ISAs v Pensions: The Official Retirement Debate

EternallyGrateful

WindfallWinnie wrote: »

I would be interested in the thoughts of people on this forum:

If you were a higher rate tax payer and were in the position of being able to put in a lump sum of £60k in this tax year and £40k next year would you do it?

Take into consideration a private pension pot valued at £175k and that the maximum amount would also be put into ISAs.

Indeed I would

jem16

WindfallWinnie wrote: »

I would be interested in the thoughts of people on this forum:

If you were a higher rate tax payer and were in the position of being able to put in a lump sum of £60k in this tax year and £40k next year would you do it?

I would. However do be aware that you will only get higher rate tax relief on the amount of the lump sum that you pay higher rate tax on. This may or may not be applicable to you.

atush

dmliverpool wrote: »

I'm arguing the principle of saving regularly as cheaply as possible vs a more pragmatic pension system that isn't as straight forward as they first seem.

I think it is very easy to understand that the same investment into both a pension and an ISA would be larger in the pension due to tax relief. So to me it is easy to see this is worth more come retirement.

The tax on the way out doesn't matter so much to me, as you wont be taking it out all at once but spread out over the rest of your lifetime and can also be left to your spouse or dependants if you don't buy an annuity.

jamesd

The pension produces more capital but that's not necessarily translated to more income because of the GAD limit on drawdown. If you need to draw at a higher than GAD rate, say for early retirement, you'll need non-pension money to do it.

Moby

dmliverpool wrote: »

I'm arguing the principle of saving regularly as cheaply as possible vs a more pragmatic pension system that isn't as straight forward as they first seem.

Totally right. The pension industry is in a complete mess and needs an overhaul. Its completely open to the vagaries of Government policy and stockmarket fluctuation. Individuals who work in the financial 'industry':p....or are interested/driven by finance/money can work their way through the chaff and come out the other side laughing. Problem is most of us are not like that and that's the problem!

dunstonh

The pension industry is in a complete mess and needs an overhaul.

Parts of it get a lot of scrutiny but most of it is misunderstood or has too many inaccurate assumptions.

Its completely open to the vagaries of Government policy and stockmarket fluctuation.

You invest in the stockmarket by choice. You dont have to do that with pensions. Although it is pretty obvious why you would have a portion of equity investment in your pension. Governments have played around with pensions too much but they typically do that with all tax wrappers. I think the media does the most damage. It is historically very poor at pension reporting. Mixing pension types up to give the wrong impression, using things that may only affect a few to suggest they affect everyone, headlines not reflecting the article and many people just read the headline and not the article.

Individuals who work in the financial 'industry'....or are interested/driven by finance/money can work their way through the chaff and come out the other side laughing. Problem is most of us are not like that and that's the problem!

It can be as simple as you want it to be or it can be as complicated. The better options can be more complicated but isnt that the case with most things?

Bilbobiggin

nrsql wrote: »

Nope because a pension is taxed as a percentage when you take it out. The more it grows the more you lose in tax.
So put in 1000 add 220 it doubles and you get taxed 440 leaving 2000
ISA put in 1000 doubles get 2000 so works out the same.

There might be a difference due to lower income in retirement so less tax liability though.

Tis' the same until you take out the charges the pension company will take.

This will normaly be

1) A setup charge
2) A percentage of the fund. Bigger the fund more charges.

So at 1% on £1000 charges will be £10, but on £10,000 will be £100 per year and going up and up and up.

At £1000 per year after 10 years you will have paid: £550, and with a fund of £100,000 you will pay £1000 per year and going up.

In my industry I change companys every few years, so I have not been in a company pension for some years, as I find I am not allowed to transfeer the "pot".

I had a company pention some years ago which had a pot of £ 2000.

The letter I got a few weeks ago informs my my pot is now £650 and my pension will be no more that £16 per year. All down to the charges.

No wonder pension companys are so RICH !!!

Mind you the con people, sorry, sales reps are all doing OK.

Bilbobiggin

jem16 wrote: »

Definitely worth it if the employer is also contributing.



You leave it where it is until retirement or transfer it into your new scheme if that is possible and better.

Do NOT leave it where it is.
I could NOT transfer my small £2000 some years ago.
It is now worth £650 and a penstion of no more than £16 per year.
All gone in charges !!

jem16

Bilbobiggin wrote: »

Do NOT leave it where it is.

That could be very bad advice especially if the pension was a final salary pension.

I could NOT transfer my small £2000 some years ago.
It is now worth £650 and a penstion of no more than £16 per year.
All gone in charges !!

Why could you not transfer it? I also doubt that charges alone would have accounted for such a drop. What were you invested in?

Aegis

Bilbobiggin wrote: »

Do NOT leave it where it is.
I could NOT transfer my small £2000 some years ago.
It is now worth £650 and a penstion of no more than £16 per year.
All gone in charges !!

Why couldn't you transfer it? Stakeholder pensions are pretty much designed to receive small contributions and transfers, so I can't see why you would have been unable to transfer. I'm also confused as to what you were invested in to see a drop of nearly 70% - charges can't account for all of that, there must have been some atrociously bad investment decisions made.

The reason I say this is that it's never clear cut as to what to do. A blanket "leave it alone" ignores the possibility of cheaper alternatives, or ones with wider investment choices, while a blanket "move it away" ignores the fact that many occupational pensions have specially negotiated low charges even for deferred members. Every case needs to be assessed on its own merits to determine which course of action is likely to be better.