Pensions Question

pmorrison_2

Hi all,

I am a 22 years old and am self employed and plan to be for the distant future. People have been telling me to start looking at paying into a pension and having investiagted a little I have found out that being self employed I dont qualify for the 'second tier' of state pension payouts.

The question I have is: if I pay money into a pension, how safe is it in the long term? What would happen if, for example, there is a recession or the pension company goes bust etc? Would I be better taking advantage of ISA and savings accounts?

I dont know a huge deal about the ins and outs of pensions so any advice would be much appreciated.

Paul

dunstonh

if I pay money into a pension, how safe is it in the long term?

Its as safe as the investments you choose.

What would happen if, for example, there is a recession or the pension company goes bust etc?

The pension company is an administrator for your pension. You aren't investing in the pension company (unless your pension holds shares in them). A typical investment portfolio will hold around no more than 1% in any one company so you are spread wide. Of course, if you stick single company shares in a pension, you increase your risk.

Would I be better taking advantage of ISA and savings accounts?

S&S ISAs invest in exactly the same places as pensions so there is no difference there apart from tax relief and how you take the proceeds. Savings accounts would be an awful choice for retirement planning as historically you don't get any real capital growth with savings accounts. Plus you don't get tax relief or tax free growth.

In reality, a combination of pensions and S&S ISAs are the best option. Especially at your age. Your state retirement age is 68 so you have a very long way to go and you should be looking to take a bit more risk as 46 years is a long time and in reality, you want crashes and recessions in there so you get to buy your units cheaper.