admit that I don't have the financial care for a wrapped bing bang or do dar, I just want a nice sum when I retire and something I can have older age fun with at my will, not a pension companies.
:cool:

I see the financial side of tax savings etc, but there is another even more complex side to pensions and that is that they do rely on the economy to boom and the government to do its job by making us all happy and able to work. This is where we aren't taxed as much and all pull together be it their job or ours as a counrty, only then would such a collective system work and we would all retire on a pension happily. Since there are business cycles there will be at least 4-5 major crashes and recessions in my working life before I retire. So a mixed way of saving is surely to have a mix of assets. So financial sense and knowledge on pensions is reliant on a functioning financial system, when will that happen? or more poinently, when do all those people who have heavily gambled, literally on a pension make more intellegent use of their money and spread it out, instead of praying, hoping and wishing things will pick up?

http://www.staffingindustry.com/eng/Research-Publications/Daily-News/UK-GDP-and-unemployment-forecasts-revised-downwards-by-CIPD

Happy New Year - barhumbug

Thrugelmir

dmliverpool wrote: »

If I saved the same amount now until I retire I will have a far more flexible package to play with and a more comfortable life.

So how are you proposing to make a return on your savings?

jamesd

So many errors of fact there it's hard to know where to start, but I'll try.

ISAs: ISAs and pensions can hold the same investments. Both can hold cash in savins accounts if that's what you want. But the pension gets more in the savings accounts because of the tax relief and you get 25% out tax free, plus get to use your personal income tax allowance for part of the rest. When you wrote ISA you seemed to be meaning cash ISA, not just ISA. But cash investments aren't generally going to even keep up with inflation, so they are a poor long term option.

Inheritance: A pension pot is 100% inheritable before you take any income or capital out of it. Once you've done that there's a 55% tax charge unless it's going to a spouse or dependent. It's only not inheritable if you make a free choice to buy an annuity, something that hasn't been necessary for five years now. Or not inheritable if its a workplace defined benefit (final salary or similar) scheme.

The markets go up and down but the long term trend is up. It's good to be aware of crashes but you also need to notice the pattern that the markets are increasing in value over time. The crashes are a sale, a good time to be buying cheap.

There are reasons to use ISAs or pensions but those reasons aren't generally the ones you've given.