21 Year Old trying to save for retirement.. Opinion?

djbd1973

dunstonh wrote: »

Yet you have ISAs and there is no difference in the status of pension and ISA. Both are tax wrappers. Both can contain the same investments.


Thats not a valid reason.

If someone pays £100pm into an ISA and £100 into pension and invests in the same way then you are going to get a largely same result. In fact, from an income point of view, the pension would pay more than the ISA.

Self employed individuals get lower state pensions. You are looking at just £4500 a year. So, you need to put more aside. Perhaps you should ask these businessmen how much their fund value was when they retired and that will tell you the real story of their problem. i.e. they didnt pay enough in.

I realise that both ISA's and Pensions can contain the same investment but I have more control over the ISA's albeit on a shorter time frame. Three of the businessman I was referring to (who were Directors of a company that I used to work for) paid the maximum into their pensions via the company for 20 years and the value of their funds were not where they wanted them to be, probably down to the product or funds that they were with. Two other separate friends I have who expect to retire in the next 2-3 years have also been putting in the maximum via their companies but neither have the size of pension fund they would like to the point where they are disappointed and they do not live extravagant lifestyles. However, I do know that one has value in his house, other investments and through company shares which in his words "will see him through" and the second gentleman has a portfolio of residential flats and business properties including a restaurant, and these "should" give him a good pot for retiring on either through income or sales of these properties.
From my point of view, unless my own business takes off big time, and I am working towards this, I will not be able to put enough into a pension as I don't have the income to support the hundreds a month I need.
For me its a matter of control rather than long term trust but I am not saying pensions aren't good. I don't want to get to retirement to find that I have to continue working because the fund hasn't done what I wanted it to, so I am approaching my own problem from a different angle.

cheerfulcat

dunstonh wrote: »

That affects one particular case. It wont be an issue for new contributers.

My point is that you were blaming the people who were disappointed with the outcome of their pension savings for not saving enough, when in actual fact it may have been the fault of their providers/advisors. It's all very well to say that pensions should be reviewed but people in the past assumed ( and were encouraged to do so by the industry ) that all they had to do was contribute to the personal pension they had been sold by the " professionals ", and that the provider would see to the rest!

dunstonh

Three of the businessman I was referring to (who were Directors of a company that I used to work for) paid the maximum into their pensions via the company for 20 years and the value of their funds were not where they wanted them to be, probably down to the product or funds that they were with.

That isnt the fault of the pension though. That is either down to misplaced expectation or unsuitable funds or provider.

They would have saved tax and NI in the way they did it so that is the positive but the failure is not on the side of the pension. The pension is just the tax wrapper.

I don't want to get to retirement to find that I have to continue working because the fund hasn't done what I wanted it to

So, having the "fund" in an ISA is going to be no different.

The Pension doesnt make or lose money. It is just a tax wrapper. A container for investments and you can have anything from cash to shares, unit trusts, ITs, SICAVs etc. That is where the growth potential is. Nothing to do with a pension. The pension just gives tax advantages or disadvantages depending on your situation.

All too often we come across people that say they wont use a pension anymore because their ISA makes more money. That is flawed decision making as both the ISA and the pension can contain the same investment. So, if the same was in both, the rate of return would be the same. Therefore the only difference is the tax handling and the way the proceeds mature.

The other thing is that too many people dont treat their pension as an investment. They pay into it like a bill but dont take any interest in where and how it is invested. That is the most important bit.

The fact is that if you put the same contribution in a spread of funds in an ISA and a pension, the pension will provide the highest income as the fund value at the end will be higher due to tax relief.

Those that visit the pensions side of the forum will know that I do not particular favour pensions but they do need to be discounted for the right reasons. Investment returns are not a valid reason.

isasmurf

emmaur1 wrote: »

No i dont have a pension fund and my employer (Land Rover - skinflints!) dont offer a company policy.

I think you need to check again.

http://www.landrover.co.uk/gb/en/Company/Careers/Graduates/Rewards_programs.htm

Pension Scheme
The Land Rover Pension Scheme offers:

· Excellent value for money
· Guaranteed retirement benefits
· A pension linked to your standard of living
· Protection for you and your family for life
· Tax-free contributions
· The Company pays the balance of the cost of your benefits

From April 2006 the Land Rover Defined Contribution Scheme will be available, which offers:

· Portability
· Death in service and ill health pensions after 5 years membership
· Tax-free contributions
· The Company pays 4.5% provided you pay 3%, with a higher employer contribution available after 5 years

EdInvestor

dunstonh wrote: »

Thats all very well but there is £300k of mortgage. You cannot keep the property and the mortgage going. You either have to repay the mortgage requiring you to build a pot of £1.3 million against the pension £1 mill or you have to sell the property.

Amazingly enough, a large number of people think that the likelihood of the property being worth that much more than the pension fund after 20 years is high.

And of course you do get to keep all the capital with a property when you sell it.Whereas with a pension when you die in most cases* it either goes to an insurance company or the taxman.

[*Smart people do "income drawdown" and hold on to 65% of the capital, at least for a while.]

dunstonh

Amazingly enough, a large number of people think that the likelihood of the property being worth that much more than the pension fund after 20 years is high.

Isnt that like comparing car and petrol? Property is an asset class. Pension is a tax wrapper.

You can put property into a pension (indirectly) but you cannot put a pension into a property.

And of course you do get to keep all the capital with a property when you sell it.Whereas with a pension when you die in most cases* it either goes to an insurance company or the taxman.

If you die before retirement, the full fund value is paid out to beneficiary with no tax payable. After retirement it would depend on whether you have bought value protection or do drawdown or joint life annuities.

Although, you are taking the discussion off topic. The issue here appears to be the misconception that just because its called "Pension" that it wont make as much as other things. We have discussed the pros and cons of pensions and direct investment in the pensions section so there is no need to repeat that here. However, clarifying that pensions dont lose or make money is important to someone that may be making decisions based on flawed information.

johnofhertford

You might find this calculator helpful in working out how much you'll have at retirement

http://money.guardian.co.uk/calculator/form/0,,603163,00.html

matt4504

I earn £16500 per annum and I put £50 (pre-tax relief) into my Stakeholder Pension every month. No one else at work (i work for a coffee shop chain) has anything really, yeah the odd people think im a bit stupid but in the long run...

djbd1973

matt4504 wrote: »

I earn £16500 per annum and I put £50 (pre-tax relief) into my Stakeholder Pension every month. No one else at work (i work for a coffee shop chain) has anything really, yeah the odd people think im a bit stupid but in the long run...

Unfortunately there are a lot of people who haven't considered what they will live on when they get to a retirement age, whatever age that will be like your work colleagues.

Have you calculated what your contributions should currently be so that you can retire on an income that you are hoping to live on?

thor

Isn't having to use at least 75% of your pot to buy an annuity the huge drawback of a pension? As people are living longer so will the annuity rates get lower. The pension may indeed grow as much as property or other investments but you don't get the chance of using the money to fund the best source of income for retirement.