self emplyed pensions options?

ReportInvestor

dunstonh wrote:

You cannot give advice unless you are authorised and even then you cant give advice on the forums based on what you think is right without knowing anything about the individual. Just because you are not authorised, it doesn't exempt you from these rules.

Where does that leave Ros Altmann who gets quoted in every newspaper, advises the government and features on BBC1, BBC2 and Channel 4 on a regular basis?

"most people should not put money into pensions at all"

More codswallop?

cyclops

Reporter wrote:

How many years NI contributions has your wife missed?

Is she in the royal national pension fund for nurses?

neither of us have missed any years NI contributions
its a private pension

ReportInvestor

Finally, what is your wife's age?
Are you both non-smokers?
If you died before her, would you like her to continue to receive an income from any annuity you might purchase with a pension fund?
If so, would you like that income to be 100%, 67% or 50%?

How much are you likely to invest in the first 13 years (paying off mortgage and dependant children) ? How much after that and before retirement.

At what age would you like to retire?

EdInvestor

Hi Dunstonh,

Just to clear up the technical point about "advice", this is not a regulated site, so none of us are giving any advice, including you, as you say in your signature.

Anything posted is for discussion only. It should not be considered financial advice.

What is I think apparent is that it's worth seeking info on a problem and checking whether information provided by IFAs and salesman is correct, and covers the full picture.

You will be the first to agree I am sure that there are plenty of poor quality salesmen out there,and plenty of confused investors, otherwise we would not have so many misselling scandals.

Moneysavers should always check out all suggestions and info they get on all websites for themselves, of course. That's a given. DYOR.

ReportInvestor

OK - here goes for an initial stab on behalf of Cyclops. I've set up the spreadsheet so that if you want to change anything or test out variables you just have to ask.

Assumptions:
Age 32
Save £200 pm for 14 years to age 45
Save £400 pm for 15 years to age 60
Retirement age 60
Gross annuity rate = 6.4% (currently best rate on the FSA site for a male non-smoker age 60, wanting a flat rate annuity (no inflation increases) with no guarantees and no income going to partner on death.
Take 25% lump sum from pension fund on retirement.

Investment return rate to age 60 for both ISA and pension = 6%.

Income after 60.
Annuity - 6.4% gross taxed at 22% = 4.99% (the 22% tax could be lower later in life as our resident IFAs have pointed out).
Lump sum not spent but invested at 3.5% net of basic rate tax
ISA income = 4.5%

Results
ISA fund at age 60 = £235,665
Pension fund at age 60 = £302,134 (of which £75,533 is taken as a cash lump sum).

ISA annual income at 4.5% gross = £10,605
Pension annual income at 4.99% net + 3.5% net income from the lump sum = £13,956

According to my spreadsheet you need to die age 87 or later for the income from the pension + the income from the lump sum + the pension lump sum to exceed the income from the ISA + the ISA final sum.

If the tax rate on the pension income was just 10% (which it almost certainly won't be in the early years if you retire at 60) the age to reach for the pension to be worth more is 81.

The variables on such a lifetime calculation are huge. In addition to the ones I've mentioned there are others e.g. government tax policy.

dunstonh

Hi Dunstonh,

Just to clear up the technical point about "advice", this is not a regulated site, so none of us are giving any advice, including you, as you say in your signature.

It doesnt make any difference at all. The FSA treat the internet as any other media and expect the same guidelines to be followed.

Trust me on this. I was involved in setting up the compliance rules for internet use by employees for one of the larger insurers following a case where the FSA got involved after a poster reported a thread to the FSA. In that case, there was no issue as the advisor was posting generic comments for discussion and not giving advice. Had the wording been seen to be advice, then there would have been issues. Had the person not been an advisor, they could have still faced action as giving advice on regulated products without authorisation is illegal. During the research for setting up those compliance rules, it was also uncovered that the site where the posts were made could also be potentially liable.

Where does that leave Ros Altmann who gets quoted in every newspaper, advises the government and features on BBC1, BBC2 and Channel 4 on a regular basis?

Journalists have certain allowances (much to the disgust of most advisors). This explains perhaps why we have seen such poor quality advice from the press at times (i.e. comparing tech funds against corporate bond funds and saying how much better tech funds performed without mentioning the difference in risk - obviously this was before the techs crash).

Everyone can have an opinion, its just that care needs to be taken when you express the opinion that it doesnt come over as advice. Your post earlier Editor, read too much like a statement of fact.

Reporter, I havent checked your figures but it was what I would expect. Personally, I would have used 5% net on the tax free lump sum but that will only make a little difference. I would also have perhaps used 65 as a benchmark as, if things are to be believed, the majority of the public will not be able to afford to retire before 65-70 in the future. An age 65 annuity rate would bring the difference down a bit from an age 60 one.

EdInvestor

Cyclops

ISASmurf reminds me that there is an income limit for tax relief after A day next year.

It's 215,000 pounds.

So watch out for that one! You never know, you could end up running the most successful driving school in Britain and need to worry about this kind of thing.

Think big, I say

EdInvestor

Everyone can have an opinion, its just that care needs to be taken when you express the opinion that it doesnt come over as advice.

OK, happy now?

oceanblue_3

I still think there is an issue about the way you have presented your opinions, not least under your guise of "Editor".

I have dipped in and out of this forum for the last few weeks and had always assumed that "Editor" was the person designated by the MSE website to be the experienced, knowledgeable, wise Gandalf-like figure, shepherding his/her little hobbits towards pension salvation.

However, last weekend, I was struck by the original post made by cyclops - it is all to common amongst new clients of mine - and how you attempted immediately to steer him away from regulated advice and towards a largely unassisted path populated by e-commerce websites: no mention of waiver of contribution, no mention of investment diversification, no mention of changing your investment strategy as you approach retirement, no mention of the psychological impact on elderly people of fluctuating (sometimes falling) income in retirement that non-annuity solutions provide......it seems all too plain to me that you don't have to advise people face-to-face in your job.

Debt_Free_Chick

Editor wrote:

Cyclops

ISASmurf reminds me that there is an income limit for tax relief after A day next year.

It's 215,000 pounds

Not sure what you mean by "income limit". The maximum contribution that can qualify for tax relief after April 2006 will be £215,000. This is the total contribution paid by employee and the employer, if applicable. However, an individual's own contributions will be limited to their annual (taxable) earnings, for tax relief purposes.

So .. it's a contribution limit, rather than an income limit.

HTH