Disillusioned, are pensions still worth it?

Just_landed

tony

Not wanting to getting into a heavy debate but I will say this from the REAL world. I too had a number of Peps / ISA's funds with Scottish Widows, they were going no where so cashed them in after TEN years evens.
I have cash ISA's long term paying 4.6 & 4.7 %.
If I was you I would continue paying into a pension to get the higher rate Tax relief, stop paying into the cash ISA's for the time being, you have a pot of cash if you need it and start paying off the mortgage. Then when what you owe is at a reasonable level (closer to retiring) take up paying into them again, no Tax coming out. O my Pension pot grew over 23 years about 3%.
Make what you want out of what happens in the real world !

:cool:

tony4147

Just_landed wrote: »

tony

Not wanting to getting into a heavy debate but I will say this from the REAL world. I too had a number of Peps / ISA's funds with Scottish Widows, they were going no where so cashed them in after TEN years evens.
I have cash ISA's long term paying 4.6 & 4.7 %.
If I was you I would continue paying into a pension to get the higher rate Tax relief, stop paying into the cash ISA's for the time being, you have a pot of cash if you need it and start paying off the mortgage. Then when what you owe is at a reasonable level (closer to retiring) take up paying into them again, no Tax coming out. O my Pension pot grew over 23 years about 3%.
Make what you want out of what happens in the real world !

:cool:

That sounds very reasonable, thanks.

nicknameless

Go easy people.

I read the OP earlier on and thought I know what's coming here - and lo and behold it's panned out exactly that way.

Tony - the best advice in this thread is to try to educate yourself about the different options for YOUR money and then make decisions based on that. If you don't feel happy with that, or don't have the time then you are left with the option of status quo (both in terms of your pensions / savings etc. and your sense of disillusionment with products and advice on offer) or find yourself an IFA who you are comfortable with. Even if it's the latter though, without a little bit of additional knowledge about the respective options, pros and cons, and how they might sit with your personal circumstances and preferences, any prospect of making an informed decision with an advisor is probably seriously hampered.

I say this as less than 12 months ago I had absolutely no clue about financial matters, pensions, investments etc. I had an idea of what myself and my partner wanted, I could tell you my bank balance, and that I had an occupational pension and mortgage, but beyond that little else. I've spent a period of time trying to educate myself, basic budgeting, weighing up whether to invest in equities, pursue conventional 'savings', enhanve pension provision etc. I now at least have a plan - have started investing, have a strategy for that, have started an additional SIPP, have a good idea of where we want to get to, when and what we hypothetically need to achieve to get there. Still learning, still investigating, but starting to take control of things. Haven't used an IFA as I'm reasonably happy to make my own way, and want to keep those costs down, and my investment / pension strategy is relatively straightforward. Haven't ruled that out as an option in the future though, if I think there's something beyond my ability to research and decision make.

Don't make a hasty decision. Do some research - DIY investments strategies (passive / active), pension options (e.g. SIPPs) - see where your preferences lie, what you're happy with and then take some action.

Personally with my current state of knowledge I'd be doing something with a substantial proportion of that 50k other than cash. I've much less than that in cash and i'm reducing it to put it in investments / pension. I don't want inflation chopping away at it and am happy with the investment risk that might entail vs the guarantee of stagnation or loss that cash savings probably represent. I'd be making a decision about that mortgage vs further savings / investments, probably after making the most of pension tax relief, if you can convince yourself of its value. I'm happy to reflect my overall passive investment strategy in a DIY SIPP that I'm just starting to build for example.

So peeps - perhaps less of the 'OMG you know nothing / shortfall risk / inflation risk' MSE mantra - and more pointers as to where to educate oneself?

Tony - this forum is great. Read, absorb, look at other people's circumstances and decisions. BUT not the only thing to base decisions on, or educate yourself with.

Perennial recommendation here - but if you're inclined to learn about investing books such as Tim Hale's Smarter Investing will let you broaden your horizon. Loads of useful stuff on the net about pension pros and cons and options. I'm sure others will give other pointers for you, if that's something you want to pursue.

