should i start a pension already, any help would be nice

braken2000

i am 18 and going to uni hopefully, but i am one of the sensible ones and am thinking about the future. Should i start a pension. What kinds are available and how do they work, any help would be nice, thanks

dunstonh

The earlier you start, the easier it is on the pocket. So you are right to look at it at your age.

As a general rule of thumb....

If contributions are less than £100pm, then a stakeholder pension is usually the main option. If over £100, you are then getting into personal pension territory. These are the same as stakeholders but usually with more funds and options and a different way of charging which may be more or less than a stakeholder over the term. There are also SIPPs but which may get mentioned by someone but they are designed for higher contribution levels (ideally £300pm plus or £30-50k already in the fund) and for those that have good investment knowledge.

If your employer has an occupational/works pension, then this should be investigated to see what benefits are available to you. If the employer makes contributions, then its free money and should be taken.

If you have an individual pension, you can pay by a variety of methods but direct debit is the norm. You will pay 78% of the contribution with the Govt making up the extra 22% as an incentive for you to save (the insurance company claims the 22% so you have nothing to do on that front). Your money is then invested in an area or areas that you choose. The areas available are widespread and can include low risk investments right through to high risk investments.

Over the next 40 or so years, you continue to save and build up a fund. When you want to commence the pension income (cannot be earlier than age 55) you can then take 25% of that fund value as a tax free lump and the rest of it purchases and annuity which is what provides you your income in retirement for the rest of your life.

thats a very basis description and I am sure google will provide you with much reading material. If you are going to do it, it is worth doing so ASAP as the stakeholder charge goes up from 1.0% max to 1.5% (for first 10 years) from tomorrow. However, not all providers have got their products updated to launch yet and you can still pick up a 1.0% (or lower) charged pension.

Pottymouth_2

Hi Braken,

If I had my time again - I'd spend a lot more time in the union hitiing on girls that in my room hitting the text books. Get prepared to buy into a pension (or whatever you plan to do to look after yourself in old age - I personnaly invest myself rather than put into a pension) once you graduate... but make sure you have a really good time at University - and let the pension wait till 2008/2009.

Ensure you :
1) Have one morning where you are not sure how you got home - but you are home
2) Try something new every month at least
3) Do not forget your 2ndry school mates
4) Don't totally forget you are at Uni for a degree
5) Look out for sugar sprinkled on your white bedsheets
6) Look out for cress on the carpet after a w/end away
7) Look out for toothpaste in your door lock
8) Look out for boot polish on the phone and in the shower head
9) Lock the door when you go out so no-one can pull it off its hinges and steal it (happened to me)

Etc...

mainly - have a really great time

Potty

EdInvestor

In general I'd have thought most 18 year olds if they have spare cash should be thinking of saving up in an ISA for a deposit to buy a home when they later get a job and can afford a mortgage.

Saving in a pension will lock up the funds, which can't be extracted until they're 50 ( shortly 55). IMHO it would be better to wait until later to start a the pension, when an employer might be willing to help you with some free additional money.

Anya

What would happen if you started a stakeholder pension as you couldn't afford to put in more than £100 per month, but in a few years when you are earning more and you want to increase your contributions, are you still stuck with the stakeholder or can you transfer etc. We are both in our mid 20s and need to start a pension of some sort, neither of our workplaces have employer schemes and we wouldn't be able to invest more than £100 at the moment. Any help would be appreciated! Pensions are so confusing!

EdInvestor

If you have no employer contribution and are not higher rate taxpayers I would not save in the pension tax wrapper.Rather, use the ISA tax wrapper, which has almost the same tax relief advantage but is far more flexible and gives you access generally to much better investment funds.

We_Laugh_Indoors

you are going to uni!

you won't have any money left after beer!!

:beer:

:rolleyes:

Pal

Anya wrote:

What would happen if you started a stakeholder pension as you couldn't afford to put in more than £100 per month, but in a few years when you are earning more and you want to increase your contributions, are you still stuck with the stakeholder or can you transfer etc. We are both in our mid 20s and need to start a pension of some sort, neither of our workplaces have employer schemes and we wouldn't be able to invest more than £100 at the moment. Any help would be appreciated! Pensions are so confusing!

The joy of stakeholders is that they are very flexible and easy to transfer without penalty to other pension arrangements if your circumstances change.

Anya

We currently pay a little each month into a mini cash ISA, would we be better contributing to a stocks and shares ISA or a stakeholder pension?

dunstonh

Anya wrote:

We currently pay a little each month into a mini cash ISA, would we be better contributing to a stocks and shares ISA or a stakeholder pension?

Depends on what you are saving for. A cash ISA is designed for short term savings and has its pros and cons. It isnt really suited for longer term retirement savings.

An Equity ISA and pension invest in a range of areas from low risk to high risk so you can pick investment areas to suit you. However, the pension gets tax relief unlike the ISAs. This is the main advantage but you only get access to 25% of the fund as a lump sum when you retire. The rest of it is used to provide you an income.

Some will say that isnt good value but annuity rates are generally higher than savings rates at age 65 so even with tax, you end up with more.

EdInvestor

We currently pay a little each month into a mini cash ISA, would we be better contributing to a stocks and shares ISA or a stakeholder pension?

#Always better to go for the ISA if you have no company contribution to a pension scheme and are basic rate taxpayers, IMHO.

The tax arrangements with ISAs and pensions are almost the same, looking long term: with the ISA you pay in taxed money but the investment grows tax free, you keep the capital, and it's not taxed when you want to take it out.

With the pension, there is tax relief when you pay in, but you have to give up the capital to pay an income (which is taxed)when you retire,apart from a 25% tax free portion.And you can't get your hands on the money before aged 50 even if you desperately need it.

The ISA also gives you access to a much bigger range of funds than the pension and the charges are cheaper - maybe a flat rate 25 quid a year compared with 1.5% a year now for a cheap pension.

From April next year the pensions rules are changing so that you can put big lump sums into pensions just before you retire and get the tax relief all at once.

It thus seems to make sense to save in more flexible ISAs initially and leave pensions till later, which you couldn't sensibly do before.

What investments did you have in mind for the S&S ISA?