ISAs v Pensions: The Official Retirement Debate

atush

Why do people all assume if they used all their savings (incl what would have gone into a pension) to start up a business that it won't fail?

you could lose the lot. At least if you had a pension, you would opnly have lost your savings.

888z888

NEWBIE ADVICE . i have not paid into my pension pot fund for 8 years. its held by aviva . 8 years ago it was transfered to them from a previous employer, it totalled £75.000 now (8 years later ) it stands at £79,000 that looks like a very poor return ?? ...VERY POOR...
how can i improve it . i will not be adding to it ever again . were do i move it to ?? obviously i just want the best growth and minimum fees.. (im 51 and planning to cash in at 55 and will not be adding to the pot) thank you.

dunstonh

888z888 wrote: »

NEWBIE ADVICE . i have not paid into my pension pot fund for 8 years. its held by aviva . 8 years ago it was transfered to them from a previous employer, it totalled £75.000 now (8 years later ) it stands at £79,000 that looks like a very poor return ?? ...VERY POOR...
how can i improve it . i will not be adding to it ever again . were do i move it to ?? obviously i just want the best growth and minimum fees.. (im 51 and planning to cash in at 55 and will not be adding to the pot) thank you.

You have told us nothing about the investments. So, we cant tell if it is a poor return or not.

You cannot cash a pension in.

888z888

hi, i dont know how my pension fund is invested by Aviva but i will ask , the growth of the pot, less than 1% a year ie 75000 to 79000 over 8 years is very low? over 8 years i was expecting 3-5 % yearly ? it seems Aviva makes more out of my money than i do... i also intend to take the maximum lump sum allowance at 55 sorry not cash it in. what questions should i ask Aviva as to why the poor return ? thank you.

jamesd

Ask them which fund or funds it is invested in and where you can find past performance figures for those funds. Also ask what the charges are.

If you weren't paying any money in during those 8 years you can see the ups and downs in one common investment, the FTSE All Share Index including dividends (called total return) here. The rightmost column is the one to look at and you'll see that it had these values on 1 November each year:

2012: 3004.52
2011: 2835.84
2010: 2861.61
2009: 2648.43 (2 Nov)
2008: 2133.99 (3 Nov)
2007: 3280.87
2006: 3119.85
2005: 2741.05
2004: 2345.21 (22 Nov)

That's about 3.1% gain a year on average if you were paying nothing in, just started with a lump sum 8 years ago.

If you haven't picked an investment, your money is probably in a type of fund called "balanced managed" that contains a mixture of shares, company bonds and government bonds. So just use the numbers I've given as some very rough guide, because I don't have the generic performance for a balance managed fund handy.

If you were paying in money during most of those years I'm not initially impressed with the value.

dunstonh

i dont know how my pension fund is invested by Aviva but i will ask , the growth of the pot, less than 1% a year ie 75000 to 79000 over 8 years is very low

Can't tell if it is low without knowing the investments you are in to place it in context. Maybe it has a plan with guarantees where the benefit is in the guarantees rather than the return. Maybe its a cash fund. Maybe its a high risk fund that has zig zagged all over the place and is currently down.

over 8 years i was expecting 3-5 % yearly ?

Are the investments you chose capable of that sort of return and low volatility?

Deneb

I have read this entire thread over the last few days with interest, and would appreciate comments on my proposal to open and make lump sum payments into a SIPP, to mitigate my tax liability and maximise my investment options.

I am currently a HR tax payer. My taxable income is in part from a pension already in payment, with the remainder from my current salary. I currently invest in both cash and S&S ISAs up to my annual limits.

For the current tax year, I will have a HR tax liability on about £7K of income. If I understand this correctly, if I make a lump sum personal payment £5,600 of into a SIPP, the provider will reclaim BR relief from HMRC on my behalf resulting in a total investment of £7K on which I can them reclaim a further 20% relief via my tax return. So an investment of £7K into my SIPP has effectively cost me £4,200.

I understand that I can subsequently take up to 25% of the SIPP pot as a tax free lump sum, and as I already have a secure pension income in excess of £20K p.a., I will be eligible for flexible drawdown giving me pretty much complete flexibility on accessing the other 75% of the SIPP pot in due course.

If this is correct, it seems to me that investing in a SIPP up to the limit of my HR tax liability is preferable to investing the same amount in a S&S ISA, as not only will I have the additional tax relief on the way in, but can also avoid the restriction imposed by an annuity or income drawdown on the way out. I will be a BR taxpayer in retirement, BTW, unless the HR threshold is reduced substantially.

Have I understood the situation correctly? Any observations greatly appreciated!

jem16

Deneb wrote: »

Have I understood the situation correctly? Any observations greatly appreciated!

You seem to have understood it perfectly.

atush

I havnt delved into your figures but it seems you have things correct.

You get basic tax relief in your pension so need to put in less than the total you are over HRT. But please do look at any non isa interest you might have as well as this puts you over too.

So look at last years tax form or your statements to see what you have earned outside and add that amt to your pension to keep you under HRT.

Deneb

Thanks both of you. It seems to be the way to go then.

All savings and investments not within tax free wrappers are in my wife's sole name, as she is a BR tax payer. So I will not receive any taxable interest in the current tax year.