self emplyed pensions options?

sneekymum

National Savings Certificates count as bonds/gilts in my scheme of things.

I meant "savings not pensions" (sorry - "Investments not Pensions") as its difficult to put Savings Certificates in a pension unless we're talking SIPPS (and we wouldn't want to talk about them now would we?) and they're tax-free anyway so where would be the advantage?

EdInvestor

oceanblue wrote:

As far as BTL in a SIPP is concerned (just to take that specific example for the time being), it depends on finding a company that will want to provide that facility at a worthwhile cost to the investor.
Furthermore, if BTL assets account for a substantial part of an investor's portfolio, then the diversification we are seeking to achieve may not be attained.... I would contend that a good deal of energy and tenacity are required to make BTL a worthwhile activity.

I did not mean BTL in a SIPP actually - I doubt this will really be a sensible idea for many people. The advantages seem very few in that most people gear their BTL so as to claim the mortgage interest against tax, and thus rental income is usually already tax free, while there are many reliefs which cut CGT substantially.Given the price of property these days, the new low SIPP borrowing limits will require a large pension pot.And many people will want access to their capital when they sell, not to have it locked away in a pension forever, taxed on exit as income and possibly vulnerable to other activities by the Chancellor.:cool:

IMHO BTL investing is a lot less attractive than it was, because yields are so low and there is a lot more competition. New entrants are not getting any premium for the hassle (which is not too bad if you have a good property and use an agent, but it does exist) and more importantly, the illiquidity.

Of course it will probably become more attractive again later,and long term capital gains are likely, so as a more or less "non contributory" pension alternative, it still has its merits, even if it loses out on straight investment comparisons at present.

sneekymum

Well, Cyclops,

So to get back to this thread...

For someone starting in self-employment, in receipt of Tax Credits, and without any special knowledge in investments, who wants to save for retirement -

as a totally unqualified person I suggest that the best move would be to get a Stakeholder or Personal Pension.

Right?

EdInvestor

....the best move would be to get a Stakeholder or Personal Pension.

Right?

Not necessarily, as I said earlier here at the beginning of the thread.

I would also suggest that anyone who wants to "save for retirement" other than in a risk -free savings account, needs to acquire some knowledge about investment.

In the old days this wasn't necessary, because people either saved in guaranteed company final salary schemes or with-profits private pensions, which were mainly invested in the stockmarket which always went up.

Unfortunately these glory days have gone.:(

Not only have they gone, they've left some nastiness behind in the form of black holes in pension funds. And the stockmarket doesn't so much go up, as move sideways.

So these days, people need to pay attention to their pension fund, to make sure it's growing. You just can't rely on that happening automatically any more, unless you happen to be a politician or a civil servant.

As one of the latter, I hope that in the future cyclops will find reason to be truly thankful for his first 15 years of pension savings. But I would suggest that he pays attention to Government policy on the subject.

There are already quite a lot of complaints being heard from ordinary people about gold plated public sector pensions.

ReportInvestor

Editor wrote:

So these days, people need to pay attention to their pension fund, to make sure it's growing.

Too right.

I read in the Sunday Times that Adair Turner, reporting to the government this Autumn on pensions, reckons that a 25 year old, retiring at 65, needs to save 11% of gross income to achieve a pension of 50% of final salary.

I bunged that into a spreadsheet and it came out spot on - but required a return of 7% pa (after charges). Perhaps Turner reckons on higher salary growth than I did.

But change that 7% growth to a more modest 5% and you end up with a pension paying only 33% of final salary .

Paul_Herring

Reporter wrote:

I read in the Sunday Times that Adair Turner, reporting to the government this Autumn on pensions, reckons that a 25 year old, retiring at 65, needs to save 11% of gross income to achieve a pension of 50% of final salary.

I bunged that into a spreadsheet and it came out spot on - but required a return of 7% pa (after charges). Perhaps Turner reckons on higher salary growth than I did.

But change that 7% growth to a more modest 5% and you end up with a pension paying only 33% of final salary .

What rate of inflation were you using? What if the 25 yr old contributed 12.5% (1/2 of age)?

ReportInvestor

I was using rates of wage inflation that started at 5% in your 20s and went down to 3% in your later years.

So I'm assuming inflation at 2.5% combined with continued long term economic growth.

Performance is crucial. One FSAVC pension provider, Edinburgh Fund Managers, has several investment trust funds that have produced a negative return over seven years even with income reinvested (and that's not counting the pension administration charges).

BTW The Sunday Times has come up with a new pension calculation formula.

".....Start with the number 55, subtract one third of your current age, subtract one seventh of your expected retirement age and then multiply by your current salary. That is the recipe according to Edmund Cannon, a senior lecturer in economics at the University of Bristol, and JP Morgan Invest, a financial consultancy.

A 30-year-old who earned £30,000 a year and hoped to retire at 70 would need a lump sum of £1.05m — 55 minus 10 (one third of 30) minus 10 (one seventh of 70) multiplied by 30,000. The formula assumes that wages rise by 2% a year.

A lump sum of £1.05m would provide an annual income of £52,500, assuming an annuity rate of 5%....."

ReportInvestor

Sunday Telegraph

The trouble with these people is that the keep not dying :rolleyes:.

And one trouble with pension saving / annuities is that calculations based on current annuity rates may well be too high in twenty years time when people have to buy an annuity.

dunstonh

Reporter wrote:

Sunday Telegraph

The trouble with these people is that the keep not dying :rolleyes:.

And one trouble with pension saving / annuities is that calculations based on current annuity rates may well be too high in twenty years time when people have to buy an annuity.

It could be reversed if the Govt increase their borrowing by issuing long term gilts.

Personally, I hope it doesn't improve and forces the Govt to introduce a lifetime savings account where the capital cannot be touched but you get freedom of movement to get the best return and your estate retains the capital on death.

sneekymum

Then they could tax it at 40%