Pension needed

clairehi

maccalike7 wrote: »

it doesnt have the benifits (pension, bupa) that this job does, but better salary and a car. so i want to try and use the extra money to make myself a pension....it's the only way my mrs will let me leave the stability of my current job, which bores me silly!

If the new job offers no pension but the salary is higher, you could take out a personal/stakeholder pension and contribute to it the equivalent of your current employee's contribution plus what your employer put in.

Of course, you will need to make sure you choose a "good" personal pension scheme, the standard thing to say is consult an IFA who specialises in pensions. It would make sense to review all your retirement provision at the same time to ensure you will have enough coming in. This may reassure the Mrs that you are not going to spend all your cash now and live off her in your old age...

EdInvestor

dunstonh wrote: »

From an income point of view, the pension will provide higher income in retirement than an ISA.

It might.

- The pension income is taxable, and after deducting tax there is not much difference between the ISA and the pension. If your total (including state) pension income comes in under the old age personal allowance ( slated to rise to 10 pa) then this would be a better point

Were it not for the fact that

-with the pension, you can only take out 25% of the capital - the rest is effectively lost, whereas with the ISA it's all yours.

I know which I believe is the better value product.

Dithering_Dad

EdInvestor wrote: »

It might.

- The pension income is taxable, and after deducting tax there is not much difference between the ISA and the pension.

This isn't true for high rate tax payers who pay in pension contributions that have a 40% tax rebate and then get a pension payout when they retire that is taxed at 20% (or whatever the lower rate is when they retire). Once you have taken the 25% tax free amount from the pension, very few people will have a pension pot large enough to supply a retirement income over the high rate tax band.

This is also not true for lower rate tax payers who have been receiving a 22% tax rebate over the last few years and are now about to retire and have their retirement income taxed at 20% (the new basic rate, starting next year).

EdInvestor wrote: »

-with the pension, you can only take out 25% of the capital - the rest is effectively lost, whereas with the ISA it's all yours.

hardly "lost" when it buys you an annuity or is used used for an income draw-down. The amount one has in their pension pot also cannot be used for means-testing benefits. If you save all your pension money in an ISA then have an accident that prevents you from working, you won't receive incapity benefits (etc) until your savings are below the threshold. Suddenly your "pension" has gone out of the window.

EdInvestor wrote: »

I know which I believe is the better value product.

So do I!!


As far as the original question is concerned. I was in the same position as you a few months ago, I had a secure job with a great pension but was bored rigid. I left and set up my own company and started a stakeholder pension that I contribute £300 per month into. You spend 8 hours (plus) a day at work, it's a big chunk of your life to waste doing a job you don't enjoy.

EdInvestor

Pensions are fine when there is free money from the employer, and even finer for higher rate taxpayers getting free money.

But that's not what we are dealing with here.

For a basic rate taxpayer with no employer contribution the ISA is a better deal IMHO,particularly if the individual is contracted in as his two state pensions are likely to use up most of the tax-free personal allowance when he retires.

Dithering_Dad

EdInvestor wrote: »

Pensions are fine when there is free money from the employer, and even finer for higher rate taxpayers getting free money.

But that's not what we are dealing with here.

For a basic rate taxpayer with no employer contribution the ISA is a better deal IMHO,particularly if the individual is contracted in as his two state pensions are likely to use up most of the tax-free personal allowance when he retires.

The OP hasn't said whether he is a high or basic rate taxpayer....

The ISA wouldn't be a better deal if the OP hits a bump in the road and needs to claim benefits or decides to use the ISA cash to tide him over a financial problem. Suddenly his retirement plans are seriously setback....

Rich1976

I think if you just concentrated on the what if's of life you would never do anything.

I personally would be very reluctant to invest in a pension plan again and much prefer ISA's which are more flexible. The reason being I have invested a fair amount into pensions over the last 10 years and the forecast from the pensions company estimates I will only get back about 4k a year in 30 years time if I wanted it to keep pace with inflation!
The money in an ISA is always yours and you can withdraw from it when you like. ( obviously if it is a retirement fund you need to make sure not to draw from it earlier.). When you come to retire, you can either take lump sums or an income from it.

With Pensions once the Insurance Company converts it to an annuity, you can't change it and you're stuck with that income for life. The constant bad news we read about how low pensions income is at present makes you think why anyone would bother with them.

EdInvestor

With Pensions once the Insurance Company converts it to an annuity, you can't change it and you're stuck with that income for life.

I think many people do find it hard to understand why, when they can get 6% on their capital at the bank, they have to give up all the capital to get an income of much the same level from the insurance company.

dunstonh

EdInvestor wrote: »

I think many people do find it hard to understand why, when they can get 6% on their capital at the bank, they have to give up all the capital to get an income of much the same level from the insurance company.

Because they forget that interest rates go up and down. It was only a few years ago that 3% was a good rate. Annuity rates are guaranteed for life.

You are not comparing like for like.

Jennifer_Jane

So to sum up: two alternative (wrappers) are recommended:

ISA - paid for out of post-tax income but yours to do what you like with tax-free and can use anytime.
Pension - tax-relief to give a bigger initial investment amount, but currently restricted to 25% tax-free, and restricted to purchasing an annuity which is taxable (unless you take income draw-down), and restricted to retirement age (am unsure what this currently is - 50/55 years old? There may also be a benefit with a pension in that if you are running your own business, pension rights are protected in bankruptcy (again, am unsure if this is the case in this Country?).

There are other pension possibilities, of course, which haven't been discussed here - SIPPS, buying property, art, all kinds of things. It's complex!

JJ

EdInvestor

(unless you take income draw-down)

Income drawdown money is also taxable, but the amount you can get out is higher and you don't lose the capital - if you die before aged 75 in drawdown, you can pass on the fund (less 35% tax) in cash to your heirs outside your estate, so no IHT.With an annuity you lose the capital completely at the start, though you can buy a guarantee period for the income.

...restricted to retirement age (am unsure what this currently is - 50/55 years

Currently you can access a pension fund at age 50, after 2010 it goes up to 55. Pension is protected in bankruptcy, ISA is not. A SIPP is a type of personal pension ( so it is under the same rules) but it has a much wider range of investment options and it is the preferred setup for income drawdown.