Is a Pension Worth Having?

BookerTee

Ok so when I say a pension I mean a recognised fund.



The alternative being any/every other investment type outside of a ‘pension’ envelope.


So is there any real advantage in tying your investment up inside a very, very regulated scheme for which you will never have free access..?

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Great question BookerTee.

If you're joining us from the weekly email scroll down to see what our forumites think. Our Pension Need to Knows guide should also help you.

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atush

Whats with the never?

If you put 800 into X fund (be it an ISA or unwrapped), it is 800. If you put 800 into X fund in a pension, it is 1000 into X fund. Which may have cost you only 600 if you pay HRT.

You will have free access to the money when you are 55.

Linton

Here are 5 benefits in having a pension compared with (say) ISAs..
1) Employers contribution
2) 25% tax free
3) Deferred taxation - very valuable if you pay HRT now and wont when retired.
4) Not normally taken into account if you are declared bankrupt.
5) Money left in a pension when you die is not subject to Inheritance Tax

AnotherJoe

Well, i could i suppose have a pension thats about 1/3 to 1/2 the size of my current one, which contrary to your statement is very accessible as I'm living off it, but i dont see the benefit to that.

I suggest a better question might be "if I plan to retire many years before my pension will be accessible, how should I best invest to bridge the gap?", rather than throw the baby out with the bathwater by throwing away free money.

Aretnap

Linton wrote: »

Here are 5 benefits in having a pension compared with (say) ISAs..
1) Employers contribution
2) 25% tax free
3) Deferred taxation - very valuable if you pay HRT now and wont when retired.
4) Not normally taken into account if you are declared bankrupt.
5) Money left in a pension when you die is not subject to Inheritance Tax

6) Opportunity to pay in by salary sacrifice (if your employer allows it) and NEVER have to pay national insurance on some of your income.
7) No tax to pay on growth of the fund (OK, this is also true of an ISA, but an ISA doesn't have advantages 1-6)

BookerTee

atush wrote: »

Whats with the never?

If you put 800 into X fund (be it an ISA or unwrapped), it is 800. If you put 800 into X fund in a pension, it is 1000 into X fund. Which may have cost you only 600 if you pay HRT.

You will have free access to the money when you are 55.

You may be very limited in the drawdown access you actually have, the pension fund will decide. You also have to pay any tax due as though its earnings (potential for 25% tax free)
So you dont have free access in the same way as an investment fund.

Triumph13

BookerTee wrote: »

You may be very limited in the drawdown access you actually have, the pension fund will decide

No they won't, and if they do you just transfer to someone who doesn't.

You also have to pay any tax due as though its earnings (potential for 25% tax free)

25% is tax free. Anything up to your PA is tax free, so that's another £11.5k pa tax free before SP and £3.2k pa tax free post SP. And as previously stated if you are a higher rate payer when you contribute but basic rate in retirement you're laughing. Salary sacrifice likewise because of NI savings.

BookerTee

Linton wrote: »

Here are 5 benefits in having a pension compared with (say) ISAs..
1) Employers contribution
2) 25% tax free
3) Deferred taxation - very valuable if you pay HRT now and wont when retired.
4) Not normally taken into account if you are declared bankrupt.
5) Money left in a pension when you die is not subject to Inheritance Tax
6) Opportunity to pay in by salary sacrifice (if your employer allows it) and NEVER have to pay national insurance on some of your income.
7) No tax to pay on growth of the fund (OK, this is also true of an ISA, but an ISA doesn't have advantages 1-6)

1) Not necessarily
2) 75% taxed
3) Maybe, but as you say, maybe not.
4) Yes but probably only effects tiny minority.
5) Most buy an annuity so the fund is lost at death.
6) Yes avoid tax now but have to pay later on much larger amount.
7) Yes but you are just moving the tax till later on much larger amount (unless you intend to retire on bread line)

BookerTee

Triumph13 wrote: »

No they won't, and if they do you just transfer to someone who doesn't.

That isnt always an option.

Triumph13 wrote: »

25% is tax free. Anything up to your PA is tax free, so that's another £11.5k pa tax free before SP and £3.2k pa tax free post SP. And as previously stated if you are a higher rate payer when you contribute but basic rate in retirement you're laughing. Salary sacrifice likewise because of NI savings.

i.e 75% is taxed, 0% is taxed in your own fund.

BookerTee

AnotherJoe wrote: »

Well, i could i suppose have a pension thats about 1/3 to 1/2 the size of my current one, which contrary to your statement is very accessible as I'm living off it, but i dont see the benefit to that.

I suggest a better question might be "if I plan to retire many years before my pension will be accessible, how should I best invest to bridge the gap?", rather than throw the baby out with the bathwater by throwing away free money.

Not sure why you are saying 1/3 to 1/2 the size?

If you are investing outside a pension fund there is no gap.

JoeCrystal

BookerTee wrote: »

1) Not necessarily
2) 75% taxed
3) Maybe, but as you say, maybe not.
4) Yes but probably only effects tiny minority.
5) Most buy an annuity so the fund is lost at death.
6) Yes avoid tax now but have to pay later on much larger amount.
7) Yes but you are just moving the tax till later on much larger amount (unless you intend to retire on bread line)

The main reason I paid into pension scheme while on very low income was to get more Working Tax Credit few years ago. A real boon. You can still deduct your pension contribution from your reported income when claiming Child / Working Tax Credits and Universal Credits. It has been reported that annuity market is shrinking as more and more people opted to withdraw their money tax free as long they can remains under personal allowance.