Looking To Start A Private Pension...

atush

jdw88rm wrote: »

All investments should be held for the long term. They can go down in value as well as up, so you could get back less than you
invested. Any yield is variable and not guaranteed.

The above quote was taken from a Hargreaves Lansdown's website on the 'SIPP - Apply Now' page.

And that is a statutory warning for all investments linked to markets. But pertains mainly to the Short Term, not Long Term. Pensions are Long Term. Long Term in periods of ten years or more, there are no losses(in a diverse portfolio of funds not single shares). Add in tax relief and you'd have to see more than a 20% loss to get back less than you put in?

Cash can also see a loss in real terms due to inflation. Put 100 into a savings acct getting 1%, if inflation is 3%, you are losing 3% a year. So a year later your 100 is worth only 98 in buying terms.

DominicH

atush wrote: »

ISas are fine, but they don't get tax relief like a pension.

So invest 80 in an isa, and it is 80 (less the costs as s&S isas have costs just like pensions). Put 80 into a pension and it becomes 100 immediately thru tax relief. So does that extra 20 make you feel better about paying a small cost?

That only really matters if you're a higher rate taxpayer now and will not be when you draw the pension. Otherwise, being taxed on the way out (pensions) works out the same as being taxed on the way in (ISAs).

dunstonh

DominicH wrote: »

That only really matters if you're a higher rate taxpayer now and will not be when you draw the pension. Otherwise, being taxed on the way out (pensions) works out the same as being taxed on the way in (ISAs).

You forger that 25% is tax free. The other 75% is taxable and only above your personal allowance. So, it can matter to everyone. Although a lesser extent for basic rate taxpayers.

DominicH

That's true, although by my calculations the benefit of the 25% lump sum is indeed small for basic rate taxpayers, if you consider it over the lifetime of the investment. It improves the value of the pot by 6.25%, which is an improvement to your return of only 0.4% pa if you annualise it over 15 years. Worth doing if you're only a few years away from spending the money, I suppose.

zagfles

DominicH wrote: »

That's true, although by my calculations the benefit of the 25% lump sum is indeed small for basic rate taxpayers, if you consider it over the lifetime of the investment. It improves the value of the pot by 6.25%, which is an improvement to your return of only 0.4% pa if you annualise it over 15 years. Worth doing if you're only a few years away from spending the money, I suppose.

The pension has other advantages for younger people. If you lose your job, your ISA may disqualify you from means tested benefits so you might have to use all your ISA savings to live off before retirement. You could get more in child benefit or tax credits through contributing to a pension. I don't think a pension is taken into account if you're made bankrupt (not certain about this).

jdw88rm

Thanks for your help guys, much appreciated!