Is a Pension Worth Having?

lisyloo

I think the more simple maths is

£100 OUTSIDE pension, pay £20 tax upfront, get 100% growth = £160
£100 INSIDE pension, 100% growth, minus £40 tax = £160

So OP is correct in that you pay more tax IF you pay it LATER after growth, but the NET EFFECT is that you end up with EXACTLY THE SAME (excluing charges, employer contributions, tax relief, tax free lump sums, employees NI, employers NI).

Anonymous101

greatkingrat wrote: »

Pay in £1000 to ISA, get 5% growth, end up with £1050, which can be spent tax-free.

Pay in £1000 to pension, get £250 tax relief from government, get 5% growth, end up with £1312.50. You can take £328.12 as a tax-free lump sum, then you pay 20% tax on the remainder. So you end up with (328.12 + 984.38 * 80%) = £1115.62 after tax.

And that's without taking into account possible employers contributions, salary sacrifice etc.



Equally, just because you may be in a scheme that has excessive charges, doesn't mean everyone else is paying high charges.

Its much more powerful than that over time too.... you're compounding the gross amount annually so over time this makes a huge difference.

Plus most higher rate tax payers will claim 40% relief (potentially plus NI benefit) but will only pay 20% on the drawdown after they've taken 25% of it tax free.

Pensions are the most efficient way to save by far.

Thrugelmir

BookerTee wrote: »

2) 75% taxed

Majority of people have unused tax allowance between state pension and annual personal allowance.

BookerTee

Thrugelmir wrote: »

Majority of people have unused tax allowance between state pension and annual personal allowance.

My point was that 75% is taxed in the same way as any earning, regardless of it coming from a pension, so no advantage.

greenglide

Unless you have a Sipp or SSAS (which most dont) you have NO IDEA what charges are applied to the scheme.

Or personal pension?

Triumph13

BookerTee wrote: »

4. ALL schemes have very high charges, you just dont see them.

Rubbish. You have a bee in your bonnet about trading charges not being shown as part of the overall management charge. Yes, if you happen to have chosen an active fund that is trading very frequently then this could add up to big amounts which are currently 'hidden'. But why would you pick such a fund? Passive funds have very low trading costs for the simple reason they don't do much trading. Similarly many 'active' funds out there have very much a buy-and-hold philosophy as the fund managers know damn well that, if they do trade all the time, that will be a drag on overall yield which will push them down the league tables / below their benchmarks.

BookerTee

Triumph13 wrote: »

Rubbish. You have a bee in your bonnet about trading charges not being shown as part of the overall management charge. Yes, if you happen to have chosen an active fund that is trading very frequently then this could add up to big amounts which are currently 'hidden'. But why would you pick such a fund? Passive funds have very low trading costs for the simple reason they don't do much trading. Similarly many 'active' funds out there have very much a buy-and-hold philosophy as the fund managers know damn well that, if they do trade all the time, that will be a drag on overall yield which will push them down the league tables / below their benchmarks.

https://www.which.co.uk/news/2017/09/pension-funds-forced-to-disclose-hidden-costs/

Thrugelmir

BookerTee wrote: »

My point was that 75% is taxed in the same way as any earning, regardless of it coming from a pension, so no advantage.

Hence my comment. As 75% isn't necessarily taxed. There's some £3,000 of income which potentially isn't. A fund of £100k to £150k would be required to fund this conservatively. While maintaining the capital.

JoeCrystal

BookerTee wrote: »

So the declared cost plus what you are losing in the background could be 2-2.5%
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.

Not sure what your point about BHS staff is. They are still in very good and enviable position of getting index-linked retirement income which cost them a pittance and ultimately backed by the PPF. As they are in a DB pension scheme which are in a different league entirely from people with DC pension scheme, I am not sure it is really comparable.

Anyway, as you pointed out about the hidden charges, could you please tell me where your assumption of 2% to 2.5% per year came from? My AMC and pension fund charge are 0.5% ATM and and what about the funds outside the pension, their charges are still hidden right?

Of course, it is a good thing that there will be more information about the charges so once it come out in January 2018 so we can make better choices. Having said that, you are posting in the pension forum with many outstanding posters who spare their expertise and time to help out others. You are not going to be able to convince the vast majority of the posters on this forum that pension is worthless when so many people in this country found that they are worthwhile. Ultimately, I do wish you well in your retirement saving even though you do treat the DC pension schemes with disdain when eventually everyone will have a workplace pension scheme due to auto-enrolment and for a good reason.

justme111

BookerTee wrote: »

https://www.which.co.uk/news/2017/09/pension-funds-forced-to-disclose-hidden-costs/

how does the fact that "some fund managers" incur high trading costs that become a drag on performance prove that pensions are not worth having ?