Is paying pension waste of money

chucknorris

Perelandra wrote: »

Another risk of housing, which hasn't been mentioned above, is the lack of diversification.

Really? Don't you think that it was covered by:

'so why not have diversified investments which property is only part of a portfolio'

and:

Property can be (notice I used your word 'can', rather than 'is') a good substitute for pension, but why not set your sights on both (and others too)?

BrookesAndrew

I have always been told that pension is a waste of time and property is the best way to go. Each of them have there advantages and dis advantages. You could loose out on a lot of money with the pension. If you end up paying £100,000 in. You get the pension when you are 65, you die at 70 then you have lost out on all that money.

People have told me to get a house and instead of paying in £100 or £200 into a pension just over pay your mortgage by that amount every month. You will own your house quicker and then when the time comes you can move into a smaller place and rent it out. Or you can just sell it and start renting.

It also depends on what your work will offer you in terms of a pension. It needs to be researched and then do the best for your self. Do what will benefit you in later life.

Perelandra

ViolaLass wrote: »

I take your point but a 7% gain on the whole of the capital is more than a 7% gain on the deposit that I could otherwise have put into my pension.

This is Daniel54's leverage point- a 7% gain on the whole of the capital, less the cost of servicing the loan would need to be compared with the 7% gain on the deposit.


The point I was trying to make was simply that saying "the tenant is paying the mortgage for me" isn't necessarily true. For that to be "fair" the rent would also need to cover the opportunity cost.

chucknorris wrote: »

Really? Don't you think that it was covered by:

'so why not have diversified investments which property is only part of a portfolio'

and:

Property can be (notice I used your word 'can', rather than 'is') a good substitute for pension, but why not set your sights on both (and others too)?

Hum, fair point... must've missed that when I posted earlier- sorry!

BrookesAndrew wrote: »

I have always been told that pension is a waste of time and property is the best way to go. Each of them have there advantages and dis advantages. You could loose out on a lot of money with the pension. If you end up paying £100,000 in. You get the pension when you are 65, you die at 70 then you have lost out on all that money.

This might happen if you bought an annuity with your pension, but this is by no means the only option available- if using drawdown, a portion of your pension will always be inheritable (although might be heavily taxed):


http://www.hmrc.gov.uk/pensionschemes/death.htm


Useful to remember, though, that there would be no further IHT to pay from a pension pot, whereas depending on the value of the estate there may be if you had invested in property. And, of course, that pension pot had been built up from income that hadn't had tax paid on it in the first place.

BrookesAndrew wrote: »

People have told me to get a house and instead of paying in £100 or £200 into a pension just over pay your mortgage by that amount every month. You will own your house quicker and then when the time comes you can move into a smaller place and rent it out. Or you can just sell it and start renting.

Potentially very, very expensive advice for the reasons highlighted on this thread!

R_P_W

BrookesAndrew wrote: »

I have always been told that pension is a waste of time and property is the best way to go. Each of them have there advantages and dis advantages. You could loose out on a lot of money with the pension. If you end up paying £100,000 in. You get the pension when you are 65, you die at 70 then you have lost out on all that money.

People have told me to get a house and instead of paying in £100 or £200 into a pension just over pay your mortgage by that amount every month. You will own your house quicker and then when the time comes you can move into a smaller place and rent it out. Or you can just sell it and start renting.

It also depends on what your work will offer you in terms of a pension. It needs to be researched and then do the best for your self. Do what will benefit you in later life.

What genius told you this?

ViolaLass

Perelandra wrote: »

This is Daniel54's leverage point- a 7% gain on the whole of the capital, less the cost of servicing the loan would need to be compared with the 7% gain on the deposit.


The point I was trying to make was simply that saying "the tenant is paying the mortgage for me" isn't necessarily true. For that to be "fair" the rent would also need to cover the opportunity cost.

Got you now. I've just done the calculations for us and it's made me look at the BTL in a different way, thank you. Luckily the calculations still work in our favour!

Thrugelmir

Perelandra wrote: »

When buying a BTL property, I find the concept of "the tenant is paying the mortgage for me" a little hard to grasp as well.

The majority of people with BTL's are gambling on capital appreciation. As that's what drew them in. The boom years of 1999 - 2007.

If there's no tax to pay on the rental income. Then they aren't generating enough income to repay the capital. So eventually selling the property may be their only option. This will then crystallise any CGT liability.

I'm sure many people aren't declaring the income. The HMRC set up a special unit last September solely for this purpose. All they have to do initially is to obtain details of CTL and BTL mortgages from lenders and cross reference this to tax returns to identify those not declaring. A nasty shock in store for many.

Perelandra

Thrugelmir wrote: »

The majority of people with BTL's are gambling on capital appreciation. As that's what drew them in. The boom years of 1999 - 2007.

Aye- and of course, if house prices were to fall then there will be a sharper drop in equity than for an equivalent %age index drop than someone invested in shares within a pension. Leverage works both ways.

Perelandra

ViolaLass wrote: »

Got you now. I've just done the calculations for us and it's made me look at the BTL in a different way, thank you. Luckily the calculations still work in our favour!

Would you be willing to share the calculations? I'd be interested in seeing how that can be so when taking everything into account.

Prothet_of_Doom

I have learnt NEVER to give advice to family, unless It is of the type "on the one hand....this might happen, and on the other.....this might happen"

In this case I'm prepared to say you are both right.

Say you take on a BUY to Let House, and use the profit to fund the deposit on another buy to let house, and use the profit .... until you get to say 10 houses. Say you then use the profit to pay the loans off. Say you end up retired in 30 years time with 10 Buy to lets, all bringing in say £600 a month ? £70K a year.

Nice pension ?
Or you could pay into a pension, and hedge your bets, so if the property idea fails, you've got a pension.

atush

If you end up paying £100,000 in. You get the pension when you are 65, you die at 70 then you have lost out on all that money.

You don't lose money with a pension. Unless you transfer your pension into an unregulated sceme/scam.

Of that 100K, your contributions could be under 30K in total. the rest could be tax relief, employers contributions and investment growth over 30+ years. So, you get back 25K tax free immediately and by the end of the first year you might get all your money back- even with an annuity.

but you can use DD over an annuity, which means 100% of your pension pot could be left to your spouse tax free.

People have told me to get a house and instead of paying in £100 or £200 into a pension just over pay your mortgage by that amount every month. You will own your house quicker and then when the time comes you can move into a smaller place and rent it out. Or you can just sell it and start renting.

Getting a home to live in, and paying ti off over time IS a good idea for retirement- but one you should do along with a pension (and other savings).

Downsizing is a great idea only you cannot guarantee that you can sell your house for a figure you want (think of people retiring from 2009-2012) and have enough left to buy something smaller and have a savings pot too. I hope to be able to do it, but there is no guarantee.

But to keep your home and rent it, while buying somewhere else means a mtg (which you would not get if retired) or keep working or having a lot of savings.

I would stop listening to silly people, and start doing some research and maths.