Is a Pension Worth Having?

BookerTee

JoeCrystal wrote: »

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.

That maybe true but in principle you are just avoiding tax now but will have to pay later on a much larger amount. So I would question there is any clear benefit over a non pension fund option.

Unless you are not dealing a full deck an annuity would seem the worst thing you could do with a pension fund for most. It doesnt surprise me that people are slowly waking up to that fact.

Apart from the 25%, a pension is no less tax free than earnings. Its is nothing more than a pension fund slogan...

Nitram29

Is a Pension Worth Having? - Mostly yes

Is an annuity pension worth having - Maybe
Is a drawdown pension worth having - Maybe
Are pensions right for everyone - No

What if someone drew down 11K PA from their pension? would it not then be below personal allowance and tax free? If the pension was contributed under salary sacrifice then zero tax in and zero out. It would be easy enough to supplement the drawdown from an ISA which don't count as taxable earnings.

Think your taking about an annuity pension which are poor just now, it's just when I read this thread you came across to me as having a go at folk trying to answer a vague question. Pensions have their place, they might not be right for everyone and the fact we have a choice is good.

What would you recommend if not a pension then? am genuinely interested in reading what others do to help me make my own decisions.

JoeCrystal

BookerTee wrote: »

That maybe true but in principle you are just avoiding tax now but will have to pay later on a much larger amount. So I would question there is any clear benefit over a non pension fund option.

Unless you are not dealing a full deck an annuity would seem the worst thing you could do with a pension fund for most. It doesnt surprise me that people are slowly waking up to that fact.

Apart from the 25%, a pension is no less tax free than earnings. Its is nothing more than a pension fund slogan...

Oh I put aside more money than I could even dream about compared to non pension fund. The net cost of saving into the pension pot was much lower with WTC and I would be in a much worse position in the context of retirement savings if I did not bother.

It is a matter of worst case scenarios. Let say I lose my job and unable to find another. I cannot claim benefits as I have too much savings and investments so I will burn through what I got left. Then, if I literally cannot find a job again, then I will have very little savings. That is an issue with having assets and you can so easily be in that position. What's next? You are already doomed yourself potentially until only relying on state pension and benefits. By having a proper pension fund, one can ensure a better chance of having a better retirement no matter how dire the working life can be. Pension funds are fully protected by FSCS if worse come to worst. Not so for saving accounts and investments.

mark1959

Well it's certainly worth having for me and I suspect a great many other people, along with other investments/savings.
Approx. £15000 drawn out each year tax free, about 1/3rd of my pot paid by the taxperson/employer. I would have been very foolish not to have saved into a pension. :cool:

AnotherJoe

BookerTee wrote: »

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.

Because I’d have missed out on employer contributions and 40% tax relief. Plus the growth on those.

Re another point you made “most take annuities” that’s not true any more and even if “most” did, they have the choice and don’t have to, so that’s a non point.

Re tax your attitude seems to be along the lines of you’d rather have £20k and pay no tax than (say) £40k and pay £5k tax. The fact you pay tax doesn’t mean you are worse off than if you don’t.

bigadaj

What did a pension ever do for us.....

If the OP insists on laying more tax than necessary then I say good luck to him and thanks very much, very public spirited.

BookerTee

JoeCrystal wrote: »

Oh I put aside more money than I could even dream about compared to non pension fund. The net cost of saving into the pension pot was much lower with WTC and I would be in a much worse position in the context of retirement savings if I did not bother.

Whilst there is a clear tax benefit to saving money into a pension fund (at the time). I am not sure it is of much benefit by retirement.
Mainly because pension funds are very expensive in terms of charges which are generally hidden. So the declared cost plus what you are losing in the background could be 2-2.5%
£10,000 compounded over 40 years at 7% is £150,000
£10,000 compounded over 40 years at 4.5% is £58,000
You wouldnt have anything like £92k losses outside a pension fund.

JoeCrystal wrote: »

It is a matter of worst case scenarios. Let say I lose my job and unable to find another. I cannot claim benefits as I have too much savings and investments so I will burn through what I got left. Then, if I literally cannot find a job again, then I will have very little savings. That is an issue with having assets and you can so easily be in that position. What's next? You are already doomed yourself potentially until only relying on state pension and benefits. By having a proper pension fund, one can ensure a better chance of having a better retirement no matter how dire the working life can be. Pension funds are fully protected by FSCS if worse come to worst. Not so for saving accounts and investments.

Granted a personal fund would be classed as an asset if you were out of work. It depends how pessimistic you want to be about life and think that the state should look after you. But if you are not working youre not paying into a pension either so it gets you either way. Pension funds go up, and down. I dont think other investments are any less protected, BHS staff might have a view on that.

BookerTee

mark1959 wrote: »

Well it's certainly worth having for me and I suspect a great many other people, along with other investments/savings.
Approx. £15000 drawn out each year tax free, about 1/3rd of my pot paid by the taxperson/employer. I would have been very foolish not to have saved into a pension. :cool:

I would suggest its nowhere near as clear cut as you think.
I used to work for a company whos pension was noncontributory... great, although the wages were less than comparable companies. In reality I WAS paying into the pension, any benefit from employers is generally taken from you.
Tax advantages (see above) are likely to be lost in costs compared to non pension investments.
"Approx. £15000 drawn out each year tax free" a bit better than PAYE then. Plus you had to wait till 55 to get a penny. I dont see that as been worth it.

BookerTee

AnotherJoe wrote: »

Because I’d have missed out on employer contributions and 40% tax relief. Plus the growth on those.

Re another point you made “most take annuities” that’s not true any more and even if “most” did, they have the choice and don’t have to, so that’s a non point.

Re tax your attitude seems to be along the lines of you’d rather have £20k and pay no tax than (say) £40k and pay £5k tax. The fact you pay tax doesn’t mean you are worse off than if you don’t.

"employer contributions" see above.
40% tax payers do get a bigger advantage but long term high earners need more income in retirement so will be paying more tax at that time.
All I am saying is if you look at the total tax you saved paying in compared with total you pay when it pays out is it really much different?

BookerTee

bigadaj wrote: »

What did a pension ever do for us.....

That IS the question, when you look at the alternatives, you may wonder.

bigadaj wrote: »

If the OP insists on laying more tax than necessary then I say good luck to him and thanks very much, very public spirited.

You are focusing on headline tax but not looking at the 'total cost' to get your money back.