Advice please?

Pal

No, not pensions. A substandard aspect of most INVESTMENTS.

EdInvestor

Hi Pal

What I meant was that the investment aspect of pensions tax wrappers tended to be substandard,ie the choice of funds,compared with the choice of funds available to be tax-wrapped in an ISA.

Hence the success of expensive companies like Skandia, which offered the better funds in a pension tax wrapper, but at a price.

dunstonh

The situation regarding investment funds available on pensions is far better today than a few years ago.

Stakeholders will continue to have the bog standard funds but personal pensions can have access to most of the major OEIC/UT funds and if you choose a SIPP instead, you dont have to worry about that.

I think Pal was making a clarification because we often see people whinging about poor performing pensions when of course it isnt the pension but where they have invested it. Its one of the most common errors in posts made in this particular forum.

BTW, a skandia pension can have lower charges than a stakeholder pension (i have seen reduction in yield from 7% to 6.3% with Skandia compared with 5.9% on stakeholders). Skandia want larger funds and younger policyholders and if you meet that criteria, you can get access to the fund range and little cost difference to a stakeholder.

EdInvestor

dunstonh wrote:

The situation regarding investment funds available on pensions is far better today than a few years ago....personal pensions can have access to most of the major OEIC/UT funds and if you choose a SIPP instead, you dont have to worry about that.

This is true. I guess we can at least thank the Government for one thing: by forcing the companies to offer low charge stakeholders, they have at least enabled investors to gain access to high performance funds, because the insurers have to offer something extra now if they want to make extra charges not just the bog standard stuff.

To my mind though, in the new low inflation,low interest rate environment,normal charges are not affordable unless you get at least double digit returns every year from the funds you choose, and who can offer that year in, year out?

Hence my preference for SIPPs where, after the initial upfront costs, you can cut charges to virtually nothing. That means you can allow for some years of underperformance if necessary and still make an adequate amount long-term.
Frankly, I really can't see any other way for an individual basic rate taxpayer with no company contribution. If you don't go the SIPP route, you might as well forget pensions entirely other than the state system.

margaretclare

Editor wrote:

Hence my preference for SIPPs where, after the initial upfront costs, you can cut charges to virtually nothing. That means you can allow for some years of underperformance if necessary and still make an adequate amount long-term.

Frankly, I really can't see any other way for an individual basic rate taxpayer with no company contribution. If you don't go the SIPP route, you might as well forget pensions entirely other than the state system.

Well, I'm with a stakeholder because I haven't got time, and the 22% extra is very useful - a better increase than I'd get anywhere else. I thought of transferring my stakeholder to a SIPP, looked into it, but I can't afford to wait for some years of underperformance to offset the initial charges.

Of course, I realise that very few people will be doing what I'm doing. I started the stakeholder at age 68 and it will mature when I'm 75, in 2010. And it isn't my only income, it will just be a little bit extra when - maybe - we can do with it.

Aunty Margaret

EdInvestor

Hello Aunty Margaret

Sorry, I've confused you.

We were talking about high performance funds and dunstonh said

Stakeholders will continue to have the bog standard funds but personal pensions can have access to most of the major OEIC/UT funds and if you choose a SIPP instead, you dont have to worry about that.

He means that the low performance funds are matched with the low charges - and the high performance funds with the high charges (logical, you could say...) but in a SIPP you can get the low charges matched with the high performance, which is the ideal.This is because of the way SIPP charges work - you pay when you set up the investment, but no annual fee.Whereas with a PP you pay a percentage fee every year.After a few years the SIPP will work out virtually free of charges, while the bigger your fund gets with a PP, the more money you pay in charges.

The 22% extra you mention - do you mean the tax relief? All PPs receive that, including SIPPs, but do remember only 25% of it is actually tax free, you pay tax on the rest of the proceeds when you take the pension. (The ISA is the other way round: you put in taxed money, but the proceeds are tax free.)

margaretclare

Editor wrote:

The 22% extra you mention - do you mean the tax relief? All PPs receive that, including SIPPs, but do remember only 25% of it is actually tax free, you pay tax on the rest of the proceeds when you take the pension. (The ISA is the other way round: you put in taxed money, but the proceeds are tax free.)

Yes, the 22% tax relief. This was the only way I could see to get an increase of this level over the short(ish) time-frame, 7 years in all, and a scheme that would allow me tax-relief on contributions from unearned income. I realise that the proceeds will be taxed - well, 75% of it will be. I looked at the SIPP but thought that over the next 5 years it was unlikely to make enough to cancel out the initial charges.

I also have an equity ISA and a cash ISA. Equity ISA is with F&C Stewardship Income Acc, which came highly recommended in the financial pages yesterday! Cash ISA is at 5.20% with Yorkshire BS.

As a pensioner I guess I'm lucky to be able to save £200 a month, but we may need it in a few years' time, especially if/when one of us is left on his/her own.

Best wishes

Aunty Margaret

dunstonh

Hence my preference for SIPPs where, after the initial upfront costs, you can cut charges to virtually nothing. That means you can allow for some years of underperformance if necessary and still make an adequate amount long-term.

Generally, a low risk investor, particulary those closer to retirement, would find a stakeholder with a decent range of low risk funds more suitable than a SIPP with a fund lower than 100k.

There is no real point having a SIPP if you arent going to use the external investment option. Even if you use OEICS/Unit Trusts to invest in, it is worth checking to see if the same funds are available with a personal pension provider as the charges on the pension fund may be lower than the OEIC/UT via the SIPP. Using it for just the insured funds would almost certainly cost more than investing in the insured funds via the PPP or SHP. (although I do know of one exception to hand so this is a generalisation).