S&S ISA vs Pension

Puzzled1

Hello, I am trying to decide where best to put spare income. I think I have read comments that if you have access to a salary exchange scheme then it's a 'no-brainer', but I am still not convinced.

I am in a Scottish Widows plan and it has performed quite poorly compared to other investments I've looked at (some of the Vanguard LifeStrategy funds).

I know that past performance is not a guide etc, but is it fair to say that a well performing S&S ISA could out perform a mediocre pension, even though the pension has gained from the extra tax relief of salary exchange?

I haven't put anything in to either yet, but tried some quick sums and there looks very little benefit, if any from the pension.

Dazed_and_confused

The pension and ISA are just wrappers though, you can usually invest in the same funds irrespective of the wrapper.

Audaxer

I don't know about the Scottish Widows plan, but if you invest in a Vanguard LifeStrategy fund, or many thousand other investments, they can be invested inside either an S&S ISA or a SIPP (Self Invested Pension Plan). With the SIPP you get the benefit of 25% tax relief of your total contribution in the form of tax relief from HMRC - you just can't access the funds until you are 55 or 57, depending on what age you are now. So investing in the fund(s) of your choice within a pension is the best option if you don't need access to the funds until retirement.

kidmugsy

Puzzled1 wrote: »

Hello, I am trying to decide where best to put spare income. I think I have read comments that if you have access to a salary exchange scheme then it's a 'no-brainer', but I am still not convinced.

Tell us the terms of your salary exchange.

Prism

Have you ever looked at changing your default pension fund. You may be able to do it online but it also could be by post.

I find Scottish Widows has a limited choice of funds but does have a series much like the Vanguard VLS range. They use SSgA trackers underneath to build a portfolio of passive funds. For example here is one that is about 70/30 equites/bonds

https://www.trustnet.com/factsheets/p/qg33/pension-portfolio-three-pension-series-2

They also offer an active option with Baillie Gifford

https://www.trustnet.com/factsheets/p/ti50/sw-baillie-gifford-managed-pension-series-2

Alexland

If your current plan allows partial transfer out then you will be able to occasionally move lump sums into a SIPP for self investment. Be careful to check you are not losing any valuable benefits doing this.

Puzzled1

Thank you. I hadn't even been aware that you could select your own. I don't remember anyone ever mentioning it before and the only mention I see in any documents is a very short paragraph at the back of the Scottish Widows statement guide booklet. I'm sure we have never been told we can make any changes other than the amount we put in.

It is a group personal pension plan through work, and the company also pay in to it.
I'm sorry I don't know the detail of the salary exchange as it's something I have always just dismissed. All I know is the company offers one. I am happy with my existing pension arrangements, but have long had a mistrust of the company pension scheme. It has undergone so many changes over the years that I don't try to understand it all, just look at the 'possible pension figure', and so often saw this drop, year after year.
I just decided I would prefer to be in more control of my money. I would like to be able to spend the money as and when I want, but won't be able to if it's tied up in a pension. (I know I could get 25%, but I'm thinking once I have the annuity).

As it's 'surplus savings' it's quite possible I will never spend it anyway, so will be passed on. If I get an ISA then I can choose what to do with it. Tied up in the pension it will depend on the type of annuity, and I doubt I'd get back anywhere near what I put in.

I'm probably misunderstanding a lot, but putting it in a simple S&S ISA is to me a simple option that will hopefully get a better return than any regular savings options, and not have the aggravation of messing with the pension.

crv1963

Hi Puzzled1,


I think you are where we were at 18 months ago. Don't rush any decision, but do spend time reading up a lot of the threads and follow a few of the links to other sites. That way you can educate yourself about the different choices you have, ask questions- I've asked lots! There's no such thing as a stupid question, only the stupid don't ask!


Start by learning about your workplace pension- ask for a scheme booklet, look at the funds available and how to boost them. If you are in a union ask them- you may need to go to their website the local shop steward may be not be the person to ask, or might be! Then if you currently have a bit of spare cash to save look at what you'll need in retirement as income and work backwards, look at all the tax wrappers, ISA and Pension, if under 40 LISA as well. Park your current spare cash and when you've learnt about your options decide which one(s) to go for.


Quite often posters do put up more detail for more accurate advice to their own situation, such as current earnings, hoped for retirement income, current savings, pension pot size and major outgoings such as mortgage credit cars and other debts. Partners pension provision and earnings. I know I did and asked lots of questions- soon learning our pension income would be better served putting more into Mrs CRV pot.


A lot also depends on your current age, your planned retirement age (it does not have to be SP age) what income you need and what you have saved already.


Good luck with it all, make your plan and start!

kidmugsy

You really need an awfully good reason not to use salary exchange, such as an expected requirement for the money before age 55-58. Salary exchange = free money; use it while the daft system is still allowed.

Prism

Puzzled1 wrote: »

Thank you. I hadn't even been aware that you could select your own. I don't remember anyone ever mentioning it before and the only mention I see in any documents is a very short paragraph at the back of the Scottish Widows statement guide booklet. I'm sure we have never been told we can make any changes other than the amount we put in.

Try here

https://scottishwidows.co.uk/register/

Though I suggest trying to get advice and read up before making any changes if it lets you. My wife had a representative from Scottish Widows visit their company recently. They recommended one of the pension portfolio 1-5 options based on desired risk. I would check with your company pension people (HR?) first about the default plan you are in.

here are some active funds in there too but its slim pickings.

dunstonh

I am in a Scottish Widows plan and it has performed quite poorly compared to other investments I've looked at (some of the Vanguard LifeStrategy funds).

SW have been destroyed by Lloyds Bank. They have a track record of destroying insurance companies. However, the SW plan has not performed in any way. The investments you hold is where the performance is. Most pensions will have a range of investments for you to select. Comparing a pension to a particular fund is like comparing a car with petrol. If you have a defensive fund in the SW pension and are comparing with say VLS40 upwards then its obvious that VLS would be better in growth periods. You need to ensure comparisons are like for like.

but is it fair to say that a well performing S&S ISA could out perform a mediocre pension,

No. That is not possible. It is a common mistake though.

A pension and ISA does not perform. it is the investments you place inside them that matter. pensions and ISAs have access to the same investments. If you place the same investments in both, you get the same returns.

If you place a mediocre fund in one and a better fund in the other then it is the fund that matters. Not the tax wrapper.

The internal SW fund range is not great (mainly due to Lloyds starving SW of funds). The external fund or passive fund range should be ok. It will be more limited than a whole of market choice (30,000 to a few dozen as comparison). So, it is inevitable that a workplace scheme will not be loaded with choice.

f I get an ISA then I can choose what to do with it. Tied up in the pension it will depend on the type of annuity, and I doubt I'd get back anywhere near what I put in.

Why are you mentioning annuity? You can choose what you want to do with a pension.