I think I'm going to get less out of my pension pot than I've paid in...

TJSHP

I'm 50 and I've got a Scottish Widows individual pension with a current value of £120,000. This is built from £87,000 of my (post income tax) contributions plus £22,000 tax relief. So £11,000 growth (in 7+ years!).

All the modelling I've done (using various websites including Pension Wise) shows that, if I cash the whole thing in at 55 or at 60 (using their estimated fund value at those dates), I will get out after tax on the 75% less than the total of my monthly contributions (i.e. my post income tax money, before tax relief applied to the pension contributions). If I go for a mix of cash and annuity, I will get a feeble annual income.

Is there any way of cashing it in and getting my £87,000 contribution out of the pot now (happy to pay back the £22,000 tax relief portion obviously)?

Alternatives I suppose are:
1. keep contributing the current £1,000 per month in the hope that things can only get better
2. transfer to another pension scheme (if any of them are any better)
3. just stop paying in
4. wish I'd stuck it all in a sock under the bed

Advice welcome please on possible courses of action...

Thanks.

AnotherJoe

I think you'd be better off transferring it somewhere else where it has the potential to grow more than this dismal record, you've still got plenty of time. And then pay into that scheme instead.

GunJack

any reason you can't use salary sacrifice to pay in?

dunstonh

Pensions are geared for income provision. If you draw the income over multiple years then the tax is much more reasonable. If you decide to draw a large lump in one go then it is the tax at higher rate that is doing the damage.

What has changed that you suddenly need access to capital from the pension and are willing to pay such a high penalty?

Also, remember that the models tend to be real terms growth and not monetary growth.

Alternatives I suppose are:
1. keep contributing the current £1,000 per month in the hope that things can only get better
2. transfer to another pension scheme (if any of them are any better)
3. just stop paying in
4. wish I'd stuck it all in a sock under the bed

1 - You havent been invested for 7 years if you are paying in £1000pm. What exactly is wrong with what you have?
2 - What will changing the pension scheme achieve? Pensions are just a container for investments. The pension doesnt make or lose money.
3 - what alternative would you use?
4 - that is because I suspect you don't know what you are doing. I don't mean that in a horrible way but it looks like you are looking at making decisions from a position of low knowledge and understanding.

AnotherJoe

dunstonh wrote: »

Pensions are geared for income provision. If you draw the income over multiple years then the tax is much more reasonable. If you decide to draw a large lump in one go then it is the tax at higher rate that is doing the damage.

What has changed that you suddenly need access to capital from the pension and are willing to pay such a high penalty?

Also, remember that the models tend to be real terms growth and not monetary growth.



1 - You havent been invested for 7 years if you are paying in £1000pm. What exactly is wrong with what you have?
2 - What will changing the pension scheme achieve? Pensions are just a container for investments. The pension doesnt make or lose money.

Wouldn't typically a Scottish Widows pension have a poor choice of mediocre investments with high charges?

So the OP could change to a pension with a wider choice of higher rated investments with lower charges.

PensionTech

All the modelling I've done (using various websites including Pension Wise) shows that, if I cash the whole thing in at 55 or at 60 (using their estimated fund value at those dates), I will get out after tax on the 75% less than the total of my monthly contributions (i.e. my post income tax money, before tax relief applied to the pension contributions). If I go for a mix of cash and annuity, I will get a feeble annual income.

If you're looking at both 55 and 60, it implies that you don't have an urgent need for all of the cash at once. So what's wrong with drawing down a smaller amount each year over a number of years to negate the tax issues?

dunstonh is right - pensions are designed to be taken as income, which is why they are taxed as income. If an employer offered you a salary of £20,000 every year for five years or a one-off payment of £100,000, you would be a fool to take the £100,000 because you would pay far more tax. It is the same principle here. It is a nonsense to describe pensions as bad value because you would take a large hit on tax by withdrawing it all in one year. If you always intended to withdraw everything as a lump sum all at once, I would suggest that pension saving wasn't the best choice for you - particularly as that facility wasn't even available or envisaged when you started saving 7 years ago.

Although unlike dunstonh I don't see any inconsistency between you saying that you've been paying £1000pcm for 7 years and paid in total contributions of £87000 - that seems to work out, for me - but I would guess that you have been in very low-risk or poor-quality investments. In which case it may be your investment choices rather than your pension scheme that needs to change. A pension scheme is indeed just a wrapper.

dunstonh

Wouldn't typically a Scottish Widows pension have a poor choice of mediocre investments with high charges?

Their product range is dated and their charges are on par with early 2000s pricing. Their internal funds are average but they do have the usual suspects on external funds. (this assumes it is a personal pension and not a stakeholder or their retirement account).

So the OP could change to a pension with a wider choice of higher rated investments with lower charges.

Yes they could. However, that resolves another issue and not the one the OP is concerned about. If a review was taking place, then you would look at it. However, there is no point jumping to that stage yet. More understanding is needed by the OP as to how investments work and not to make the mistake of looking at returns as if the whole value has been invested for 7 years when it hasnt.

Although unlike dunstonh I don't see any inconsistency between you saying that you've been paying £1000pcm for 7 years and paid in total contributions of £87000 - that seems to work out, for me - but I would guess that you have been in very low-risk or poor-quality investments. In which case it may be your investment choices rather than your pension scheme that needs to change. A pension scheme is indeed just a wrapper.

My comment was in relation to the fact that £87k has not been invested in there for 7 years. Only £1000 has been in there the full term. The OP is not happy with the return but the bulk of it has only been in there short term and we have had a stockmarket crash in the last year. He appears to be looking at the growth as if the £87k has been in there for 7 years and thinking the return is low. That is not how it should be viewed.

PensionTech

My comment was in relation to the fact that £87k has not been invested in there for 7 years. Only £1000 has been in there the full term. The OP is not happy with the return but the bulk of it has only been in there short term and we have had a stockmarket crash in the last year. He appears to be looking at the growth as if the £87k has been in there for 7 years and thinking the return is low. That is not how it should be viewed.

Ah - with you. Agreed.

zagfles

PensionTech wrote: »

Ah - with you. Agreed.

The return is still rubbish though, well under 3% pa even accounting for an average length of investment of 3.5 years.

xylophone

The OP might find it helpful to take some independent financial advice.

http://www.thepfs.org/yourmoney/find-an-adviser/

bigadaj

zagfles wrote: »

The return is still rubbish though, well under 3% pa even accounting for an average length of investment of 3.5 years.

It is but as well as potentially poor and expensive investments he has been unlucky in so far as the better stock market years have been early in his investment period. So larger returns have been made whilst smal sums have been within the pension, and lower returns over the past year or two when the invested sum has been much higher.

Also the return has been much higher than an equivalent isa or unwrapped investment.

Still would be a good time to look for a better value provider, assuming this can be done efficiently without losing things like employer contributions.