Has anyone got a good private pension story.

paul5046

Hi,
I'm looking to start a small(ish) private pension, but all you read is bad news, and horror stories.

My plan is this. (in todays money)

State pension 6,000
ISA income 12,000
Private Pension 3,000

The state pension and my private on will use my tax free allowance, meaning my tax free ISA income will be used to the max.

To get a 3k private pension i need approx 60k pot.

As i say, its all bad news re private pensions. Can anyone make a case for taking one out.

dunstonh

I'm looking to start a small(ish) private pension, but all you read is bad news, and horror stories.

Whenever someone says that, they can rarely point to any horror stories or bad news that relates to their type of pension. It is usually misunderstanding and reading about a different type of pension/product that doesnt apply to them or falling for the headline rather than the content (such as when markets drop, the media usually make a play on £X billion wiped off the value of pensions. yet you never see headlines during the growth periods about how much was added)

As i say, its all bad news re private pensions. Can anyone make a case for taking one out.

Show us these articles then and why you think they are bad.

paul5046

1. My dad was with Equitable life and didn't get the guranteed pension he had hoped.
2. I read about someone who had a pension with London Life and his pot was less than the contributions after 10 years.

As an IFA, i guess you must see many good cases of people saving, then getting a good pension??

dunstonh

1. My dad was with Equitable life and didn't get the guranteed pension he had hoped.

Most people have a lot to thank Eq Life for. Unless you happened to be in the Eq Life WP fund. Eq Life's issues go back decades and thanks to changes made, they cant be repeated. Basically they offered a guaranteed annuity rate that was unsustainable and the liability to meet that guaranteed rate brought the company down. The last pension provider to offer guaranteed annuity rates on their new business products ceased to do so in 1995. The rates were much lower than those offered in the 80s and that was where the damage was.

So, that is very much a historical issue and not a current one.

2. I read about someone who had a pension with London Life and his pot was less than the contributions after 10 years.

nothing to do with pensions. A pension is a container for investments. Investments go up and down in value. Whether he had an ISA, a pension or held the investments unwrapped, the same would have occurred.

The problem with a lot of regular contributions during the 90s into the early 2000s was that there was a long period without any real drop in value. When the drop came, it was bigger than the usual one you see. So, its quite probable his value was lower than it was 10 years earlier. However, that isnt bad news unless he wanted his money out at that point. If he was still paying into it monthly, then his monthly contributions would be buying investments cheaper and over the next 10 years, it would be those cheaper investments that make the most money.

If you only look at the periods when they fall in value and ignore the periods when they go up then you will be disappointed. Sadly, that is what many people do and make the mistake of stopping their regular contribution and dont end up buying any investments at the cheaper prices.

As an IFA, i guess you must see many good cases of people saving, then getting a good pension??

I see people who have planned well and people that havent. One of the most common errors that gets blamed on the pension when its not is those who perhaps started paying £30pm in 1988 but never increased it. In 1988 money terms, £30 was a good contribution. A tank of petrol cost £10 and you could buy a house for £20k. So, the pension projection reflected that cost of living. Problem is they never topped up the pension and now a house costs £100k (like for like) and a tank of petrol costs £60. yet they are still putting £30 into the pension. When the pension matures and they take their income, they will be disappointed. It isnt the fault of the pension. It is their fault for not topping it up to retain real terms value.

Modern pensions are less a product and more a tax wrapper. There have been legacy issues but you just dont see those issues any more. Those issues cleared up a lot of the problems so people starting out today dont have the same worries.

paul5046

Thanks for that. The question now is where do you start. I'd like a pension pot of 60k and have 22 years to retirement. Basic rate taxpayer.

dunstonh

A pension pot of £60k (after tax free cash) would provide an income of just under £2000 a year (indexed). Is that what you are really after?

paul5046

The one i worked out wasn't indexed. Good point, maybe i would need a pot nearer 100k.
Where do you start. I went to my local bank (halifax) they dont do pensions anymore.

I'd like to start with a regular payment, and the ability to add lump sums if i have any spare cash.

Lokolo

You have the choice of setting one up yourself with a pension provider. Or using a local IFA (who will charge, either with a fee or comission) to set one up for you. The latter maybe cheaper even with comission as they can get special discounts.

If you set one up yourself, you will have to make the investment decision.

dunstonh

I went to my local bank (halifax) they dont do pensions anymore.

They do. However, it is a lucky escape as banks are poor are things like this (as well as being expensive).

atush

Are your ISAs just cash ISAs? Or do you have equity ISAs too?

If you have both, and you are comfortable inchoosing your won invest,emts go to an online platform and open a pension.

But who is your employer? DO they have a pesnion plan, if so join that as most usually they put in extra money for you. If they don't in the next few years they will have to by law.

lamb1102

dunstonh wrote: »

Most people have a lot to thank Eq Life for. Unless you happened to be in the Eq Life WP fund. Eq Life's issues go back decades and thanks to changes made, they cant be repeated. Basically they offered a guaranteed annuity rate that was unsustainable and the liability to meet that guaranteed rate brought the company down. The last pension provider to offer guaranteed annuity rates on their new business products ceased to do so in 1995. The rates were much lower than those offered in the 80s and that was where the damage was.

So, that is very much a historical issue and not a current one.



nothing to do with pensions. A pension is a container for investments. Investments go up and down in value. Whether he had an ISA, a pension or held the investments unwrapped, the same would have occurred.

The problem with a lot of regular contributions during the 90s into the early 2000s was that there was a long period without any real drop in value. When the drop came, it was bigger than the usual one you see. So, its quite probable his value was lower than it was 10 years earlier. However, that isnt bad news unless he wanted his money out at that point. If he was still paying into it monthly, then his monthly contributions would be buying investments cheaper and over the next 10 years, it would be those cheaper investments that make the most money.

If you only look at the periods when they fall in value and ignore the periods when they go up then you will be disappointed. Sadly, that is what many people do and make the mistake of stopping their regular contribution and dont end up buying any investments at the cheaper prices.



I see people who have planned well and people that havent. One of the most common errors that gets blamed on the pension when its not is those who perhaps started paying £30pm in 1988 but never increased it. In 1988 money terms, £30 was a good contribution. A tank of petrol cost £10 and you could buy a house for £20k. So, the pension projection reflected that cost of living. Problem is they never topped up the pension and now a house costs £100k (like for like) and a tank of petrol costs £60. yet they are still putting £30 into the pension. When the pension matures and they take their income, they will be disappointed. It isnt the fault of the pension. It is their fault for not topping it up to retain real terms value.

Modern pensions are less a product and more a tax wrapper. There have been legacy issues but you just dont see those issues any more. Those issues cleared up a lot of the problems so people starting out today dont have the same worries.

Good post.
Most youngsters today need this explaining to them, would be good education.