Which pension

mat_H_2

Hello,
I am 40 years old and have no private pension. I was wondering which pension I should get. Stakeholder etc. I would like to retire at 60 but that is only a dream.

Anyone got a basic layout of the 2 and how they would apply to me at age 40??


Thanks
Matthew.
Northampton:rotfl:

dunstonh

I would like to retire at 60 but that is only a dream.

Ok, so you retire at 60 and you currently have zero income. State retirement age for you is going to be 66 so you need to be able to live of what you have invested for 6 years until state pension kicks in.

If you want £20,000 a year income, you will need to put aside around £400,000 in the next 20 years.

You need to look at what you want in retirement and the best way to do it. This can be a stakeholder, personal pension, SIPP or ISA (or often a combination of ISA and pension). I think it is fair to eliminate SIPP and probably most personal pensions as they are designed for those that are experienced investors or use investment advisers. That would leave the stakeholder pension which whilst not usually the best option for those in the know, can be the best option for those that want to go DIY and dont know how things work.

The main difference between stakeholder and other pensions is that stakeholders have a defined level of charges. This doesnt mean they are the cheapest but they wont be the most expensive either. They are treated as the budget option and you will find most have a very limited investment range.

You need to look at this a different way though. How much you want on retirement, how much it will cost you and where you want to invest. Once you know that, then you can look at the best way to do that.

Lennys_Shinpad

dunstonh wrote: »

That would leave the stakeholder pension which whilst not usually the best option for those in the know, can be the best option for those that want to go DIY and dont know how things work.

My first post on MSE.

I noticed that the stakeholder pension here is regarded as 'not usually the best pension' for those in the know. Is this the case for company stakeholder pensions as well? The reason I ask is that i am currently sorting all my finances out and want to make sure I'm not making the wrong decision by joining my company's stakeholder pension scheme.

I am currently contributing 7% of my salary towards the scheme, with that being matched by the firm. This seems like a pretty good deal to me, given the tax breaks. However, people have told me that pensions are not such good value, aren't guaranteed, and that I should consider ISAs/HYPs as investments.

Can anyone advise me?

Cheers,

L_S

elantan

i know very very little about pensions and i'm positive someone will come along later to give you advice.... but as far as i know if your company make a contribution into your pension it is a good thing and 7% along with your tax relief will make a difference

gericom10

seems to me that anytime you are with a company scheme that is paying you free money into your pension you should always keep that

dunstonh

Free money is the key go group stakeholder plans. You just dont add any more than you need to get the maximum out of the employer.

However, people have told me that pensions are not such good value, aren't guaranteed, and that I should consider ISAs/HYPs as investments.

People that say that dont have a clue about investing and they are the last place you should get advice. A pension is a tax wrapper. Just as the ISA is. You can have exactly the same funds and shares in a pension that you can have in an ISA. So, you can use your chosen investment strategy just as easily in a pension as you can ISAs, unit trusts, investments trusts or shares.

The range of investment options available nowadays is vastly superier to that of just 5 years ago. Let alone 10 or 20. Anyone with a pre 2001 pension really needs to get it reviewed as that was when things started to be shaken up for the better.

EdInvestor

However, people have told me that pensions are not such good value, aren't guaranteed, and that I should consider ISAs/HYPs as investments.

This is the case if you have no company pension with employer contributions and particularly if you are a basic rate taxpaper.

But in your case, go for the free money.

nrsql

dunstonh wrote: »

Free money is the key go group stakeholder plans. You just dont add any more than you need to get the maximum out of the employer.


People that say that dont have a clue about investing and they are the last place you should get advice. A pension is a tax wrapper. Just as the ISA is. You can have exactly the same funds and shares in a pension that you can have in an ISA. So, you can use your chosen investment strategy just as easily in a pension as you can ISAs, unit trusts, investments trusts or shares.

The range of investment options available nowadays is vastly superier to that of just 5 years ago. Let alone 10 or 20. Anyone with a pre 2001 pension really needs to get it reviewed as that was when things started to be shaken up for the better.

Except that you shouldn't consider just the funds invested, you should consider the wrapper too. So you might consider a pension to be worse value than a ISA/HIP. I'm not saying one is better but it is a valid view.

If your investment strategy is aiming towards a possible age 55 then maybe an ISA wrapper would be better value than a pension wrapper for you.

Lennys_Shinpad

Thanks for the replies.

Having read trough these posts, I'm definitely going to continue with my company scheme, though only investing what they will match. I will probably put more money aside as my wage rises and I break through the 40% tax barrier. Rather than contribute to AVCs, I'll probably look at some investment ISAs - spread the risk, have control over what I invest in etc.

I'm only 27 but think I'm a bit more responsible with my money than many of my age-group. I think retiring at 55 will be a bit of an ask (and, besides, I enjoy working), but I don't want to be one of the many who will undoubtedly be working (and still paying off their mortgage) past their 70th birthday.

BTW, does anybody have any info/breakdown to the pensions 'shake-ups' in 2001 that have been mentioned?

Many Thanks,

L_S.

dunstonh

BTW, does anybody have any info/breakdown to the pensions 'shake-ups' in 2001 that have been mentioned?

It wasnt some magic date. It was a sequence of events. The introduction of stakeholder pensions in 2001 lowered the charges to pensions signficantly. So the providers introduced two tiers of products. The stakeholder and the personal pension. Stakeholder was your low cost product but with small fund range and limited investment options. Personal pension cost a bit more but gave you access to more investment funds from the different fund houses.

You also saw the end of with profits in that period as well as a viable option and although some plans still offer a unitised with profits fund, they have been on the decline since then.

So, since 2001 you have seen lower charges and improving fund choice. The fund choice growing all the time. Post 6th April 2006 (A Day) there has been a new generation of pension products launched which take that even further. The fund supermarket pension being one of these. The ability to buy your funds on a pension just as you can with ISAs and unit trusts and use the same unit trust funds is another step forward.

People get their car serviced every year and a car from 20 years ago will not mostly not fo the job as well as one from today. The same applies to pensions. With some exceptions, modern pensions are superior to older ones. That said, not all modern pensions are desirable and not all old ones are bad.

jamesd

The key changes are a huge increase in the number of investment choices within pensions (but not so much for stakeholder pensions) and the ability to have lots of individual pensions even if you have a work pension. Also lots of efficiency improvements that have lowered costs for those investing. Earlier, the stocks and shares ISA and PEP investing options gave a tax-efficient way of investing for the long term and pensions have to compete with the ISA option today.

If you have a work stakeholder pension option with no more than say 30 different investment choices, you might ask if work will be willing to contribute to a Scottish Widows personal pension, which has an excellent range of funds to invest in. It's good enough to be your only pension if you get it from an inexpensive supplier. Inexpensive supplier because the supplier sets the annual management charge for the funds and that can range from 0.67% (no commission, so you'd have to pay 100 or so to buy it) through about 0.9 from Hargreaves Lansdown or other IFAs and 1% default up to 1.5% maximum. A big difference there in investment yield reduction depending on how efficiently it's bought. External funds would be a bit higher than this.

SIPP investing would normally have an AMC of around [STRIKE]1.25%[/STRIKE] 1.5% after discounts from Hargreaves Lansdown so the personal pension bought from them can be significantly more efficient than their SIPP, if the personal pension has the investment options you want.

If your monthly contributions are 100 or more (and less is possible) a good personal pension is almost certainly going to be a better idea than a stakeholder pension, just because of the better range of investments available.