Pension need to knows Official MSE Guide Discussion

bigadaj

B_Lofthouse wrote: »

I suspect that, like me this week, many others will have found, when receiving their annual pension statement with charges fully disclosed for the first time, they amount to rather more than had been imagined. An annual fee of 0.80% sounds quite small but I have found that in my case this equates to a deduction of about 11.25% of the premium I pay every month. Given the recent poor investment performance of the fund, I may as well be throwing money away. I do feel that the basis of charges and their actual percentages in relation to monthly contributions needs to be made much clearer.

Charges are fairly clear, projections now show reduction in growth due to charges, your contributions are irrelevant if you are being charged a percentage fee based on your fund value as most pensions do.

You can stop contributing, take out another plan, transfer your current plan if you find something that is cheaper with the range of investment options tart you require. This wouldn't be wise if it means missing out on an employer contribution but is an option.

dunstonh

I'm make, 38, income of around £40,000 a year. I would anticipate retiring around 70, and would like an income of around £20,000 a year.

Is that with our without state pension?
Is that household income or just yourself?
Is that net or gross?
What level of investment risk do you like to take?

zhivago

Is it right that an employer can wind up an occupational pension scheme than set up a stakeholder pension plan that does not include any employer contribution?

xylophone

Is it right that an employer can wind up an occupational pension scheme than set up a stakeholder pension plan that does not include any employer contribution?

An occupational pension scheme can be closed/wound up.

However, I imagine that the auto enrolment rules would cut in regarding future pension provision?

https://www.gov.uk/workplace-pensions/joining-a-workplace-pension

riverside_campus

:money:I am now 65 and can draw £50k tax free from my Money Purchase pot and put the rest in drawdown arrangement. Currently the pension charges for fund manager, financial. adviser, etc. etc. total apx. 2.6% Am I missing something? If I leave £50 k in the pot, I lose 2.6%. If I take £50k out and put it in cash ISAS, I earn 1 to 1.5 % tax free. it looks like a no brainer to me or do the Pension guys know yet another way to stop me using your own money?

Malthusian

riverside_campus wrote: »

Am I missing something?

Quite a few things:

Cash ISAs will guarantee you a nil return after taking inflation into account. Investing the money sensibly within the pension will give you a chance of growing your money in real terms.

ISAs are less tax efficient than pensions. If you aren't going to spend the money why take it out?

You can only put £20,000 in an ISA so the rest is going to be even more taxable than the cash ISA.

If the charges total 2.6%pa then somewhere down the line you are paying more than you need to. How does that break down by fund managers, adviser etc?

I could go on but those are the essential points you need to consider further.

dunstonh

If I take £50k out and put it in cash ISAS, I earn 1 to 1.5 % tax free.

Why would you want to take it out of the tax free pension earning more than the cash ISA?

Investments have explicit charges. They are disclosed. Savings have implicit charges. They are not disclosed. However, the charges on savings are actually about the same as the pension.

Putting it another way, after charges on the pension you are probably averaging around 5% p.a. So, would you rather 5% after charges or 1.5% in the Cash ISA?

bigadaj

riverside_campus wrote: »

:money:I am now 65 and can draw £50k tax free from my Money Purchase pot and put the rest in drawdown arrangement. Currently the pension charges for fund manager, financial. adviser, etc. etc. total apx. 2.6% Am I missing something? If I leave £50 k in the pot, I lose 2.6%. If I take £50k out and put it in cash ISAS, I earn 1 to 1.5 % tax free. it looks like a no brainer to me or do the Pension guys know yet another way to stop me using your own money?

Probably quite a lot (missing something that is).


Whilst you might be de risking at your age an equity heavy internationally diversified portfolio would have returned maybe 25-30% last year.


A total fee of 2.6% looks expensive and should be at least 1% lower, however putting this into any cash investment now will almost certainly be losing money in real terms, your choice really.

stoozie1

MSEpensionsguide wrote:

These pensions, sometimes referred to as defined benefit schemes or Career Average Revalued Earnings (CARE) schemes, are largely funded by employers, though staff sometimes have to pay into them. With one, you get a percentage of your final salary before retirement, or when leaving that firm, as an annual income.

What that percentage is depends on how long you worked for that particular firm. There is normally an 'accrual rate' set by your employer as a fraction of your final salary.

Say the rate is 1/60th, you get 1/60th of your final salary as a retirement income for each year you worked for that firm. So if you worked for 30 years, you'd get 30/60ths, or half your final salary with that firm.

Hi MSE,

Could you please have a look at this aspect of the guide highlighted above, as the final statement is not true of a CARE scheme, you get a revaluation of each year, NOT (for example) 30/60ths or half your final salary.

I feel this is misleading.

AnneMoss4

I'm wondering if it's worth getting a pension if you are self-employed and don't earn enough to pay tax?