Pensions vs Savings

krazyk

Crossing 2 topics here but is a pension still better than any savings account in the long term?

My pension has seen a investment rate of only 0.5%, so obviously this is far lower than the savings accounts of today.

I have not been able to pay into my pension or any savings account for years but are trying to free up some money each month to put away somewheree. I feel discontented with pensions nowadays. Is there a savings account that would compete with a pension (say one that you put your money away for a long period)?

K

deemy2004

A cash ISA gives you at LEAST 5% compound per year. Thats SAFE - NO RISK. And the ALL TAX FREE.

The pension funds seem to make their rules up and the government willy nilly to revalue the fund every so often... LOWER ! the stock market is up yes, but ITS a GAMBLE !
You have to realise that investing in the stock market is tantamount to gambling, you could win, but then again as you have experienced could lose, as 0.5% return is nothing ?

5% compound over 10 years is 63% - safe with no risk attached.

So if you have not already guessed, I lean towards savings .... Though do get your employer to contribute into a pension fund for you, just don't throw your own money into it.

Don't be blinded by the 22% cash back into the fund by the tax man.... They government is not daft, they want you to throw your own money away into a pension fund, because
a. They will tax you on the other end when they force you into an annuity.
b. They would have paid you the money anyway in the form of the minimum income guarantee or whatever they call it these days.

krazyk

I wish I had an employer to contribut but I'm self-employed, seems very limiting being so too - hard to get loans, mortgages...

K

dunstonh

My pension has seen a investment rate of only 0.5%, so obviously this is far lower than the savings accounts of today.

As per your other thread, your pension hasn't given you 0.5%. Your investment fund has. If you are not happy with the performance of the investment fund or do not understand how it works, then change it to something you do feel comfortable with. However, don't blame the wrapper when it is the fund inside that you are not happy with.

Is there a savings account that would compete with a pension (say one that you put your money away for a long period)?

No. Regardless of what Deemy says. At the end of the day, you can put a deposit based account into a SIPP and get deposit rates inside a pension wrapper and gain the tax relief.

A cash ISA gives you at LEAST 5% compound per year. Thats SAFE - NO RISK. And the ALL TAX FREE.

It does at the moment but interest rates cycle through highs and lows and currently hitting the top of the cycle and expected to go down over the med to long term.

My pension has seen a investment rate of only 0.5%, so obviously this is far lower than the savings accounts of today.

My wife's pension grew by over 13% in the last 12 months and hasnt failed to grow by less than 10% for many many years. Find that in a savings account.

Don't be blinded by the 22% cash back into the fund by the tax man....

...after all, Deemy says that a cash isa would give 63% compound after 10 years. However, he assumes the same rate over that 10 years. A pension with 22% (0r 40% with higher rate tax payer) gets a third of that in 24 hours. Then if i was to foolishly assume the same rate of return over 10 years, like Deemy, then my wife would be looking in excess of 150% with no stockmarket risk.

What you have to note is that a pension is a savings product. It has pros and cons like any savings product. The biggest advantage is tax relief. It can also reduce NI contributions for some and increase working/childrens tax credits for others. You have thousands of investment areas to choose from. Indeed, with SIPPs and the incoming new rules, you can have virtually anything invested inside it, including residential property, classic cars, crate of wine, art....

The negative of a pension is the way you currently have to take the maturity proceeds. 25% tax free lump sum and the rest purchasing an annuity. Annuity rates have been falling although it is possible that may be coming to end with the over payments of the 80s working they way out of the system and the introduction of new long term gilts.

krazyk

Many thanks for the info.

What is a SIPP?

K

deemy2004

Self Invested Personal Pension.

http://www.sippdeal.co.uk/

krazyk

Thanks for the link, from reading the quick article on MSN, it appears you need a lot of cash to investment in a SIPP:

http://money.msn.co.uk/Planning/pensions/Guides/Retirementplanning/sipps/default.asp

K

Paul_Varjak

dunstonh wrote:

My wife's pension grew by over 13% in the last 12 months and hasnt failed to grow by less than 10% for many many years. Find that in a savings account.

Is your wife invested in a Commerical Property fund?

deemy2004

krazyk wrote:

Thanks for the link, from reading the quick article on MSN, it appears you need a lot of cash to investment in a SIPP:

http://money.msn.co.uk/Planning/pensions/Guides/Retirementplanning/sipps/default.asp

K

Why ?

the annual charge is £17 for the pensions projection. Which even for a small pension fund of say £5k is not much % wise.

cheerfulcat

krazyk wrote:

Thanks for the link, from reading the quick article on MSN, it appears you need a lot of cash to investment in a SIPP:

http://money.msn.co.uk/Planning/pensions/Guides/Retirementplanning/sipps/default.asp

K

Hello, krazyk,

That article is a load of tosh. I have a SIPP with Hargreaves Lansdown; they charge 0.5% if you don't have commission-paying funds in the SIPP, otherwise they charge nothing.

http://www.hargreaveslansdown.co.uk/sipp/sipp_fees.asp

Other discount brokers have similar fees. The main advantages of a pension wrapper are, firstly, that you can compound your returns free of capital gains tax and secondly, that you can take 25% of your fund tax free at retirement. I wouldn't worry too much about the requirement to take an annuity, as it seems almost certain that that requirement will be done away with on A-day ( when pension rules change).

There is no savings account which will give you returns anything like the stock market. Your fund has done very badly - can you change it? As to where you put your money now; you could open a SIPP and invest in an index tracker or, if you really don't want stock market exposure, in a money market unit trust, which is basically a deposit account, the best of which will currently return between 3% and 4.75% ( depends on the fund ). Here are some examples -

http://www.trustnet.co.uk/ut/funds/perf.asp?sort=17&ss=0&txtS=&txtSS=&columns=&page=0&booIMA=0&reg=all&sec=mon&ima=all&unit=all&type=all

The alternative to a pension is an ISA; my only worry with these is that at some point the tax relief could end, as the Chancellor has steadfastly refused to guarantee that they will remain tax-free. And in any case as things stand they will only be around for another five years...

HTH

Cheerfulcat

krazyk

OK, great.

Should I wait for the rules to change next April or dive in now? I should have the option to transfer it. It's is currently invested in GE Life's With Profit Fund. I took it out when I started work with a consultancy company called JRG. They keep me up to date on the pension and are sending me details next week hopefully.

And I lied my growth was not 0.5% it was 0.1% for the year. :-(

K