should i pay into a pension now with auto enrolment coming in?

FatherAbraham

[QUOTE=grey_gym_sock;59826697it's_misleading_to_say:_it_is 100 because there's 100 inside the pension fund ... when you're never actually going to get all of it into your dirty hands.[/QUOTE]

Given that few people look like they're going to be generating enough income in retirement from their savings, the luxury of using capital for something other than income-generation is largely irrelevant.

Pension funds are for generating retirement income: complaining that they don't permit access to capital is like complaining that a kettle doesn't make toast.

grey_gym_sock wrote: »

it's like saying: i have an income of X (before tax), so i can spend all that money! ... in fact, it's exactly like that, since a pension is a tax deferral scheme.

A pension fund is a taxation-deferral scheme, rather than a tax-deferral scheme.

Warmest regards,
FA

FatherAbraham

stinktankcynic wrote: »

With so much uncertainty now with low interest rates, means testing and increased longevity, who knows what annuity rates will be in 30 years time, what will the retirement age be etc.

Why do you think there's more uncertainty about these things now than there was in the past?

stinktankcynic wrote: »

If you have a job with a company pension. Final salary etc, or good % defined contribution then a pension is probably a real good option, with the tax relief too.

Why are you discounting the possibility of the failure of the company underwriting the pension, which would mean losing 10% of the value if not yet in payment, under current rules? And this relies on the state's pension-guarantee fund remaining solvent, which, of course, it wouldn't if large numbers of guaranteed schemes failed.

stinktankcynic wrote: »

Is there anything wrong with saving into ISA's for years, then if the tax rate has increased' annuities are good etc, putting a load of cash into a pension then, or I'd annuities are better, using cash to buy one instead of a pension?

When your hand is on the cheque book, paying into the isa seems more sensible compared to the pension, despite the tax relief.

Fans of ISAs tend to dismiss the possibility of taxation of ISA funds as unthinkable. A more dispassionate analysis might indicate that, since ISAs have no particular virtuous purpose (such as providing retirement income), they are far more likely to be taxed than pension funds, should the state get into real difficulties with its finances.

Warmest regards,
FA

FatherAbraham

jamesd wrote: »

Say I'm 55 years old, pay £80 into a pension on 4 May and take a 25% tax free lump sum on 5 May. I ensure that at no time do lump sums taken within any 12 month period exceed 1% of the lifetime allowance. Meanwhile on 4 May I pay £80 into an ISA and withdraw £25 on 5 May. On 6 May I spend the tax free lump sum and £25 ISA money. I now have the extra amount of money in the pension to produce income and the funding for ISA and pension has been the same throughout. Both the ISA and pension got a little growth on the extra money while it was there.

Are you more comfortable with the calculation with these circumstances specified?

Well, of course -- because you're now comparing £85 with £80, giving a pension-fund-taxation advantage of 6.25%, as I suggested you should.

Warmest regards,
FA

grey_gym_sock

FatherAbraham wrote: »

Pension funds are for generating retirement income: complaining that they don't permit access to capital is like complaining that a kettle doesn't make toast.

it wasn't meant as a complaint.

A pension fund is a taxation-deferral scheme, rather than a tax-deferral scheme.

yes, that's more accurate.

Fans of ISAs tend to dismiss the possibility of taxation of ISA funds as unthinkable.

i wouldn't dismiss it. but i still think ISAs have an advantage over pensions in case the tax system changes, in that it will be much easier to take everything out of them if they become unattractive (well, unless there is immediate legislation freezing them - which would be going a bit far ).

FatherAbraham

grey_gym_sock wrote: »

i wouldn't dismiss it. but i still think ISAs have an advantage over pensions in case the tax system changes, in that it will be much easier to take everything out of them if they become unattractive (well, unless there is immediate legislation freezing them - which would be going a bit far ).

True, ISAs have withdrawal flexibility. The only question would be whether the money could go anywhere else to avoid to defer taxation -- annual limits on pension contributions have been significantly reduced in recent years, and are still falling.

In any case, one may only contribute up to one's entire taxable earnings for the year -- so some folk who've seriously bought into the ISA-as-retirement-savings mentality may find that they can't get it quickly into a tax-free environment, if they've been saving hard and investing well for years.

It's not a deal-breaker for ISA-based retirement investing; it's just worth bearing in mind, since the statutory purpose of ISAs is far less clearly defined than that of pension funds, and thus they (ISAs) could be seen a luxury item in times of fiscal need.

Warmest regards,
FA

dtaylor84

This government have just significantly increased ISA limits, so it seems unlikely that ISAs will lose their tax free status in the short term.

In the longer term, of course it is possible, but I would expect that the first attack on ISAs would be to stop new contributions. This would hopefully provide enough warning to allow holdings to be moved elsewhere, if anywhere is left...

david78

Won't the employers just cap pay rises to cover the cost of their contributions to pensions?

atush

possibly, but then again, some in the past had pay freezes and No pension.

You can always vote with your feet and look for another job.

atush

FatherAbraham wrote: »

True, ISAs have withdrawal flexibility. The only question would be whether the money could go anywhere else to avoid to defer taxation -- annual limits on pension contributions have been significantly reduced in recent years, and are still falling.

In any case, one may only contribute up to one's entire taxable earnings for the year -- so some folk who've seriously bought into the ISA-as-retirement-savings mentality may find that they can't get it quickly into a tax-free environment, if they've been saving hard and investing well for years.

It's not a deal-breaker for ISA-based retirement investing; it's just worth bearing in mind, since the statutory purpose of ISAs is far less clearly defined than that of pension funds, and thus they (ISAs) could be seen a luxury item in times of fiscal need.

Warmest regards,
FA

There are some bad points to ISA 'flexibility' that should occasionally be considered.

In that they can be spent, recklessly. Or that they can be taken into acct against means tested benefits should disaster occur. And they can be claimed by creditors, unlike pensions.

Thrugelmir

atush wrote: »

In that they can be spent, recklessly. Or that they can be taken into acct against means tested benefits should disaster occur. And they can be claimed by creditors, unlike pensions.

Nor do ISA's give a guaranteed return. BP's fail from grace, along with that of the banks. Should be a timely reminder that Stocks and Shares carry huge risks. With people spending as much time in retirement as employment. Inflation also has a major impact.