Trying to Learn about Pensions

Dustykitten

I'm having a sort out and thought I'd look in the envelopes where I stuff the pension statements when they arrive each year (yes I know but I am trying).

My Pension pots are tiny as I've been a SAHM for the past 19 years doing the odd bit of P/T work but not in a pension.

I thought I'd try to learn about the pots I have and what my options are.

First thing I can't understand is the booklet which came with my Scottish Widows statement. I have a with profits fund and the booklet says the the fund increased by 9% in 2012 but my transfer value has only gone up 3% I rang to ask why but tbh am none the wiser.

The AMF is0.875 - I have no idea if this is good/bad or ok

Can anybody answer these questions or point me in the direction of good websites for such information.

Many thanks

dunstonh

I have a with profits fund and the booklet says the the fund increased by 9% in 2012 but my transfer value has only gone up 3% I rang to ask why but tbh am none the wiser.

Current value and transfer value are two different things. On older pensions, there can be penalties applied if you transfer early or the fund may have a reduction applied to it if there is a difference between your protected value and the underlying investment value (if the protection did not exist). That reduction is not charged at retirement but can be mid term.

The AMF is0.875 - I have no idea if this is good/bad or ok

Its below the 1% benchmark but not as good as what you can get at cheapest (around 0.4% p.a.)

Linton

No one here can give a definitive answer to your question but I can suggest three possibilities.....

1) With Profits funds largely shield you from the ups and downs of the stock market by keeping back some of their overall gain in the good times, but continue to pay you during the bad ones. The past year has been pretty good for share investments whereas a few years ago the performance was terrible.

2) With an old SW WP pension it is possible that you have a guaranteed annuity which will pay out a lot more on your retirement than would be available now on the open market. In order to protect all their customers it is possible that pensions with guarantees could be given a worse return than those without.

3) In addition to the annual bonus your pension may well be eligible for an extra terminal bonus when you retire. The insurance company will choose between putting extra money into annual or terminal bonuses as part of their management of the fund.

atush

More importantly is your current pension provision- ie zero.

You do KNOW that you can contribute up to 2880 per year w/o any income at all, the the govt will top it up to 3660? That every 80 you can manage to save will become 100?

So do start a personal pension to top up your old ones. It is important to have pensions in your own name (not a spouse or partners) as you have a personal allowance that at this time can only be used for you. So if you don't have enough pension to use it up, it would be wasted and the other person in your partnership would be paying more tax than they need to.


So, these things need a careful balance/.

Dustykitten

Thanks I didn't know about personal pensions without income. I'll give that some thought but tbh honest with 2 children likely to be off to uni in the autumn I don't see us having much spare cash available! I do have a bit of a jaded view of pensions with 3 out of 4 of mine and DH's parents sadly passing away before reaching pension age.

dunstonh

I do have a bit of a jaded view of pensions with 3 out of 4 of mine and DH's parents sadly passing away before reaching pension age.

That isnt down to the pension. Also, death before retirement does provide the beneficiary (spouse, children or whoever) the whole fund value tax free. Far better than any savings account or ISA.

kidmugsy

atush wrote: »

... the the govt will top it up to 3660?

typo. Ruddy nuisance, aren't they?

xylophone

Regarding the single tier state pension https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

Dustykitten

Thanks for all your replies. Tried to make sense of the proposed Government change for my own situation. This is one of the problems I have with pensions, they keep changing the rules. The pension I mentioned in my first post is simply my contracted out contributions from years ago when I thought contracting out was a good idea, but who knows now if it was. I guess I would use that pot to top up the reduced state pension from contracting out. I have 30 qualifying years at present but some of those are contracted out years.

What is the view about pension v ISA? I have always used my ISA allowance rather than a pension pot. If I only had the cash each year for one or the other is there a 'better' choice of the two or does it depend on interest rates and schemes?

jem16

Dustykitten wrote: »

What is the view about pension v ISA? I have always used my ISA allowance rather than a pension pot.

Are you referring to S&S ISA or simply cash ISA?

If Cash ISA it's unsuitable for long term planning and likely to have shortfall risk due to inflation.

If S&S ISA then the same opportunities are available within that wrapper as the pension. All that's different is how the tax is handled.

If I only had the cash each year for one or the other is there a 'better' choice of the two or does it depend on interest rates and schemes?

Really both pension and S&S ISAs should be considered together. Pension soaks up the tax-free allowance and ISA from then on.

However much depends on tax status. A 40% tax payer would get 40% tax relief now and may only pay 20% in retirement so obvious choice there for the pension.

atush

kidmugsy wrote: »

typo. Ruddy nuisance, aren't they?

They are lol. But I won't bother editing it now