worried about my miniscule pension fund

johnholcroft

I have a private stakeholder pension because I work freelance. I dont earn a great deal and can only afford to put away £100 per month. On my statements it says that my projected anual income when I retire ( in todays term) will only be around the 2k mark. To get even close to 3.5k, I have to double my premium. People tell me to just save in an isa instead but I'm not sure if it will be any better. Also it worries me that in 30 years when I do retire, I wont get a state pension because I have a personal one. Therefor I will retire on the same as someone who didnt put anything away. Can anyone relate to my angst?

chesky369

The state pension has nothing to do with any personal pension you may have. The second state pension (like SERPS) may have, depending on whether you are contracted in or contracted out of your contributions.

johnholcroft

at the moment this might be the case. However I'm concerned that state pensions in the future could be means tested and those who already have a pension plan will have that deducted from any state pension you might get.

dunstonh

People tell me to just save in an isa instead

Which will guarantee you an even lower income. People that tell you to save for retirement in a cash ISA are fools (unless you are in the 5 years before retirement) and you should ignore them.

On my statements it says that my projected anual income when I retire ( in todays term) will only be around the 2k mark. To get even close to 3.5k, I have to double my premium.

The statements assume inflation at 2.5% (which is fine) but they also assume you will be paying £100pm until retirement without you ever increasing it. Get your adviser to do a revised illustration showing that £100pm being increased annually by inflation and see what the difference is. You will be pleasantly surprised. However, it does mean you increase it every year but a £2pm increase annually is easier to swallow.

Also it worries me that in 30 years when I do retire, I wont get a state pension because I have a personal one.

As mentioned above, the basic state pension has no tie in with personal savings or investments. As you are self employed, you wont get the second state pension so you are only on £4500 a year from the state (in todays terms).

Can anyone relate to my angst?

You need proper financial advice and shouldn't be relying on misinformation or taking data out of context.

However I'm concerned that state pensions in the future could be means tested and those who already have a pension plan will have that deducted from any state pension you might get.

That is a daft assumption to make I'm afraid. The basic state pension is only £4500 a year. The funding for state pensions is fine with the proposals already in place (increasing state retirement age to 68 for example). The only pension that could be hit is the second state pension but you don't get that anyway.

pjala

I thought a good alternative to a straightforward pension, was by putting money away to grow tax free in an ISA - either cash or stocks and shares - depending how far you are away from retirement.
Then when you are about to retire, cash in the ISA, and put this in a SIPP or pension fund to get the tax relief on the money. This will add about 20% into the pension fund.

Other more wise people than me can talk about the pro's and con's of doing the above.

dunstonh

Then when you are about to retire, cash in the ISA, and put this in a SIPP or pension fund to get the tax relief on the money.

1) ISA is not as tax efficient as the pension (Income tax and CGT exempt but Pension is outside of the estate for IHT purposes and pension isnt. Plus, on death, the beneficiary keeps the fund value plus tax relief on a pension but only the fund value with an ISA).
2) What if you dont have the income or be able to make a contribution at get tax relief on the whole amount?
3) What if your tax rate is lower (it could be higher) or basic rate is change. Pay in this tax year and you get 22% relief. Pay in next year and you get 20%.

If you are going to use a pension, you may as well use it from day one. Its more tax efficient for investment purposes than the ISA. Then you can use your ISA for your capital requirements.

purch

grow tax free in an ISA - either cash or stocks and shares

It grows Tax Free within a Pension wrapper too !!

cash in the ISA, and put this in a SIPP or pension fund

Wouldn't work if the ISA fund value was more than your annual income that year.