Is it worth taking out a Pension at age 51?

foreversummer

Hi

OK, this is me absolutely clueless about pensions. I have built up a healthy cash balance in ISAs although I've always been a low earner and have never had access to an employee contribution pension scheme.

Is it worth me opening a personal pension (stakeholder's best I assume because of the low costs), and saving into that instead of my cash ISA? I earn approx £8000 so I am a non-tax payer. I'm pretty risk adverse although from reading through loads of posts on here I can see that tax relief can top up the contributions pretty well. Supposing I save £2880 per annum into a pension instead of a cash ISA I get approx £720 per year tax relief making my amount in my ISA £3600? That's far more than I will earn in interest in my cash ISA. I know there is risk involved as the funds will be invested in the stockmarket but surely this £720 extra money will mitigate that risk. Am I right in thinking that?

I'm 51 this year. No idea when I will be able to retire but just wanting to make the most of my money. Am I missing anything?

jem16

foreversummer wrote: »

Is it worth me opening a personal pension (stakeholder's best I assume because of the low costs), and saving into that instead of my cash ISA?

For retirement planning, cash ISAs are not suitable at all. You have simply replaced investment risk with inflation risk.

I earn approx £8000 so I am a non-tax payer. I'm pretty risk adverse although from reading through loads of posts on here I can see that tax relief can top up the contributions pretty well. Supposing I save £2880 per annum into a pension instead of a cash ISA I get approx £720 per year tax relief making my amount in my ISA £3600?

You can, yes. You would be able to gain basic rate tax relief on anything up to £8000 worth of contributions.

That's far more than I will earn in interest in my cash ISA. I know there is risk involved as the funds will be invested in the stockmarket but surely this £720 extra money will mitigate that risk. Am I right in thinking that?

To a certain extent yes. However the choice of fund within the pension will be the most important thing.

foreversummer

Thanks Jem16

So supposing I put £8000 in would I get tax relief on the full amount or only on the £2880 as I'm a non taxpayer?

Also, how would I go about choosing a fund? Would I need to go to an IFA on this?

I'm kinda of thinking I could put in £8000 from my cash ISA savings if I got loads of tax relief.

Foreversummer

jem16

foreversummer wrote: »

Thanks Jem16

So supposing I put £8000 in would I get tax relief on the full amount or only on the £2880 as I'm a non taxpayer?

You would get tax relief on the full £8000.

Also, how would I go about choosing a fund? Would I need to go to an IFA on this?

That is an option although to be honest £8k is small change for an IFA and most wouldn't be interested unless you already have other business with him/her.

The other option is to DIY and do lots of reading and research.

OldBeanz

You would pay in £6400 and the government through your pension company would pay in the rest to make it up to £8k.

foreversummer

OldBeanz wrote: »

You would pay in £6400 and the government through your pension company would pay in the rest to make it up to £8k.

So, I take my £6400 out of my ISA and put it in a pension to which I fully research my funds etc. It immediately becomes £8000 But of course I have to take into account that when I decide to cash it in I will only get 25% tax free, the rest I will have to pay 20% tax on? So I only get to keep £400 of that tax relief amount of £1600. Of course, I've had the benefit of it for the time it is invested so hopefully I will have made a return on that money. Am I thinking along the right lines?

Under the new rules, I could draw it out at age 55 if I wish. So what's the chance of making a greater return that keeping in my cash ISA paying 3%.

Sorry for all the questions but find pensions so confusing. Appreciate your help.

Foreversummer

the_worm

With regards to withdrawing your money I assume that you can take partial withdrawal each year and if this keeps your income under your personal allowance you will not pay tax. Or am I mistaken.apologies if that is the case

foreversummer

the_worm wrote: »

With regards to withdrawing your money I assume that you can take partial withdrawal each year and if this keeps your income under your personal allowance you will not pay tax. Or am I mistaken.apologies if that is the case

Hi worm

So under the new rules if you eventually do a partial withdrawal each year to keep under the personal tax limit and therefore never pay tax that sounds like a good plan I reckon. Can anyone confirm that.