Good luck with it.

Rymo_2

Hi Tony4147,

I have found myself asking the same questions. I pay 15% of my salary via salary sacrifice into a DC pension ( in my case 10% of this is employer contribution, so a no brainer).

I don't like the idea of having too much in a pension as the lack of control is off putting.

I have decided to continue my contributions to my employers scheme to max their contribution then no extra.

I am now saving in cash ISA's getting 3%, maxing out my contributions every year, my wife as well. I have done a simple spreadsheet for myself and playing with the figures if we can save £150,000 by retirement we can draw £6600 per year increasing at 2.5% per year and this will last us 25 years as long as we can get 3% interest per year ,ending up paying £11,938 per year.

If we die before 25 years at least the remainder goes to our estate, we could take less initially and it would last a lot longer (obviously!).

I can let you have a copy of my spreadsheet if you want it is certainly thought provoking!

Saving cash for retirement is always much maligned but to me it adds an element of certainty and of control over ones own financial resources.

Just a note, my dad is 81 has a small works pension of £180 per month and doesn't spend his full weekly State pension!

middlepuss

I've scanned through the replies and don't think anyone has said this yet...

On how much of your annual income do you actually pay 40% tax? If for example it was £10,000 a year, you could put £10,00 (gross) a year into a SIPP and get 40% tax relief. The £8,000 (net) you need to put into the SIPP can come from anywhere - out of a savings account for example. If you will be a basic rate taxpayer after you retire a SIPP is a good idea.

ISAs are great, and especially so if you will still be a higher rate taxpayer in retirement. And the way they are lowering the 40% threshold you never know. Personal view: cash ISAs not a good idea for long-term savings! Personally I'd have much of my ISA money in a boring old All Share Index Tracker unit trust.

And investing a couple of hundred(?) quid in a session with an IFA might not be such a bad idea. Specially e.g. if you don't understand why you need to put £8000 into a SIPP to get £10,000 into a SIPP.

dunstonh

I don't like the idea of having too much in a pension as the lack of control is off putting.

Although that isnt as bad as it used to be as modern pensions give you virtually the same investment options as ISA/unwrapped.

If we die before 25 years at least the remainder goes to our estate, we could take less initially and it would last a lot longer (obviously!).

Although the pension is outside of the estate which can be useful. Plus, with 40% tax relief on contribution (for the OP) and NI relief due to salary sacrifice, nearly half the money in the fund is due to tax breaks. Add in the employer contribution and it gets even better.

Thrugelmir

tony4147 wrote: »

I'm 50 next year, and at the moment I have a total pension pot of £105000,

So with 10 years further saving you should accumulate a good pot.

Compound interest is the key. As investment income is reinvested.

Just_landed

Thrugelmir wrote: »

So with 10 years further saving you should accumulate a good pot.

Compound interest is the key. As investment income is reinvested.

Or after the next stock market crash could be worth less than you have paid in. Been there done that !

grey_gym_sock

Just_landed wrote: »

Or after the next stock market crash could be worth less than you have paid in. Been there done that !

well, with 10 years to go and a decent income, there's scope to add a large amount to the existing pot.

so if the market crashes now, you can keep piling contributions in, to benefit from the recovery.

nearer the time to draw the pension, there might not be time to wait for the recovery, and there'd be less new money to add, so a crash would be more of a problem. which is a reason to move gradually to less risky assets over (say) the last 5 years.

i don't mean to pretend there aren't real risks. stock markets can be quite scary! but there are sensible strategies to manage the risk.

gadgetmind

Just_landed wrote: »

Or after the next stock market crash could be worth less than you have paid in. Been there done that !

Me too, and I responded by increasing my contributions and tweaking my asset allocations. Come another market cycle, everything bounces back waaay stronger than before.

If you need a certain amount on a certain date, then cash and bonds are pretty much the only option. If you're after the best long term gains, then having too large a cash allocation is like trying to run in shackles.