Start a new pension or pay into existing one

dilbert

Hi,

I'm just about to embark on a venture into the world of contracting and would like a bit of advice on what to do about pensions. The leap into contracting will make me a higher rate tax payer.

I have an existing stakeholder pension already which I make regular payments into and I will transfer my existing pension from my current company's scheme into this pot.

I have joined an umbrella company for the moment to handle transition into contracting until I decide whether or not to go down the limited company route.

The umbrella company are naturally recommending that I join their pension scheme as they can give me higher rate tax relief at source.

The question is this:
Do I keep my existing arrangement and pay regularly into my existing stakeholder pension, getting tax relief at basic rate until the end of the year when I will claim the additional higher rate relief, OR do I take out a new pension with the umbrella company's scheme and get my higher rate tax relief at source?

dunstonh

You need to look at this differently.

A pension is just a wrapper for investments. At the moment you are focusing on the wrapper and not what is contained within the wrapper.

You are investing money towards your retirement. How do you want to invest the money? Do either of the current options offer investments in the areas you want? Do they even offer decent investment options?

One of the biggest problems with pensions is that people do not treat them as investments. They treat them as a bill which they hope will pay them an income in retirement. If you are in your 30s, then just 2% a year difference in performance can double your final pension value.

So, start looking at the quality of the investments offered. Chances are the stakeholder wont be good enough nor will the scheme the umbrella company offer and then that will lead you on to looking for an alternative.

All that said, if you arent willing to get an IFA to do it for you and you are not able to do it yourself, you should perhaps stick with the stakeholder and accept the lower potential as it is a basic product for basic needs and you cannot really make a total pigs ear of it if you get it wrong.