When you die your insurer keeps your pension pot, so why have one?

djbd1973

dunstonh wrote: »

One of the things amateur buy to letters often forget is that with mortgaged buy to lets, they don't actually have the assets they so often boast they do. The lender does and the lender will want their money back at some point. Then the tax man will want the capital gains tax bill paid.

Plus, a mortgaged buy to let can bankrupt you or cause you to lose your primary residence. Paying into a pension (or ISA) cannot. Mortgaged buy to lets are higher risk and its a risk that many have forgotten because of the good run that property has had. Very similar to endowment policies which paid surpluses for decades and the risk got forgotten until it went wrong. Property will "go wrong" again at some point. Everything does some time or another.

You are right that everything does go wrong at some point. I work in the print trade, and a massive company that was local to me went under a few years ago and the workers lost their pensions because of the actions of the company. I personally knew people that were affected and despite all the local and national exposure that the situation was given, their pensions were gone.

It was out of their hands.

You can also be exposed to risk by choosing a pension through advice which may not perform anywhere near what is expected through decisions made by pension providers that go wrong.

Its all a risk in one way or another.

Dithering_Dad

djbd1973 wrote: »

Its all a risk in one way or another.

Which leads us back to the MSE matra of diversification, you should try to spread your risk by investing in a couple or more options. If you're lucky enough to have a company pension that your employer pays into, then invest into it - it's free money and there are tax concessions. Just pay the minimum contribution you need to get the maximum contribution from your employer.

Try to max out your ISA contributions. If you can't manage this, then work out how much you can regularly afford and invest that.

Get a buy to let property where you have put a sufficiently large deposit down that the rent from 10 month's worth of rental will cover the annual interest on the mortgage. This means that any unlet periods will not negatively impact your finances.

Pay down your mortgage and try to reduce your outgoings so that if interest rates go up, your outgoings are not dramatically affected and you can continue to fund your pension, ISAs and BTL investments.

With a prudent and careful approach to retirement planning there is no reason why you can't have a very comfortable retirement.

The trouble is that people don't always adopt a pudent & cautious approach. They have a final salary pension from their employer and think "Well, I'm alright Jack - no need for me to put anything else aside for retirement" and then the company goes bust, or they load up their ISAs to the exclusion of everything else but then become ill and can't work and so have to fall back on them to fund their mortgage repayments, bills and food because the government won't give them benefits until their savings are below 6k. Or they rush to jump on the BTL bandwagon and get so large a mortgage that the rent doesn't cover it and so they have to subsidise it, they then have a long period without a tenant, coupled with a job loss and they find that both their home and BTL properties are at repo risk.

Taken individually, all of these approaches to retirement are perfectly valid, so long as nothing goes wrong, but let's face it - over the course of 30 - 40 years of retirement saving, something is bound to go wrong!

Debt_Free_Chick

dunstonh wrote: »

One of the things amateur buy to letters often forget is that with mortgaged buy to lets, they don't actually have the assets they so often boast they do. The lender does and the lender will want their money back at some point. Then the tax man will want the capital gains tax bill paid.

And they forget to net off the interest paid on the borrowing, in order to arrive at the "true" capital growth (if any)

nearlyrich

I have a variety of products in my plan for retirement, I have a private pension that I paid into in a job I was in from 28 to 39, it's been moved into an efficient stakeholder plan and is worth about 15k more than it would be where it came from ( Sad I know but I track both options) I have some shares, mainly windfalls but some emotional purchases and several PEPS and ISAS. I have been working for an employer with a generous scheme where they pay double the employee contribution so I have been in that scheme paying the maximum for the last 5 years. I have just changed jobs to a company that doesn't contribute to a pension scheme but I have negotiated a suitable payrise to cover the "loss" of the benefit and I have a meeting with my advisor to work out where to put the money, some into my pension some into other investments perhaps.

I am happy with my arrangements and that's the key to it, if we were all the same it would be a dull world.

djbd1973

Dithering_Dad wrote: »

Which leads us back to the MSE matra of diversification

Totally agree with all you said there Dithering. Thank you.
Balance is not just about having a pint of Guinness in each hand!

dads_wee_boy

Hi.

I'm a new member to the forums, although I've been a long time fan of Martins and surfer of the website.

This thread is very current to me. My Dad has just died suddenly, and my Mam has asked me to look into/sort out bits and pieces of their financial affairs for her.

I take on board the various views posted already with pro's/cons of pensions, and most have merit. As an investor, I like to have options, and am lucky enough to be able to do so, i.e property and pensions.

Before I divulge anything that might compromise your answers (!) is there a general consensus/view as to what age you would have to be to make it unwise to start a private personal pension, i.e. you would be better doing something else with your money?

DavidLaGuardia

nearlyrich wrote: »

I have just changed jobs to a company that doesn't contribute to a pension scheme but I have negotiated a suitable payrise to cover the "loss" of the benefit and I have a meeting with my advisor to work out where to put the money, some into my pension some into other investments perhaps.

If you can negotiate get your employer to do salary sacrifice and put into your pension directly. You save on your own National Insurance and, hopefully the employers as well if you show them that it is at no additonal cost to them.
A basic rate tax payer ends up with up to* virtually equivalent to a higher rate tax payer in relief and a higher rate tax payer nearly doubles their net contribution.

[*Contributions sacrificed from Basic rate above NI limit but below higher rate tax are slightly less efficient but still better through salary sacrifice]

DavidLaGuardia

EdInvestor wrote: »

The best way to do it IMHO is to let out your former residence when you move on, that way you get a nice tax break as well.

Careful, It all depends when the increase in equity occurs.

the overall gain when you sell it is proportioned on the basis of the percentage of time it was not your main residence

If you enjoy gains whilke liviing there and then rent your home out during a period of slower or static change, you could effectively be paying tax on the gains that were enjoyed while you lived there.

Dithering_Dad

DavidLaGuardia wrote: »

If you can negotiate get your employer to do salary sacrifice and put into your pension directly. You save on your own National Insurance and, hopefully the employers as well if you show them that it is at no additonal cost to them.
A basic rate tax payer ends up with up to* virtually equivalent to a higher rate tax payer in relief and a higher rate tax payer nearly doubles their net contribution.

[*Contributions sacrificed from Basic rate above NI limit but below higher rate tax are slightly less efficient but still better through salary sacrifice]

Salary sacrifice is even more of a saving for employers than for employees because Employer NI is not capped, and they're at a higher level than employee NI. You could make significant savings for your employer by suggesting they do a salary sacrifice. It's a win-win for employer & employee.

trickytrolleys

i have a company pension that both myself and my employer contribute to and my intention is to never convert it and therefore leave it as a lump sum windfall to my childen when i die - obviously the time may come, depending on circumstances, when i may HAVE to take it but thats certainly not the intention