Another new pension?

Thesmiths

I have moved jobs and have frozen my final salary pension which will give me a lump sum and 25/80ths of my salary at 60. It cannot move the pension plan for pay more into it.

As discussed elsewhere, as a couple we both intend to leave our careers at 50 which gives us both 8 more years of investment until then. We are both currently maxing out on investment ISAs and have been investing in BTL property.

My new company offers a contributory pension scheme up to 5% from them.

I wasn't going to pay into this scheme due to the short duration (max 8 years) and the low annual annity it would offer. Instead I intended to invest further in property and ISA allowance increases.

However I have just thought it may be possible to pay in to the new pension and take all out as a lump sum in the future and still benefit from the company contributions and tax relief.

My question is would this be possible without affecting my original pension scheme?
Any further thoughts around this idea?

Thank you for your help

dunstonh

My new company offers a contributory pension scheme up to 5% from them.

Not a bad amount of free money.

I wasn't going to pay into this scheme due to the short duration (max 8 years) and the low annual annity it would offer. Instead I intended to invest further in property and ISA allowance increases.

That wouldnt be a a good idea. Neither the ISA or property would come close to the pension.

However I have just thought it may be possible to pay in to the new pension and take all out as a lump sum in the future and still benefit from the company contributions and tax relief.

its not possible.

Any further thoughts around this idea?

You should join the scheme. You would be daft not to. Your ISA and property will not give you as much in benefit or anywhere close. 8 years of free money thrown away would be silly.

Thesmiths

Thanks as always your thoughts are very helpful.

I agree totally that it's free money and also offers me tax relief at 40%.

I guess my main concern was mainly related to the lack of control I have over an annuity and their ever decreasing values that are publicised.

atush

lets see, 5% of your salary x8= 40% of your salary in Free money. You would truly be foolish not to take it, and add in tax relief at 40% and Stupid comes to mind ;-)

As far as annuities, you no longer have to buy one. You can leave the pension invested and use Drawdown instead. You do have control in that you can invest in any of the funds available to you and can pick and choose. You also have control on when to take it (but age 55 will be the Min)- retiring earlier than age 55 would IMHO be a mistake. You would be likely to be bored as you will be too fit and young to do nothing.

After you leave your company, you can even transfer your pension into a Sipp, which you can use to buy Commercial property (not residential) but as you are already very invested in property this could be too many eggs in one basket approach so I would not recommend it.

So, join your pension Monday.

dunstonh

I guess my main concern was mainly related to the lack of control I have over an annuity and their ever decreasing values that are publicised.

Dont buy an annuity then. Use the unsecured pension option. Annuity it just one of the options. Also, pensions have virtually the same investment options as an ISA and cost the same. So, lets compare.

Lets say your 5% is £300pm. You get 40% relief on that so it only costs you £180. The company match the 5% giving you a total contribution of £600. That is £600 going into the pension at a cost of £180. If you pay into an ISA instead, you get just £180 for your £180 contribution.

Lets assume 5% growth p.a. over 8 years for both ISA and pension based on your 5% contribution being £300pm.

ISA after 96 payments over 8 years would be £21,448
Pension after 96 payments over 8 years would be £71,492

The pension allows you to take 25% tax free cash. 25% of £71,492 is £17,873. That is not far off what you would have in the ISA.

If you took a 5% income from both (and for simplicity, I am assuming 5% from the tax free cash). ISA would be £1072 a year and pension would be £3574 a year.

The pension is an absolute no brainer. Forget media rubbish that is spouted. Treat the pension as a tax wrapper and not a product. Look at the benefits that apply to you and not media articles covering small areas that dont have to apply to you.

Thesmiths

Thanks both very much, your help is appreciated.

As you say the free money is a no brainer. I will indeed be now investing in the company scheme now I understand I have more options in how the money is used.

We don't intend to retire at 50 but will be changing jobs that are likely to compleetly stop the investments we have been able to make, Retirement will be 55-60.